China
Chinese supply chains prove resilient to global shocks and pressure
Author: Ka Zeng, University of Arkansas
In the past couple of decades multinational corporations have invested heavily in China to cut production costs and capitalise on the rapidly growing domestic market. In the process, they turned the country into the factory of the world and a global supply chain hub.
But the ongoing trade war between the United States and China and the COVID-19 pandemic have highlighted the vulnerability of complex global supply chains to ongoing structural changes in the global economy resulting from rising labour costs, automation, protectionism and geopolitical tensions. These developments have prompted a critical re-evaluation of existing approaches to global sourcing and manufacturing activities to increase supply chain resilience and reduce external risks.
The extensive supply chain linkages China has developed with partner countries can be seen in both its backward and forward global value chain (GVC) linkages. Backward linkages are the share of foreign value added in China’s gross exports. Forward linkages are the share of domestic value added in the gross exports of the foreign exporting country. China’s backward GVC linkages with most regions experienced a gradual decline between 2005 and 2015, while its forward GVC linkages rose during the same period. This reflects a shift in China’s trade patterns away from processing trade and towards higher value-added activities that enhance its ability to engage in industrial upgrading and climb the value chain.
It is not yet clear how the trade war and pandemic have affected China-centred supply chains, but there is preliminary evidence that the impact has not been uniform across industries. Instead, the coping strategies of firms and industries may be heavily dependent on their relative ease of adjusting to external changes.
To be sure, the pressures on supply chain adjustments, especially those generated by the Fourth Industrial Revolution, predate the trade war and the pandemic. The scale and velocity of the recent global shocks have accelerated existing trends, forcing firms to react more swiftly and efficiently to abrupt changes in the global political and economic climate in order to weather the storm.
An important factor for China’s swift recovery from the pandemic is its integration in value chains in the Asia Pacific. Compared to other regions, the Asia Pacific has retained its importance for China’s global supply chains, with China’s backward and forward GVC linkages with APEC countries reaching over 11 per cent by 2015.
China became closely integrated with ASEAN after the signing of the ASEAN–China Free Trade Area in 2001. Its aggressive pursuit of regional initiatives such as the Belt and Road Initiative may have further increased its appeal as a trade and investment partner for regional economies. Deepening regional supply chain integration may have cushioned the impact of a major global crisis, even if it impedes allocative efficiency and limits the ability of firms to adjust to shocks originating from a specific country or region.
In view of the uncertainties generated by recent developments, what can be done to ensure the smooth functioning of supply chains and increase their ability to withstand the impact of future global crises?
Companies have already started searching for strategies that will allow them to balance the priority of improving operational efficiency against the need for contingency planning. In addition to accelerating the pace of new technology adoption, many have more actively sought to cultivate alternate sourcing, manufacturing, and transportation options and to prioritise the localisation and regionalisation of supply chain relationships.
Some have resorted to reshoring, near-shoring or the China+1 strategy to diversify sourcing alternatives and mitigate the risks of supply chain disruptions. The China+1 strategy has emerged as an attractive option for multinationals based in China as it allows them to maintain their existing business ties with China while hedging against pressures to decouple from the centre of the world’s manufacturing activities.
But policy also has an important role to play in ensuring supply chain resilience. With global shocks and rising protectionist pressures in major economies threatening global supply chains, it is important that governments are sensitive to diversified firm characteristics, preferences and demands, and that they adopt complementary policies to harness market forces.
It is more critical than ever that governments refrain from pursuing…
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.
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- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
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