China
ASEAN supply chain links with China and the perils of decoupling
Author: Ken Heydon, LSE
China’s global value chain (GVC) links with ASEAN are both less dominant and more beneficial than they appear at first sight. But there are major challenges ahead for ASEAN. With ASEAN public opinion seeking more alignment with the United States and less with China, ASEAN’s GVC dependence on China might be seen as a cause for concern.
Over the past three decades, ASEAN trade links with the United States, the European Union and Japan have weakened relative to those with China. Moreover, dependence on China has been more in backward linkages (where China’s share of foreign value added exports incorporated in ASEAN exports has risen from 5 per cent to 17 per cent) than in forward links (where China’s share of ASEAN value added exports incorporated in other countries’ exports has risen from 4 per cent to just 12 per cent).
But this account needs nuance. ASEAN’s links with the United States, the European Union and Japan are not as weak as they appear. And the links with China are highly beneficial to ASEAN.
The relatively weaker trade links between ASEAN and the United States, European Union and Japan have been largely compensated by increased market-seeking and efficiency-seeking investment and production, within ASEAN, of affiliates of these countries. ASEAN’s GVC links beyond China have been transformed rather than weakened. It is precisely the presence of these globally oriented, transnational affiliates that helps explain ASEAN’s strong, and otherwise surprising, forward linkages with, in particular, the European Union.
When intra-EU trade — Europe’s regional value chain — is taken into account, the European Union accounts for a greater (albeit declining) share of ASEAN exports incorporated into other countries’ exports (28 per cent) than China (12 per cent). ASEAN, through its forward linkages, is more integrated with the EU GVC than with that of China — particularly in technologically advanced sectors like electronics.
But the most important corrective to an alarmist narrative of ASEAN GVC bonds with China is that backward links with China are fostering development within ASEAN. It is thus the scarcity of these backward linkages, and correspondingly limited access to foreign value added, for ASEAN small and medium-sized enterprises (SMEs) that helps explain why SMEs play a disproportionately minor role in ASEAN exports. ASEAN SMEs have had less exposure to ‘learning by importing’.
But backward links are not equally shared throughout ASEAN. Malaysia, Singapore, Thailand and Vietnam are developing a manufacturing base with strong backward links (foreign value added makes up 60 per cent of ASEAN vehicle exports). Brunei, Indonesia, Laos and Myanmar remain dependent on natural resource activities with weak backward links (foreign value added makes up just 5 per cent of Indonesia’s agribusiness exports).
This means that policy settings will need to differ by country. Nevertheless, all ASEAN states will face three common GVC challenges: an increase in the importance of inwards investment relative to trade, more focus on domestic demand in dynamic partner economies and the persistence of GVC vulnerability to disruption. China will be central to all these challenges.
It can be expected that as China moves to counter its demographic ageing and rising domestic costs it will increasingly follow the path already taken by the United States, European Union and Japan in favouring investment over trade in its GVC links with ASEAN. China’s FDI in Southeast Asia grew fourfold between 2010–2018. Given the sovereignty concerns associated with inward FDI, this shift will need to involve a change in China’s ‘tendency to downplay the autonomous agency’ of developing neighbours.
Equally critical will be ASEAN’s own policy settings to maximise gains from investment inflows, including through stronger environmental safeguards, technological upgrading and greater domestic regulatory coherence.
ASEAN’s second GVC challenge will be a shift in the relative importance of final consumption (rather than onward export) within partner economies with expanding domestic markets. This again will call for adaptability in ASEAN as it shifts product design towards, in particular, China’s domestic consumers as opposed to China’s overseas customers — consistent with China’s domestically oriented Dual Circulation Strategy.
The third GVC challenge facing ASEAN is persistent vulnerability to disruption. This will call for flexibility and resilience, whether by removing…
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.
- China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
- Is journalist Vicky Xu preparing to return to China?
- Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
- China Unveils Plan to Upgrade Industrial Equipment
