China
The digital renminbi and the rise of central bank digital currencies
Author: Michael Sung, Fudan University
A few years ago, governments were not prepared to accept any potential systemic disruption that digital currencies could have on the international monetary system. But positions have been changing drastically.
Facebook’s June 2019 announcement of its own digital currency, initially called Libra, then known as Diem, was a shot heard around the world and served as a wakeup call for many governments and financial institutions. If a private company with 2.8 billion users can issue a digital currency that circumvents sovereignty over money supply, what effect could this have on the international monetary system?
The Facebook announcement catalysed governments and central banks to reconsider their stance on digital currencies. As the European Union and the United States reacted with shock over the project, which has since stalled, central banks ramped up investigations into digital currency strategies. The People’s Bank of China (PBOC) had already been quietly developing their Digital Currency Electronic Payment (DCEP) initiative since 2014.
China has accelerated the timetable for deployment of the digital renminbi. Trials have progressed from sporadic testing to pilots in important economic zones to scaled stress testing. Now referred to as the e-CNY, it is anticipated that commercial release of the digital renminbi will commence by the Beijing 2022 Winter Olympics.
It was designed as a two-tier system. The first tier is a centralised account-based system for issuance and redemptions. This was designed to operate through commercial banks though in theory consumers could have direct accounts with the central bank. In the second tier, commercial banks are responsible for redistributing the digital renminbi as the consumer-facing interface to the broader financial ecosystem. Its implementation is intentionally open-ended allowing for more decentralised infrastructure such as through distributed ledger and blockchain technology. This two-tier system is flexible and pragmatic and other central banks including the Federal Reserve are researching similar frameworks.
Central bank digital currency (CBDC) design must address issues of cybersecurity, privacy protection and data sovereignty. There has been concern that it is possible for the Chinese government to monitor transactions all the way to those between individual consumers through the new infrastructure. In reality, there is not much difference with what already exists as a global standard in the international monetary system. China’s central bank has chosen to implement ‘pseudo-anonymity’, where transactions between consumer wallets are not tracked. Transactions, for instance, can be made offline through technologies such as near-field communication.
The digital renminbi has led the rest of the world and countries are now playing catch up with their digital currency strategies. 86 per cent of central banks report that they are researching or piloting CBDCs.
There is a sentiment that there is a first-mover advantage in implementing a CBDC and that this will give China’s renminbi an asymmetric advantage in competing with the US dollar as a global reserve currency. But international reserve currency status depends on the depth, efficiency and dependability of a country’s financial markets, as well as trust in its legal and regulatory ecosystems. It is unrealistic that implementing the digital renminbi will be singularly influential in propelling the renminbi. A world populated with digital currencies where technology allows seamless and instantaneous convertibility from one sovereign currency into another may obviate the need for a dominant global reserve currency.
Digital currencies do, however, render obsolete many of the existing standards and rules of the international monetary system and could blur the lines that define conventional geographies, economies, industries and regulatory regimes.
The decentralised finance movement behind the 2020 Bitcoin bull market and the associated explosion of stablecoins — privately-issued digital currencies that peg to a stable reference such as the US dollar — has further accelerated global interest in CBDCs.
International organisations such as the Financial Action Task Force have issued broad guidelines for how digital currency transaction metadata needs to be passed along to ensure compliant financial transactions. By 2022–23, G20 members, the IMF, the World Bank and the Bank of International Settlements will have completed stablecoin regulatory frameworks and the…
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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- Is journalist Vicky Xu preparing to return to China?
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