China
Will COVID-19 bring recession and debt shock to developing Asia?
Author: Ganeshan Wignaraja, Lakshman Kadirgamar Institute
Developing Asia is famous for engineering V-shaped recoveries following the 1997 Asian financial crisis and the 2008 global financial crisis, as well as emerging as a key engine of global growth. The severity of the COVID-19 pandemic has sparked concerns about what shape global growth recovery will take and what it means for developing Asia.
As of 1 April, China accounted for 9.6 per cent of global cases while South Asia accounts for 0.43 per cent. The rapid transmission of the infection is linked to the globalisation of the world economy and the advent of global travel. It has triggered a public health emergency and an economic shock. Stock markets across Asia have tumbled and China-centred global supply chains are collapsing. Travel bans and lockdowns have disrupted daily life. Unemployment and income inequality are rising.
Developing Asia grew at 5.6 per cent in 2019 and the International Monetary Fund (IMF) projected that this figure would uptick to 5.8 per cent in 2020. It is premature to assess the full economic impact of COVID-19 on developing Asia as economic data is still lacking and forecasting models are not adequately specified to analyse the disruption from the pandemic. The IMF will update its forecasts during the virtual Spring Meetings this year.
Projections made in a study on the medium-term outlook on developing Asia’s growth and the prospects for middle-income countries are being updated using leading indicators (such as the manufacturing purchasing managers index) in an attempt to predict significant changes in economic activity.
This updating exercise suggests two economic scenarios for developing Asia and the world, with the depth of the downturn depending on the effectiveness in containing COVID-19.
The first scenario is a short outbreak and a limited economic impact on developing Asia. The spread of COVID-19 is checked within a few months through lockdowns, social distancing, virus testing, quarantine and medical treatment. A vaccine is available ahead of schedule. Developing Asia’s growth could be between 4–4.5 per cent in 2020. This is above expected global growth of 2.3–2.5 per cent. An upturn in Asia could be likely in 2021. Yet Asia would still fall into recession as defined as two consecutive quarters of decline in a country’s real gross domestic product (GDP).
The second scenario is a long outbreak and a prolonged economic impact on developing Asia. In this scenario, COVID-19 continues to spread rapidly in Asia, containment measures are only partially successful, new mutations could bring a second wave and vaccine development takes longer than expected. Developing Asia’s growth may fall to 2–2.5 per cent in 2020 and remain sluggish in 2021. This is worse than the bottoming of Asian growth to 2.8 per cent during the 1997 Asian financial crisis. Meanwhile, global growth could slip to 1–1.5 per cent in 2020. This would constitute a lengthy recession.
As the pandemic is fast-moving with the epicentre spreading from China to Europe and the United States, the L-shaped second scenario seems more likely than the first. Facing such a bleak outlook, central banks in developing Asia have cut interest rates and are buying assets to support financial markets. Governments are undertaking fiscal stimulus and welfare measures.
Looking at Asian debt dynamics helps to grasp why central banks and governments are intervening. IMF technical work in the early 2000s conservatively suggested prudential benchmarks on public debt of a debt-to-GDP ratio of 60 per cent for developed economies and 40 per cent for developing economies. While not officially endorsed by the IMF, it was thought that breaching these benchmarks would threaten fiscal sustainability.
With a government debt-to-GDP ratio of 58.8 per cent in 2019, developing Asia exceeds the benchmark for developing countries and is approaching that for developed economies. China’s government debt-to-GDP ratio of 60.9 per cent in 2019 is argued to significantly understate the total debt-to-GDP ratio of 303 per cent when corporate and household debt are included. The pandemic has led to concerns about high debt in state-owned enterprises and corporates held in a fragile shadow banking system.
South Asia’s government debt-to-GDP ratio of 66.5 per cent in 2019 also exceeds IMF benchmarks, with outliers Pakistan and Sri Lanka at about 80 per cent. Interestingly, at least in Sri Lanka, there is little evidence of a Chinese ‘debt trap’ due to commercial borrowing for…
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.
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Read the rest of this article here >>> Is journalist Vicky Xu preparing to return to China?
- Q1 2024 Brief on Transfer Pricing in Asia
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- Is journalist Vicky Xu preparing to return to China?
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