China
China’s economic growth now depends on the West
Author: Yukon Huang, Carnegie Endowment
China’s leadership expected that economic growth in 2020 would be a celebratory event, marking a doubling of the economy’s size over the past decade. But the new coronavirus (COVID-19) has obliterated those forecasts despite Beijing’s draconian measures effectively bringing the epidemic under control sooner than anticipated. The nationwide shutdown led to the epidemic’s slowdown in mid-February, but by then the extent and speed of the virus’s spread already paralysed Chinese society.
Chinese President Xi Jinping took a victory lap on 10 March by visiting the epicentre of virus in Wuhan, the capital of Hubei province. By 19 March, the number of new domestically driven cases fell to zero. Almost all new cases were recent returnees from abroad who found it safer to be in China than in Europe, the epidemic’s new epicentre, or the United States, where the spread of the virus is accelerating.
Yet the economic damage to China is severe, and the prospects for recovery — even with massive financial support — remain uncertain. Sustainably restoring China’s productive capacity in the coming weeks would require an unlikely revival of US demand. China’s recently announced economic indicators for January and February were much weaker than market watchers had forecast. Year over year, retail sales fell by 20.5 per cent and industrial production by 13.5 per cent — China’s worst numbers on record.
The prolonged containment effort has left millions of migrant workers unable to return to work, and factories are still struggling to return to full capacity given the shortages of labour and essential parts. Analysts have downgraded their outlook for the Chinese economy and consider a historic contraction in the first quarter nearly guaranteed. Even with a major fiscal stimulus and interest rate cuts, estimates for 2020 growth vary from 1–4 per cent compared to the original target of 6 per cent.
By contrast, the 2002–2003 economic recovery from the SARS virus was V-shaped, as China made up the entirety of its short-term losses by quickly tapping into strong consumer demand in the West. China was relatively unaffected by the 2008 global financial crisis, when global production and supply networks continued to function, enabling it to maintain rapid growth. Moreover, China’s debt situation today compared with a decade ago makes it less likely that it can rely on expansionary monetary policies or credit-fuelled support for the property market to stimulate growth.
While China’s economy is slowly restarting, the global spread of COVID-19 means that major European economies are in turmoil and the United States is still in the early stages of ramping up its response with unprecedented fiscal measures. China will likely struggle to find enough customers in the West, and emerging markets in Asia and elsewhere are simply not large enough to compensate. Affected sectors include automobiles, as major Western companies have closed down production, and communications equipment, as supply chains have been disrupted.
The outbreak will likely force a re-examination of the logic underpinning the US administration’s extensive use of tariffs to pressure China on trade and investment reforms. The phase one trade deal concluded in January is now inoperative, since there is no possibility that China can meet its agreement to purchase vast quantities of US goods this year.
More importantly, the US strategy to pair tariffs with trade restrictions is incompatible with new priorities, such as arresting the pandemic and ensuring producers have access to necessary parts. There are critical shortages in medicinal supplies emerging in the United States, for example, for which availability and cost have been aggravated by the White House’s tariffs and export restrictions. For better or for worse, the global economy is based on connectivity. The revival of world trade and well-functioning supply networks is essential to resuscitating growth in both China and the West.
Yukon Huang is a Senior Fellow with the Asia Program of the Carnegie Endowment for International Peace.
A version of this article originally appeared here on Carnegie Endowment for International Peace.
China
New Publication: A Guide for Foreign Investors on Navigating China’s New Company Law
The sixth revision of China’s Company Law is the most extensive amendment in history, impacting foreign invested enterprises with stricter rules on capital injection and corporate governance. Most FIEs must align with the New Company Law by July 1, 2024, with a deadline of December 31, 2024 for adjustments. Contact Dezan Shira & Associates for assistance.
The sixth revision of China’s Company Law represents the most extensive amendment in its history. From stricter capital injection rules to enhanced corporate governance, the changes introduced in the New Company Law have far-reaching implications for businesses, including foreign invested enterprises (FIEs) operating in or entering the China market.
Since January 1, 2020, the Company Law has governed both wholly foreign-owned enterprises (WFOEs) and joint ventures (JVs), following the enactment of the Foreign Investment Law (FIL). Most FIEs must align with the provisions of the New Company Law from July 1, 2024, while those established before January 1, 2020 have bit more time for adjustments due to the five-year grace period provided by the FIL. The final deadline for their alignment is December 31, 2024.
In this publication, we guide foreign investors through the implications of the New Company Law for existing and new FIEs and relevant stakeholders. We begin with an overview of the revision’s background and objectives, followed by a summary of key changes. Our in-depth analysis, from a foreign stakeholder perspective, illuminates the practical implications. Lastly, we explore tax impacts alongside the revisions, demonstrating how the New Company Law may shape future business transactions and arrangements.
If you or your company require assistance with Company Law adjustments in China, please do not hesitate to contact Dezan Shira & Associates. For more information, feel free to reach us via email at china@dezshira.com.
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
Lingang New Area in Shanghai Opens First Cross-Border Data Service Center to Streamline Data Export Process
The Lingang New Area in Shanghai has launched China’s first Cross-Border Data Service Center to facilitate data export for companies in Shanghai. The center will help with applications, data catalogs, and management, aiming to provide legal and safe cross-border data transfer mechanisms.
The Lingang New Area in Shanghai’s Pilot Free Trade Zone has launched a new cross-border data service center to provide administrative and consulting services to companies in Shanghai that need to export data out of China. The service center will help facilitate data export by accepting applications from companies for data export projects and is tasked with formulating and implementing data catalogs to facilitate data export in the area. The Shanghai cross-border data service center will provide services to companies across the whole city.
The Lingang New Area in the Shanghai Pilot Free Trade Zone has launched China’s first Cross-Border Data Service Center (the “service center”). The service center, which is jointly operated by the Cybersecurity Administration of China (CAC) and the local government, aims to further facilitate legal, safe, and convenient cross-border data transfer (CBDT) mechanisms for companies.
The service center will not only serve companies in the Lingang New Area but is also open to companies across Shanghai, and will act as an administrative service center specializing in CBDT.
In January 2024, the local government showcased a set of trial measures for the “classified and hierarchical” management of CBDT in the Lingang New Area. The measures, which have not yet been released to the public, seek to facilitate CBDT from the area by dividing data for cross-border transfer into three different risk categories: core, important, and general data.
The local government also pledged to release two data catalogs: a “general data” catalog, which will include types of data that can be transferred freely out of the Lingang New Area, and an “important data” catalog, which will be subject to restrictions. According to Zong Liang, an evaluation expert at the service center, the first draft of the general data catalog has been completed and is being submitted to the relevant superior departments for review.
In March 2024, the CAC released the final version of a set of regulations significantly facilitating CBDT for companies in the country. The new regulations increase the limits on the volume of PI that a company can handle before it is required to undergo additional compliance procedures, provide exemptions from the compliance procedures, and clarify the handling of important data.
Also in March, China released a new set of technical standards stipulating the rules for classifying three different types of data – core, important, and general data. Importantly, the standards provide guidelines for regulators and companies to identify what is considered “important” data. This means they will act as a reference for companies and regulators when assessing the types of data that can be exported, including FTZs such as the Lingang New Area.
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
A Concise Guide to the Verification Letter of Invitation Requirement in the China Visa Process
The application procedures for business visas to China have been simplified, with most foreigners now able to apply for an M/F visa using only an invitation letter from a Chinese company. Some countries are eligible for visa-free entry. However, a Verification Letter of Invitation may still be needed in certain cases. Consult the local Chinese embassy for confirmation.
In light of recent developments, the application procedures for business visas to China have undergone substantial simplification. Most foreigners can now apply for an M/F visa using only the invitation letter issued by a Chinese company. Additionally, citizens of certain countries are eligible to enter China without a visa and stay for up to 144 hours or even 15 days.
However, it’s important to note that some applicants may still need to apply for a “Verification Letter of Invitation (邀请核实单)” when applying for an M/F visa to China. In this article, we will introduce what a Verification Letter of Invitation is, who needs to apply for it, and the potential risks.
It’s important to note that in most cases, the invitation letter provided by the inviting unit (whether a public entity or a company) is sufficient for M/F visa applications. The Verification Letter for Invitation is only required when the Chinese embassies or consulates in certain countries specifically ask for the document.
Meanwhile, it is also essential to note that obtaining a Verification Letter for Invitation does not guarantee visa approval. The final decision on granting a visa rests with the Chinese embassy abroad, based on the specific circumstances of the applicant.
Based on current information, foreign applicants in Sri Lanka and most Middle East countries – such as Turkey, Iran, Afghanistan, Syria, Pakistan, and so on – need to submit a Verification Letter for Invitation when they apply for a visa to China.
That said, a Verification Letter for Invitation might not be required in a few Middle East countries, such as Saudi Arabia. Therefore, we suggest that foreign applicants consult with their the local Chinese embassy or consulate to confirm in advance.
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.
- New Publication: A Guide for Foreign Investors on Navigating China’s New Company Law
- Lingang New Area in Shanghai Opens First Cross-Border Data Service Center to Streamline Data Export Process
- A Concise Guide to the Verification Letter of Invitation Requirement in the China Visa Process
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