China
How Chinese enterprise can overcome barriers to ODI
Authors: Bijun Wang and Xiao He, Chinese Academy of Social Sciences
Chinese enterprises are frequently encountering obstacles as they invest in overseas markets. Foreign direct investment activities are often politicised because they can impact the domestic politics of host countries. Overseas direct investment (ODI) can bring new rules and practices for corporate operation, which can trigger political debates regarding standards of ‘market behaviour’ in host countries.
The most direct effect of ODI is changing the income distribution of social groups in the host country. Those with positive views of ODI believe it can significantly increase the demand for labour in the host country and contribute to an improvement in labour conditions. But local owners of capital are likely to encounter rising costs and intensified market competition.
Those with a negative view of ODI believe that it can widen labour income gaps and worsen conditions for low-income groups. A pro-labour government may encourage ODI inflows that contribute to improvements in workers’ wellbeing, while a pro-capital government may encourage ODI inflows that will lower labour costs. For these reasons, the type of political obstacles that investors encounter are closely related to issues of redistribution in the host country.
Employment security is the biggest political appeal of ODI. ODI enterprises generally have a competitive advantage and offer higher wages and more stable jobs. But ODI inflows may have a negative effect on the employment of low-skilled workers in the recipient industry.
The effect of ODI on income distribution among different social groups in a host country mainly hinges on the nature of the ODI and the development level of the host country. Groups that have or are likely to see their interests affected will use existing political mechanisms to block the entry and operation of ODI. For Beijing, 84 per cent of blocked Chinese investments are blocked in developed economies, most significantly those investments into the United States. China has encountered relatively fewer hurdles in developing markets.
China’s ODI often has a major bearing on domestic industrial development in developing countries. China’s ODI projects are often seen as offering political and economic support for the incumbent government and thus are prone to fierce backlash from opposition forces. Investment agreements signed by Chinese investors with Myanmar’s military government were cancelled after the country initiated democratic reforms.
In developed countries, Chinese enterprises may face competition from their local rivals who often make use of election politics and concerns about national security to thwart investment and acquisitions. Chinalco’s competitor BHP produced and made use of negative propaganda to play up an alleged threat that the Chinese company posed to Australia’s national security. The approval of the Chinalco investment project was delayed and Rio Tinto turned to BHP to form a new joint venture.
The higher the technological advancement of a host country, the more probable it is that investment by Chinese enterprises in local markets will be blocked. Host countries with relatively high technological capabilities are worried about Chinese enterprises ‘stealing’ their key technologies and weakening their competitive economic edge.
The better the bilateral relations, the smaller the probability of Chinese enterprises encountering investment hurdles. Investments by Chinese enterprises in sensitive industries — such as telecommunications, agriculture, forestry, animal husbandry and fisheries, mining and construction — are more likely than others to be blocked.
Investors should break up large-scale investment into several smaller investment programs to avoid attracting the attention of the host country’s government, community and media. Chinese enterprises generally lack transparency making it very difficult for the host country’s society to determine their investment motives and development philosophy.
Chinese enterprises should invest in industries with easy review procedures and avoid directly entering sensitive industries. They should gradually increase their investment and establish a good reputation before they start acquiring local enterprises in sensitive industries to ease local concerns.
In response to the concerns of host countries over the loss of key technologies, Chinese enterprises should enhance brand protection and intellectual property rights of the enterprises in which they choose to invest….
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
Is journalist Vicky Xu preparing to return to China?
Chinese social media influencers have recently claimed that prominent Chinese-born Australian journalist Vicky Xu had posted a message saying she planned to return to China.
There is no evidence for this. The source did not provide evidence to support the claim, and Xu herself later confirmed to AFCL that she has no such plans.
Currently working as an analyst at the Australian Strategic Policy Institute, or ASPI, Xu has previously written for both the Australian Broadcasting Corporation, or ABC, and The New York Times.
A Chinese language netizen on X initially claimed on March 31 that the changing geopolitical relations between Sydney and Beijing had caused Xu to become an expendable asset and that she had posted a message expressing a strong desire to return to China. An illegible, blurred photo of the supposed message accompanied the post.
This claim was retweeted by a widely followed influencer on the popular Chinese social media site Weibo one day later, who additionally commented that Xu was a “traitor” who had been abandoned by Australian media.
Following the publication of an ASPI article in 2021 which exposed forced labor conditions in Xinjiang co-authored by Xu, the journalist was labeled “morally bankrupt” and “anti-China” by the Chinese state owned media outlet Global Times and subjected to an influx of threatening messages and digital abuse, eventually forcing her to temporarily close several of her social media accounts.
AFCL found that neither Xu’s active X nor LinkedIn account has any mention of her supposed return to China, and received the following response from Xu herself about the rumor:
“I can confirm that I don’t have plans to go back to China. I think if I do go back I’ll most definitely be detained or imprisoned – so the only career I’ll be having is probably going to be prison labor or something like that, which wouldn’t be ideal.”
Neither a keyword search nor reverse image search on the photo attached to the original X post turned up any text from Xu supporting the netizens’ claims.
Translated by Shen Ke. Edited by Shen Ke and Malcolm Foster.
Asia Fact Check Lab (AFCL) was established to counter disinformation in today’s complex media environment. We publish fact-checks, media-watches and in-depth reports that aim to sharpen and deepen our readers’ understanding of current affairs and public issues. If you like our content, you can also follow us on Facebook, Instagram and X.
Read the rest of this article here >>> Is journalist Vicky Xu preparing to return to China?
- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
- Is journalist Vicky Xu preparing to return to China?
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