China
Simandou is China’s poisoned chalice
Authors: Luke Hurst, Lydekker and Peter Cai, Lowy Institute
In September 2021, Alpha Conde — the octogenarian president of Guinea — was toppled by the special forces he created. It is the latest episode of political instability in the West African state with not only rich resources but also a history of military coups.
A Chinese foreign ministry spokesperson, in an unusual move, spoke against the military coup and urged the immediate release of the former president. This is a departure from Beijing’s cardinal foreign policy dictate of non-interference in other countries’ domestic affairs.
China has a big stake in the country. Guinea is China’s biggest supplier of bauxite, a key raw material for the aluminium industry. But perhaps more importantly, Guinea is home to the world’s largest untapped iron ore deposit, Simandou.
With an estimated 2.4 billion tons of high-grade iron ore reserves, Simandou is widely seen as China’s best hope of reducing dependency on Australia, which is by far the largest supplier of iron ore to the country. Beijing’s relationship with Canberra has sunk to new lows during the last two years over a range of bitter disputes from the South China Sea to the decision to exclude Huawei from Australia’s 5G network.
Guinea was mentioned as an option for China to develop a large-scale iron ore mine in its five-year plan for the steel industry released by the Ministry of Information Technology and Industry in early 2021. It is a key piece in China’s strategy of achieving a higher degree of resource security.
Two Chinese companies already have strategic stakes in the Simandou project — the state-owned Chinaclo and the privately controlled Weiqiao. In 2020, China’s largest steelmaker, Baowu Steel Group, was reportedly exploring the possibility of establishing a US$6 billion consortium to develop Simandou in partnership with other steelmakers, engineering companies and sovereign wealth funds.
The ouster of Alpha Condo could derail Beijing’s ambition to reduce its dependency on Australia for iron ore, highlighting one of Simandou’s biggest risk factors: political instability in a country ravaged by civil war and tribal conflicts.
China is cognisant of political risk and is not afraid of airing it publicly. China Geological Survey published a report in 2020 highlighting the Guinea government’s lack of respect for contractual arrangements, political instability and rising African resource nationalism.
The report is critical of industrial relations in the country and cites increasingly frequent strikes as a ‘negative’ for investment. It concludes by saying that while the Simandou project’s advantages are clear, the risks are also significant, including huge investment outlay, a long investment cycle, and uncertainty. Chinese firms have acquired mining rights, but there is significant uncertainty about the profitability of the project. The report notes, ‘Chinese companies will face significant challenges during implementation and operation stages of this project’.
The Chinese government’s geology services further warn about the Guinean government’s desire to extract as much as US$15.5 billion in tax. A non-Chinese mining executive who was heavily involved in the early development of the Simandou project noted: ‘the biggest [issue] is that Simandou is a national crown jewel and in any country … resources of that scale come with very big political strings … this is far bigger than anything they’ve ever had to deal with before’.
Australian miner and Chinalco’s partner in the project, Rio Tinto, understood the risk too well as the victim of Guinea’s past expropriations after winning the exclusive development rights in 1997. Today, Rio Tinto’s share in the Simandou project has been whittled down to 44.05 per cent.
In Simandou, Beijing faces a huge dilemma. It is a significant opportunity to reduce its dependency on a supplier that it no longer trusts. But geography, price fluctuations and political instability also present significant risks.
Despite Beijing’s established ties in Africa, its large cheque book and ability to deliver massive infrastructure projects quickly, there are things even the Chinese Communist Party find beyond their control.
Luke Hurst is Managing Director at Lydekker, an Australian-based Asia strategy and market advisory firm.
Peter Cai is Research Fellow and Director of China-Australia relations at the Lowy Institute.
The post Simandou is China’s poisoned chalice first appeared on East Asia Forum.
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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