China
Business must brace for the new national security economy
Author: Brad Glosserman, Tama University
Relations between the United States and China will continue to deteriorate despite the phase one trade deal signed in January 2020. The mood, at least among US elites, has shifted. A former White House official recently identified two schools of China policy: hardline and ultra-hardline. Significantly, the dividing lines are not between political parties but within them.
Businesses must rethink standard operating procedures and policies in the wake of intensifying competition between the world’s two leading economies. Executives must prepare for the new national security economy. Regulatory reforms have already begun and managers and decision-makers must be sensitive to this new reality.
The US National Security Strategy published December 2017 identifies a world marked by great power competition. While there will be a military dimension, it will be seen primarily in the economic arena and develop most fiercely in the arena of emerging technologies as the United States competes with China to create the world’s largest innovative economy. During the Cold War, attention was paid to technology leakage with military applications. That concern persists but today governments recognise that the country which dominates the frontiers of new technologies will prevail in the race for global leadership.
Since the United States and China are both deeply embedded in global supply chains, their policies have a profound impact on the behaviour of businesses worldwide. US Vice President Mike Pence’s remarks in October 2018 at the Hudson Institute make it clear that Washington is looking hard at private sector behaviour as it engages China. While US action gets most of the attention, China is also implementing measures to promote indigenous development and insulate its supply chains from political disruption.
The 2019 US National Defense Authorization Act (NDAA) calls for the identification and control of ‘emerging and foundational technologies’ that are considered vital to national security. While publication of a final list has been delayed as national security and business interests strive to find the right balance, representative technologies include biotechnology, nanotechnology, artificial intelligence (AI), quantum computing, sensing technology and robotics.
Any company that hopes to work with US partners in these areas must be prepared for stringent regulations and a restructuring of internal processes and procedures to meet US security concerns. Protocols and regulatory frameworks that were once limited to companies working on defence will be applied more broadly. Autonomous vehicles require AI, logistics technologies and sensors, for instance. Companies wishing to engage in cutting-edge research will have to implement a higher level of security than in the past.
Companies will have to develop new processes to ensure that research is secure and intellectual property protected. This requires that individuals and entities involved are not security risks. Management will have to be more transparent regarding investors, partners and controlling interests.
Governments are already demanding greater attention to these concerns. The United States has reformed criteria used by the Committee for Foreign Investment in the United States (CFIUS), which evaluates foreign investment in critical US industries. Australia also modified criteria used by its Foreign Investment Review Board to examine such transactions. Japan too has passed legislation imposing new restrictions on foreign investment.
Management will also have to create new mechanisms to ensure that internal communications are protected. Networks must be segregated to prevent leakage of information within a company. Vendors and suppliers will also be subject to review. Supply chains will have to be scrubbed to prevent tampering and protect intellectual property.
The new national security economy will also force change on companies that aren’t engaged in frontier research. In a deeply connected world, cybersecurity is critical. If there is no guarantee that transmissions are secure and data is protected, such ubiquitous links can become vectors of attack and sources of instability. This has powerful implications for business.
As Japan’s federation of business associations Keidanren has noted, top management must recognise that cybersecurity is ‘the most important management issue’. That demands a new mindset that is less concerned with reputational damage and more intent on sharing cyber incident information. In…
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
- Is journalist Vicky Xu preparing to return to China?
- Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
- China Unveils Plan to Upgrade Industrial Equipment
