China
East Asian economies resist decoupling
Quantifying the effect of supply chain decoupling is difficult. Trade controls, particularly export controls over high-tech products, became a major policy tool for decoupling in the United States and for some US allies, including Japan.
Media on global trade frequently puts forward the narrative that the US–China confrontation will divide the world in two. But East Asian developing economies have a different view of supply chain decoupling since US–China merchandise exports and imports hit a record high in 2022 and East Asian production networks continue to move actively.
Author: Fukunari Kimura, Keio University
Quantifying the effect of supply chain decoupling is difficult. Trade controls, particularly export controls over high-tech products, became a major policy tool for decoupling in the United States and for some US allies, including Japan.
Items subject to export controls are specified in terms of traded goods, used technologies, export destination, importers and end-use. But the coverage is set very wide and only a small portion of exports are actually under strict control. Governments do not disclose information on products that are banned or under investigation. They also do not disclose how long the investigation took, even ex-post. Private firms may refrain from exporting without seeking an official decision. The international trade commodity classification may not match sensitive export items such as high-end semiconductors.
According to my on-going study with Mitsuyo Ando and Kazunobu Hayakawa, monthly international trade data at the industry level does not show any clear evidence of supply chain decoupling or a drastic reorganisation of production networks until the end of 2022. Yet the August 2020 US export controls that targeted Huawei substantially slowed down the company’s production in China and subsequently reduced Japanese exports to China, especially for parts and components used in Huawei’s wireless communication equipment assemblies. Regression analyses find a statistically significant reduction in Japanese exports to China since August 2020, particularly in semiconductor-intensive parts. The on-going study estimates a 3.3 per cent reduction in exports during this period compared to 2019 trade data. Supply chain decoupling is real, but the trade-reducing effect seems to be limited in scale so far.
Supply chain decoupling in the US–China confrontation came into a new phase when the Biden administration endorsed the Chips and Science Act in August 2022 and strengthened US export controls in October 2022. Though the implementation details of these policies have not been disclosed yet, they will likely further disrupt supply chains in terms of parts, materials, production machines and technologies used for supercomputers.
But supply chain decoupling will likely only be partial. International production networks have overall remained active, particularly in East Asia. Globalisation has provided many private firms with global economic opportunities. With the current heated geopolitical debate between the United States and its allies, the expansion of trade controls is inevitable. But the ‘rest’ of the economy outside of effective trade controls should not be neglected in this debate. The world must keep economic dynamism.
For middle powers such as Japan, the government can take several measures to ensure the health of the rest of the economy. The border between the economy, which is placed under strict trade controls, and the rest of the economy, which is not, must be delineated as clearly as possible.
It is important for civilians that military-use technologies do not get lumped in with regular technologies to avoid an adverse effect on the rest of the economy. If the border is not made clear, the private sector will face huge uncertainties that may shrink trade and investment. It is not only middle powers that must mark clear borders between the economy under trade controls and the rest of the economy, but also the United States. Middle-power governments should communicate closely with the United States and provide relevant information to the private sector. The cost of a blurred border will punish small and medium enterprises as well as firms in developing countries.
Middle powers such as Japan must practice economic diplomacy for the Global South — especially ASEAN — by deepening economic and social relationships, rather than being forced to choose a side. The South is interested in promoting a new agenda on digital and green trade and investment. The negotiation over the Indo-Pacific Economic Framework, for example, must enhance multilateral economic relationships, rather than just pushing an economic security agenda.
The rest of the economy must keep to the rules-based trading regime. While the G7…
China
China Provides Tax Incentives on Special Equipment for Green and Digital Development
China has introduced a new tax incentive for companies investing in digital and smart upgrades of special equipment to encourage environmental protection and safe production. Companies can enjoy a 10 percent deduction from their corporate income tax payable. Eligibility and requirements are outlined by the Ministry of Finance and State Tax Administration.
A new China tax incentive aims to encourage companies to invest in digital and smart upgrades of special equipment. Companies upgrading certain equipment that aids environmental protection and safe production can enjoy a deduction of the investment at a rate of 10 percent from their corporate income tax payable. We explain the requirements of the new tax incentive.
China’s Ministry of Finance (MOF) and State Tax Administration (STA) have issued a new preferential corporate income tax (CIT) incentive for companies investing in digital and intelligent transformations of certain types of equipment. To be eligible for the incentive, companies must invest in the digital and intelligent transformation of equipment related to energy and water conservation, environmental protection, and safe production.
The new tax incentive aligns with a State Council Action Plan, released in March 2024, which aims to accelerate the renewal of large-scale equipment and consumer goods, promoting high-quality development and driving investment and consumption for long-term benefits.
If the annual CIT payable is insufficient for the offset, it can be carried forward to future years for up to five years.
The CIT payable refers to the balance after multiplying the annual taxable income by the applicable tax rate and deducting the tax reductions and exemptions according to China’s CIT Law and relevant preferential policies.
Note that companies enjoying the tax incentives must use the transformed equipment themselves. If the equipment is transferred or leased within five tax years after the transformation is completed, the incentives must stop from the month the equipment is no longer in use, and the previously offset CIT must be repaid.
The “special equipment” eligible for the preferential tax treatment covers equipment purchased and used by companies listed in the Catalog of Special Equipment for Safe Production for Corporate Income Tax Incentives (2018 Edition) and the Catalog of Special Equipment for Energy Saving, Water Conservation, and Environmental Protection for Corporate Income Tax Incentives (2017 Edition).
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
Revealing the Encouraged Industries of Hainan in 2024: Unlocking Opportunities
The 2024 Hainan Encouraged Catalogue, issued by the NDRC, MOF, and STA, aims to boost industries in the Hainan Free Trade Port. It prioritizes sectors like tourism, modern services, and high technologies, offering incentives for foreign investment and market access expansion since 2020. The Catalogue includes 176 entries across 14 categories, with 33 new additions focusing on cultural tourism, new energy, medicine and health, aviation, aerospace, and environmental protection.
The National Development and Reform Commission (NDRC), in collaboration with the Ministry of Finance (MOF) and the State Taxation Administration (STA), has issued the Catalogue of Industries Encouraged to Develop in Hainan Free Trade Port (2024 Version), hereinafter referred to as the “2024 Hainan Encouraged Catalogue.” The updated Catalogue took effect on March 1, 2024, replacing the previous 2020 Edition.
Beyond the industries already addressed in existing national catalogues, the new entries in the 2024 Hainan Encouraged Catalogue are based on practical implementation experiences and the specific needs within Hainan, prioritizing sectors such as tourism, modern services, and high technologies.
The Hainan FTP has been providing incentives to draw investors to invest and establish businesses in the region, especially foreign investment. Alongside a phased approach to opening the capital account and facilitating free capital movement, Hainan has significantly expanded market access for foreign enterprises since 2020, particularly in sectors such as telecommunications, tourism, and education.
The Hainan Encouraged Catalogue comprises two main sections:
Similar to the approach adopted by the western regions, foreign-invested enterprises (FIEs) should always implement their production or operations in accordance with the Catalogue of Encouraged Industries for Foreign Investment.
On top of the industries already addressed in existing national catalogues, the 2024 Hainan Encouraged Catalogue encompasses 14 distinct categories and a total of 176 entries especially encouraged in the region, including 33 new additions compared to the 2020 Edition. These new entries predominantly span cultural tourism, new energy, medicine and health, aviation and aerospace, and ecological and environmental protection, among others.
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
Key Guidelines for Companies in Compliance Audits for Personal Information Protection Standards
China’s standards authority has released draft standards for personal information protection compliance audits, potentially making them mandatory for companies in 2023. The audits will require companies to undergo annual or biennial checks based on the number of people’s information they handle. The draft standards outline the audit process and requirements, seeking public feedback until September 11, 2024.
China’s standards authority has released draft standards for conducting personal information protection compliance audits. Regular compliance audits to ensure compliance with personal information protection regulations may become a requirement for companies in China under draft measures released in 2023. We explain the audit processes and requirements proposed in the draft standards.
The Standardization Administration of China (SAC) has released a set of draft standards for conducting personal information (PI) protection compliance audits. Under draft measures released by the Cyberspace Administration of China (CAC) in August 2023, companies that process the PI of people in China are required to undergo regular compliance audits.
Specifically, companies that process the PI of over one million people must undergo a compliance audit at least once a year, while companies that process the PI of under one million people must carry out an audit at least once every two years.
While the draft measures stipulate the obligations of the auditing body and the audit scope, the draft standards outline the specific audit process, including evidence management and permissions of the audit organization, as well as the professional and ethical requirements of auditors.
The Secretariat of the National Cybersecurity Standardization Technical Committee is soliciting public feedback on the draft standards until September 11, 2024. Public comment on the draft measures released in August last year closed on September 2, 2023, but no updated document has yet been released.
The draft standards outline five stages of the PI protection compliance audit: audit preparation, implementation, reporting, problem rectification, and archiving management.
Auditors are required to accurately document identified security issues in the audit working papers, ensuring that the records are comprehensive, clear, and conclusive, reflecting the audit plan and its execution, as well as all relevant findings and recommendations.
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 Provides Tax Incentives on Special Equipment for Green and Digital Development
- Revealing the Encouraged Industries of Hainan in 2024: Unlocking Opportunities
- Key Guidelines for Companies in Compliance Audits for Personal Information Protection Standards
- A Comprehensive Guide to China’s Expanded 144-Hour Visa-Free Transit Policy at 37 Ports
- Regulatory Changes in China Aim to Boost Service Sector Growth in Six Cities
- Adhering to Updated Registered Capital Regulations in China’s Revised Company Law
