China
‘Phase one’ China trade deal tests the limits of US power
Author: Geoffrey Gertz, Brookings Institution
Throughout his campaign and the early years of his presidency, Donald Trump promised to fundamentally reshape US–China trade policy. The conclusion of the ‘phase one’ trade deal, agreed to by the two countries in mid-January, provides an opportunity to assess what has been achieved so far.
Trump’s efforts to change China’s behaviour are running up against the same limits faced by previous US administrations. Yet there is little evidence of a long-term strategy that reflects this reality.
In the two decades leading up to Trump’s election, US presidents followed a broadly similar, largely bipartisan approach to engagement with China. The United States welcomed economic integration between the two countries, believing it would produce real economic gains for the United States and ultimately encourage China to move towards a more market-based economy.
Where Chinese actions fell short of US aspirations, the United States had two main levers to shift Chinese behaviour. First, bilateral diplomatic appeals such as the various iterations of the Strategic and Economic Dialogue, and second, filing claims against China at the World Trade Organization (WTO), infrequently at first but more actively over time.
By the time of the 2016 election, this approach was showing shortcomings. While the policy of engagement had produced meaningful benefits for US consumers and some corporations, US workers had not always shared in these gains. Moreover, the policy levers the US government relied upon to shift Chinese behaviour were of limited use. US exhortations that market-based policies were actually in China’s own best interest were unconvincing and US diplomats had limited means to otherwise pressure or negotiate China into changing its approach.
Though China would often eventually comply with WTO rulings against it, pursuing Chinese distortions through the parameters of international trade law always seemed like a game of whack-a-mole. China could agree to eliminate one specific trade barrier or subsidy. But so long as the country’s broader economic model relied on deep-rooted industrial policy and a long-term strategy of import substitution in ever more sophisticated products, pursuing trade remedies one narrow barrier at a time was fruitless.
For these reasons, Trump’s promise to overhaul China policy found a receptive audience throughout the halls of power in Washington. The need to rethink China policy — if not the specifics of tariffs and trade war — is arguably the Trump election promise with the strongest support among policymakers from both parties.
But the desire to ‘get tough’ on China is no substitute for an actual strategy. From the beginning, Trump’s China policy has been hamstrung by a failure to resolve a fundamental tension. Does ‘getting tough’ mean pressuring China into liberalising its economy and thereby further increasing US–China economic interdependence? This would be a shift in tactics from previous US approaches toward China, but not of ultimate objective.
Or does ‘getting tough’ mean seeking to decouple at least some aspects of the deep integration between the US and Chinese economies? The Trump administration has sent contradictory messages, at times insisting US companies get better access to the Chinese market, and at other times ordering US companies to leave China. Trump settled on tariffs, but didn’t appear to have a clear strategy explaining why.
The phase one trade deal hasn’t helped clear up this confusion. The centrepiece of the deal is a pledge that China will buy some US$200 billion in US goods and services. In return, the United States will suspend some of the new tariffs Trump previously announced. But this appeal to managed trade will ultimately increase Chinese leverage over the United States. So long as US exports rely on the indulgences of Chinese politicians, the latent threat that China will pull the plug on this system will continue to hang over US–China trade relations.
Most importantly, the deal does not achieve any of the difficult structural reforms US policymakers have been seeking around industrial policy, the ‘Made in China 2025’ program and broader state influence in the economy. Earlier experiences suggested neither US diplomatic appeals nor WTO trade restrictions would sway China into giving up these core aspects of its economic model. The lesson of the phase one deal is that aggressive tariffs won’t either.
The Trump administration continues to insist these thorny issues will…
China
Exploring the Revamped China Certified Emission Reduction (CCER) Program: Potential Benefits for International Businesses
Companies in China must navigate compliance, trading, and reporting within the CCER framework, impacting operations and strategic objectives. The program focuses on afforestation, solar, wind power, and mangrove creation, offering opportunities for innovation and revenue streams while ensuring transparency and accuracy. The Ministry of Ecology and Environment oversees the program.
As companies navigate the complexities of compliance, trading, and reporting within the CCER framework, they must also contend with the broader implications for their operations, finances, and strategic objectives.
This article explores the multifaceted impact of the CCER program on companies operating in China, examining both the opportunities for innovation and growth, as well as the potential risks and compliance considerations.
Initially, the CCER will focus on four sectors: afforestation, solar thermal power, offshore wind power, and mangrove vegetation creation. Companies operating within these sectors can register their accredited carbon reduction credits in the CCER system for trading purposes. These sectors were chosen due to their reliance on carbon credit sales for profitability. For instance, offshore wind power generation, as more costly than onshore alternatives, stands to benefit from additional revenue streams facilitated by CCER transactions.
Currently, primary buyers are expected to be high-emission enterprises seeking to offset their excess emissions and companies aiming to demonstrate corporate social responsibility by contributing to environmental conservation. Eventually, the program aims to allow individuals to purchase credits to offset their carbon footprints. Unlike the mandatory national ETS, the revamped CCER scheme permits any enterprise to buy carbon credits, thereby expanding the market scope.
The Ministry of Ecology and Environment (MEE) oversees the CCER program, having assumed responsibility for climate change initiatives from the National Development and Reform Commission (NDRC) in 2018. Verification agencies and project operators are mandated to ensure transparency and accuracy in disclosing project details and carbon reduction practices.
On the second day after the launch on January 23, the first transaction in China’s voluntary carbon market saw the China National Offshore Oil Corporation (CNOOC), the country’s largest offshore oil and gas producer, purchase 250,000 tons of carbon credits to offset its emissions.
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
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.
- Exploring the Revamped China Certified Emission Reduction (CCER) Program: Potential Benefits for International Businesses
- 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?
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