China
Foreign firms in China resist Trump’s trade war
Author: Nicholas Lardy, PIIE
In defence of his trade war with China, US President Donald Trump has yet again let his Twitter fingers get ahead of reality. He tweeted in late August 2019 that ‘China wants to make a deal so badly’ and that ‘Thousands of companies are leaving because of the Tariffs’. This supposed exodus of foreign firms is another element informing his view that China is under increasing economic pressure and is anxious to accept US terms for a trade agreement.
Yet the facts fail to support Trump’s view as is the case with his claim that US tariffs are slowing China’s economy and increasing its unemployment.
The trade war is not dampening foreign direct investment (FDI) into China. Non-financial FDI is currently running at almost US$140 billion annually, meaning that thousands of new foreign firms are established in China every month. Since the tariff war broke out in mid-2018 FDI has expanded at about 3 per cent annually, a similar pace to the previous five years. And the recent data does not include the massive new investments in chemical plants — China recently approved wholly foreign-owned investments by both ExxonMobil and BASF, each at a record US$10 billion.
Continued large inbound FDI flows are consistent with the expectations of member companies of the US–China Business Council. The Council’s recent member survey found that 97 per cent reported that their operations in China are profitable and 87 per cent said they had not relocated and had no plans to relocate any of their activities. In short, there is little support for the view that large numbers of foreign firms are fleeing China — the opposite seems to be the case.
A few foreign firms have recently left China but two points need to be kept in mind.
First, foreign firms have been moving out of China for decades. Some firms enter with business strategies that fail, leading to their exit. The best example is Occidental Petroleum. It entered China in 1983 with a flawed business strategy and was forced to write off its US$250 million investment when it withdrew in 1990. Other foreign firms, especially those exporting the most labour-intensive consumer goods, flourished in China for many years. But as local wages continued to rise, these firms eventually moved production to other countries with much lower wages such as Bangladesh.
Second, China has over a half million foreign-invested firms. Anecdotes of a handful of firms leaving China do not confirm a broad trend.
While some foreign firms report that they are considering alternatives to producing in China, it remains to be seen how many will actually leave and how many of those that leave will relocate to the United States. A large share of foreign firms in China, especially US firms, are there primarily to produce goods to sell on China’s still rapidly growing domestic market. These firms have no incentive to relocate within Asia, much less to the United States.
Caterpillar, for example, has more than 30 plants in China to make construction equipment that is mostly sold on the domestic market. The high costs of shipping relative to value make it infeasible to make heavy machinery in the United States and then export it to China. Caterpillar, like other foreign producers of capital goods in China, is very unlikely to relocate any of its production.
And relocating production out of China is easier said than done. Foreign affiliates operating in China draw on an extensive local supply chain that has been built up over decades and employ about 25 million Chinese workers, a significant share of which are skilled engineers and managers. Vietnam is commonly suggested as an alternative but it could only absorb a tiny fraction of production by foreign enterprises now operating in China. Vietnam’s total non-farm employment is only 44 million and foreign firms operating there already report shortages of skilled engineers and managers.
Relocating a significant number of foreign firms from China to Vietnam would put further upward pressure on Vietnam’s already rising wages, intensify existing skilled labour shortages and stretch its limited logistical capacity to breaking point.
Apple contracted Taiwanese manufacturer Foxconn to produce 220 million iPhones in China in 2018. Foxconn would face a number of difficulties if Apple asked the firm to relocate from China as Foxconn employs hundreds of thousands of factory workers and tens of thousands of skilled engineers and managers in China and draws on a network of more than 1500 local suppliers.
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China
China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
China’s Ministry of Commerce announced new policy measures on April 19, 2023, to encourage foreign investment in the technology sector. The measures include facilitating bond issuance, improving the investment environment, and simplifying procedures for foreign institutions to access the Chinese market.
On April 19, 2023, China’s Ministry of Commerce (MOFCOM) along with nine other departments announced a new set of policy measures (hereinafter, “new measures”) aimed at encouraging foreign investment in its technology sector.
Among the new measures, China intends to facilitate the issuance of RMB bonds by eligible overseas institutions and encourage both domestic and foreign-invested tech companies to raise funds through bond issuance.
In this article, we offer an overview of the new measures and their broader significance in fostering international investment and driving innovation-driven growth, underscoring China’s efforts to instill confidence among foreign investors.
The new measures contain a total of sixteen points aimed at facilitating foreign investment in China’s technology sector and improving the overall investment environment.
Divided into four main chapters, the new measures address key aspects including:
Firstly, China aims to expedite the approval process for QFII and RQFII, ensuring efficient access to the Chinese market. Moreover, the government promises to simplify procedures, facilitating operational activities and fund management for foreign institutions.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Q1 2024 Brief on Transfer Pricing in Asia
Indonesia’s Ministry of Finance released Regulation No. 172 of 2023 on transfer pricing, consolidating various guidelines. The Directorate General of Taxes focuses on compliance, expanded arm’s length principle, and substance checks. Singapore’s Budget 2024 addresses economic challenges, operational costs, and sustainability, implementing global tax reforms like the Income Inclusion Rule and Domestic Top-up Tax.
Indonesia’s Ministry of Finance (MoF) has released Regulation No. 172 of 2023 (“PMK-172”), which prevails as a unified transfer pricing guideline. PMK-172 consolidates various transfer pricing matters that were previously covered under separate regulations, including the application of the arm’s length principle, transfer pricing documentation requirements, transfer pricing adjustments, Mutual Agreement Procedure (“MAP”), and Advance Pricing Agreements (“APA”).
The Indonesian Directorate General of Taxes (DGT) has continued to focus on compliance with the ex-ante principle, the expanded scope of transactions subject to the arm’s length principle, and the reinforcement of substance checks as part of the preliminary stage, indicating the DGT’s expectation of meticulous and well-supported transfer pricing analyses conducted by taxpayers.
In conclusion, PMK-172 reflects the Indonesian government’s commitment to addressing some of the most controversial transfer pricing issues and promoting clarity and certainty. While it brings new opportunities, it also presents challenges. Taxpayers are strongly advised to evaluate the implications of these new guidelines on their businesses in Indonesia to navigate this transformative regulatory landscape successfully.
In a significant move to bolster economic resilience and sustainability, Singapore’s Deputy Prime Minister and Minister for Finance, Mr. Lawrence Wong, unveiled the ambitious Singapore Budget 2024 on February 16, 2024. Amidst global economic fluctuations and a pressing climate crisis, the Budget strategically addresses the dual challenges of rising operational costs and the imperative for sustainable development, marking a pivotal step towards fortifying Singapore’s position as a competitive and green economy.
In anticipation of global tax reforms, Singapore’s proactive steps to implement the Income Inclusion Rule (IIR) and Domestic Top-up Tax (DTT) under the BEPS 2.0 framework demonstrate a forward-looking approach to ensure tax compliance and fairness. These measures reaffirm Singapore’s commitment to international tax standards while safeguarding its economic interests.
Transfer pricing highlights from the Singapore Budget 2024 include:
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
China has been the world’s largest manufacturer for 14 years, producing one-third of global manufacturing output. In the Emerging Asia Manufacturing Index 2024, China ranks highest among eight emerging countries in the region. Challenges for these countries include global demand disparities affecting industrial output and export orders.
Known as the “World’s Factory”, China has held the title of the world’s largest manufacturer for 14 consecutive years, starting from 2010. Its factories churn out approximately one-third of the global manufacturing output, a testament to its industrial might and capacity.
China’s dominant role as the world’s sole manufacturing power is reaffirmed in Dezan Shira & Associates’ Emerging Asia Manufacturing Index 2024 report (“EAMI 2024”), in which China secures the top spot among eight emerging countries in the Asia-Pacific region. The other seven economies are India, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, and Bangladesh.
The EAMI 2024 aims to assess the potential of these eight economies, navigate the risks, and pinpoint specific factors affecting the manufacturing landscape.
In this article, we delve into the key findings of the EAMI 2024 report and navigate China’s advantages and disadvantages in the manufacturing sector, placing them within the Asia-Pacific comparative context.
Emerging Asia countries face various challenges, especially in the current phase of increased volatility, uncertainty, complexity, and ambiguity (VUCA). One notable challenge is the impact of global demand disparities on the manufacturing sector, affecting industrial output and export orders.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
- China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
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- Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
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