China
Bridging geopolitics and infrastructure in Southeast Asia
Author: Kevin Chen, ACI
For developing countries in Southeast Asia, growing global interest in their infrastructure needs has been cause for both excitement and concern. In 2021, the G7 announced its support for the US-led ‘Build Back Better World’ (B3W) initiative, while the European Union unveiled its own ‘Globally Connected Europe’ infrastructure strategy.
These initiatives aim to address the US$40 trillion infrastructure gap in developing countries, yet they also raise geopolitical concerns by seemingly competing with China’s Belt and Road Initiative (BRI). The last thing Southeast Asian governments want is to be caught in a geopolitical crossfire over investment choices.
But recipient countries have more to look forward to than to fear. New Western initiatives can supplement the BRI’s offerings and encourage Beijing to address its shortcomings. Above all, these alternatives offer Southeast Asian governments more political space to choose a path that furthers their developmental and geopolitical needs.
There has been plenty of debate on whether the B3W can compete with the BRI, particularly over the issue of financing. Beijing spent over US$700 billion on contracts and investments in recipient countries between 2014 and November 2020, with the bulk of these investments coming from policy banks such as the China Development Bank. By comparison, Washington and its allies cannot muster similar levels of public funds. Beijing’s increasing focus on health and digital connectivity under the BRI coincides with the B3W’s own goals, offering it an ostensible first mover advantage.
Yet such comparisons overlook the qualitative differences between the initiatives. Analysts note that Washington’s emphasis on social safeguards can be used to differentiate its offerings against Beijing’s, particularly for governments concerned about the political implications of incorporating Chinese surveillance technology in smart city plans.
The B3W’s aim to crowd-in private capital and multilateral funding also deserves a closer look. China’s overseas development spending has been falling since 2016 and it cannot bridge the developing world’s infrastructure gap alone. Though it remains to be seen if the United States will be successful in mobilising private capital, its presence may encourage more states to join. Diversifying a recipient country’s investment sources would not only lessen its vulnerability to disruptions such as pandemics, but also minimise the geopolitical risks associated with choosing a single investor.
Beijing’s forward-looking approach to infrastructure differentiated it from other investors. Where others would scrutinise feasibility reports, BRI projects have been motivated by the mantra: ‘if you want to get rich, build a road first’. Chinese investors have thus ventured into countries and places that others deem too risky to invest in.
Yet, this approach has also incurred its share of problems. In Malaysia, the US$10.5 billion Melaka Gateway project was supposed to create a bustling tourist destination and mega-port, yet the project idled for years before getting scrapped in November 2020. The problems that plagued it were both political and economic. Local political elites were not invested in the project and there were concerns it would cannibalise the underutilised capacity of Malaysia’s other ports.
A similar problem plagued Sri Lanka’s Hambantota Port. Constructed despite negative feasibility studies, the port ended up heavily underutilised and was leased to China after Sri Lanka was forced to renegotiate its debts.
These problems have not gone unnoticed by Beijing and falling overseas development finance expenditures suggest that it is becoming more discerning in its investment decisions. New Western initiatives could also expedite this process, as Beijing seeks to distance itself from criticism of past projects and compete with other offerings. While the rejection of less feasible projects may hinder development plans, Southeast Asia stands to benefit from a more cautious approach that lessens the likelihood of white elephant projects.
Granted, there is no guarantee that the socially sensitive Western initiatives will be warmly welcomed. Washington and Brussels incorporated social notions of gender equality into their initiatives, while also prioritising values such as transparency and anti-corruption. These stricter guidelines could deter some governments. As one diplomatic anecdote goes, ‘Chinese companies make offers recipient countries cannot refuse, while…
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.
Asia Fact Check Lab (AFCL) was established to counter disinformation in today’s complex media environment. We publish fact-checks, media-watches and in-depth reports that aim to sharpen and deepen our readers’ understanding of current affairs and public issues. If you like our content, you can also follow us on Facebook, Instagram and X.
Read the rest of this article here >>> Is journalist Vicky Xu preparing to return to China?
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