China Press Review – July 2, 2021

China’s E-Fapiao System at a Glance
Over the last few months, China has been quickly expanding the pilot program on electronic special value-added tax (VAT) fapiao (hereafter referred to as special VAT e-fapiao). First trialed in Ningbo, Hangzhou, and Shijiazhuang, China expanded the pilot program on issuing special VAT e-fapiao to 11 regions from December 21, 2020 and then another 25 regions from January 21, 2021. China is accelerating its effort to join the booming trend throughout the world: digitalization.  In this article of China Briefing magazine, we will walk you through China’s developing e-fapiao system by introducing what it is, explaining why it matters, and exploring the potential challenges associated with the implementation.

The party celebrated the 100th anniversary of its founding in the French concession of Shanghai, and its leader Mr Xi delivered a powerful speech which warned that anyone who threatened to oppress the Chinese people would have their heads cracked as they hit the “steel Great Wall”. So no beating around the bush. This is a time of confidence for the leaders in Beijing—they believe the tide of history is moving in their direction, and who are we to contradict them? The economy continues to do well, and the pandemic is firmly under control, more than a billion people have been vaccinated, and much of the rest of the world seems much more wobbly.      Not much else happened this week because of the prime importance of the 100th, but China and Russia renewed their friendship vows, and that is important in terms of how things play out in the long-term for global strategic balance. If Russia were to falter, that could change the equation, but of course Mr Putin is good for decades to come.    What else? Didi Chuxing raised $4 billion in a listing on the NYSE, China is facing new cases in the WTO from Canada and Australia and Huawei looks like it might get its foot into the telecomms markets in some African countries, in spite of the adamant displeasure of Washington.

Communist Party continues training new devotees as it marks 100 years
As China celebrates centenary of party’s 1921 founding, leadership academy centres play key role in extending control     It’s part of President Xi Jinping’s campaign to increase teaching of official history  Studying party history is the “obligation of every party member, cadre, mass and youth”, he said.
The “primary political task” for party members is to “study and implement Xi Jinping’s thoughts on socialism with Chinese characteristics in the new era”, according to the training plan for party members.
A plan for higher-level members requires that “Xi Jinping Thought” be the main focus of teachings, and that theoretical and party spirit account for at least 70 per cent of class hours.  The Jinggangshan curriculum focuses on the party’s early days in 1927-35 and Mao’s battles with the Nationalist government.  Lectures jump over the following decades to modern successes in fighting poverty and the coronavirus.  “Under the leadership of the Central Committee with Comrade Xi Jinping as the core, we mobilised the whole country,” said instructor Liu Qiufu, “and we won the war against the epidemic.”

Harnessing the benefits of automation in the Asia Pacific
Automation has grown quickly in the Asia Pacific, with the region catching up to Europe and North America in robot density. Significant diversity exists between countries, with high levels of robotics adoption in Japan, South Korea and, increasingly, China, but much lower levels in other economies, such as India and Indonesia. Automation can help maintain the international competitiveness of firms and combat the headwinds of ageing populations and slowing labour productivity growth.  Finally, government policymakers and regulators should properly regulate new technologies. One policy approach in response to the opportunities and risks associated with emerging technologies is the regulatory sandbox — a ‘safe space’ where businesses can test innovative products, services, business models and delivery mechanisms with regulators.   These strategies will help maximise the chance that automation lifts total factor productivity (TFP) growth. Higher TFP growth will help alleviate the negative impacts of automation on employment and the burden on the economy when tax and transfer policies are implemented to reduce income inequality.   We have not yet seen much of the effects of automation on TFP growth, which has slowed in several economies in the Asia Pacific since the global financial crisis. Like other general-purpose technologies, the full effects of automation on TFP growth may not be realised until complementary innovative technologies are developed and implemented. But the key aspects discussed above are crucial in allowing automation to bring about TFP growth.

China among 130 countries to back global minimum corporate tax of at least 15 per cent
Paris-based Organisation for Economic Cooperation and Development says a global minimum corporate income tax of at least 15 per cent could yield around US$150 billion in additional revenues annually     Group of 7 agreed to the rate in June, and now the broader agreement will go to the Group of 20 for political endorsement at a meeting in Venice next week

Hong Kong backs US-led global effort to ‘combat tax evasion’, with mainland China also on board
Special administrative regions of Hong Kong and Macau are among the 130 countries and jurisdictions that have signed onto the plan, which will likely be formalised in the coming months    New rules would take effect in 2023 and could yield around US$150 billion in additional global tax revenue  As for Hong Kong, Chan said: “Small and medium-sized enterprises in Hong Kong would not be affected by the ‘BEPS 2.0’ package. Insofar as the large [multinational enterprises] to be covered by the package are concerned, the government will endeavour to maintain Hong Kong’s simple, transparent and low tax regime, and minimise their compliance burden.”  Nineteen members of the G20 have agreed to the plan, including Argentina, which previously wanted a higher tax floor. But the stance of the European Union remains unclear. Ireland, an EU member and favoured destination for many multinational firms, given its 12.5 per cent tax rate, did not sign the agreement. “This package does not eliminate tax competition, as it should not … It is in everyone’s interests that we reach a final agreement among all Inclusive Framework [on BEPS] members as scheduled later this year,” OECD Secretary-General Mathias Cormann said.   US Treasury Secretary Janet Yellen said it was a “historic day for economic diplomacy”.

Biden needs to end the tariff war with China
US President Joe Biden wasted no time reversing many of the damaging policies introduced during the Trump presidency, with exception to trade. US Trade Representative Katherine Tai is expected to meet her Chinese counterpart to review the Phase One trade deal, but expectations for the talks are low.   The ongoing US tariff war against China fails to address trade imbalances and undermines Biden’s domestic priorities, hindering a US return to multilateralism. While the United States and China share profound differences in ideology and geopolitical interest, trade is a fertile ground for partnership. Multilateral rules-based trade would allow both countries to enjoy the benefits of extensive global supply chains and improve production efficiency derived from specialisation and economies of scale.   Trade could provide an opportunity for both countries to rebuild trust and communication, and collaborate towards a multilateral system that speaks to their common interests. Ending the tariff war is the first step.

A Global Minimum Corporate Tax Is A Boost For Global Governance, And For A Carbon Tax
Global governance received a booster shot from G7 leaders at Cornwall in early June when they approved a global minimum corporate tax (GMCT). The new levy, which has since been approved by 130 countries, sets a global minimum in corporate taxes which multinational corporations have shell out in jurisdictions they operate in. It was hammered out in record time under the tutelage of the Biden administration and will be rolled out starting 2023.  Corporate taxation is, of course, riven with complexity and opacity, which the GMCT attempts to address, but there are bound to be grey areas which will allow for tax arbitrage practices of the past. One such grey area cited by experts is generous tax incentives on investment in machinery provided by developing countries to attract and retain foreign investment. Under the new rules, such incentives will be exempt, a major victory for developing countries like China and India.

China’s Didi to be added to S&P Dow Jones’ indexes
Didi Global will be added to S&P Dow Jones’ global equity indexes on Jul 12 following the U.S. stock market debut of the Chinese ride-hailing company this week, the index publisher said.

Central banks up reserves of RMB to a high
5-year record shows Chinese yuan’s internationalization progressing well   In the first quarter this year, various central banks held $287.46 billion worth of Chinese RMB in official foreign exchange reserves, the highest level since the fourth quarter of 2016 and representing 2.45 percent of the total, the International Monetary Fund reported on Wednesday.   The US dollar had the largest 59.54 percent share of global foreign exchange reserves in the first quarter, followed by the euro (20.57 percent) and the Japanese yen (5.89 percent), IMF data showed.

Jack Ma, Joe Tsai Pledge “Chunks” Of Alibaba Shares, FT Reports
Jack Ma, Alibaba’s main founder, along with vice chairman and co-founder Joe Tsai have pledged “chunks” of their combined $35 billion holdings in the company, the Financial Times reported today, citing company documents.   The pledges to banks including UBS and Goldman Sachs were made by offshore companies that control more than half of the two billionaires’ stakes, the newspaper said.  The two “have used the loans to unlock vast personal fortunes tied up in the group’s shares,” the FT said.   Purchases by the two include private jets and real estate; the amounts of the pledges weren’t disclosed, the FT said.

Alibaba founders secure loans from global banks backed by company stock
Chinese language billionaires Jack Ma and Joe Tsai have pledged chunks of their mixed $35bn stake in ecommerce group Alibaba in change for important loans from funding banks, firm paperwork present.    Ma and his spouse have cashed out an estimated $11.4bn of inventory since Alibaba floated in New York, with the bulk bought beginning in 2017. His charitable basis has bought one other $4.1bn. Tsai has bought an estimated $5.4bn. Alibaba stated Ma and Tsai had owned “the corporate’s inventory for 22 years and proceed to have important holdings in Alibaba, which make up nearly all of their wealth”. A former English trainer, Jack Ma is one in all China’s best-known entrepreneurs, co-founding Alibaba with Tsai in 1999 earlier than constructing a fortune estimated by Bloomberg at $49.9bn.   Late final 12 months, nevertheless, he largely disappeared from public view after Beijing started a crackdown on Ant Group, the fintech Ma carved out of Alibaba in 2011.

China says yes to a Chinese firm buying a South Korean chipmaker, US and South Korea say hold on
China approved a Chinese firm to acquire South Korean chipmaker Magnachip in late June, a week after the US government paused the acquisition for review and the South Korean government initiated a deal review. Wise Road Capital, a Beijing-based private equity firm, received approval from Chinese regulators to acquire Magnachip on June 21.   Magnachip is a world-leading manufacturer of driver chips in smartphone displays, producing circuits controlling other components like organic light-emitting diode (OLED) displays. The acquisition has raised concerns in South Korea that the country may lose its chipmaking advantage to China.    China’s approval alone won’t close the deal, which needs approvals from the US and South Korean governments.

Japan launches air force drills with Philippines under ‘big threat’ from China
Two key American allies in the Indo-Pacific region are launching their first joint air force exercises as the United States seeks to assemble a coalition to counter threats from China.  “This is a big, big threat — not just for us in Asian people, but also the concern of even the American citizens or the European countries,” Japanese Deputy Defense Minister Yasuhide Nakayama told the Hudson Institute this week while discussing China’s militarization of artificial islands in the South China Sea. “So that’s why all the European countries, and also, of course, the United States, the armed forces [are] now coming forward and together exercising in the Asia. And so those kind of exercise, I think, it’s we can show the deterrence towards the country who is doing what I told you — those kind of very dangerous activities.”

China’s Graduates Shouldn’t Stress Over Unemployment, Economist Says
More than 9 million university and college students are expected to leave school this year.  A total of 5.74 million jobs were created in urban areas in the first five months of this year, according to National Bureau of Statistics data released on June 16. However, the surveyed unemployment rate for those between the ages of 16 and 24 — which captures graduates from high school and college — stood at 13.8% in May, more than double the total surveyed urban jobless rate of 5%. That said, the jobless rate for the 16-to-24 age group is always high during graduation season.    “Fresh grads need to go through an ‘exploratory period’ after they leave campus, when they get to know themselves better and search for a suitable role during job search process,” he wrote.   The Chinese government is prioritizing job creation and is on track to add more than 11 million new urban jobs this year, with a GDP growth target of over 6%, according to the government work report announced in March.

Can Hong Kong elevate and seize upon the billion-dollar esports industry?
The esports business model is closely aligned with that of traditional sports, Sean Hung says, and the future of the industry will likely show a focus on sponsorships, large events and competitions, and exclusive media rights   As the economy reopens and the opportunity to engage with traditional sports grows, it may seem logical there would be a regression in the esports market, but according to Sean Hung, this is likely not the case. In fact, Orris suggested that “[we] may see a broadening of the different services offered,” by traditional sports platforms in response to the esports industry.  In terms of future growth, the panellists speak about several areas to watch out for, including the use of NFTs, sponsorships, developments with media rights, physical collectibles with digital capabilities, VR and AR inclusion, and major events and competitions for high-ranking teams. As these developments continue, Hong Kong’s location and infrastructure put it in a prime position to act as a hub for esports and major events.   With the Hong Kong Government promoting the growth of esports and increased interest in the industry, the overall outlook is very positive. With that said, some challenges need to be overcome, such as the speed of growth, the strategy for hosting large esport events, and the somewhat negative perceptions held by those unfamiliar with this new industry. In the coming year, the panellists encourage us to watch out for continued growth and development as esports become more mainstream and Hong Kong gains relevance in the industry.

France investigates fashion retailers for ‘concealing crimes against humanity’ in Xinjiang
Investigation linked to accusations against China over its treatment of Muslim Uygurs     Uniqlo France, Zara owner Inditex, France’s SMCP and Skechers being probed, source says

EU demands over Xinjiang ‘unacceptable’, says China
China on Friday accused the European Union of setting ‘unacceptable’ preconditions for visiting Xinjiang region in China. The Chinese mission to the European Union released a statement in this regard.    The mission also accused European Union of ‘hypocrisy’.

US accuses China of manipulating and exploiting United Nations and agencies
Nikki Haley, former US ambassador to the UN, writes: ‘Beijing is pursuing control of virtually every UN agency’    US likely to withdraw from international organisations in future if it believes it cannot play a leadership role, says Chinese observer

Intellectual debates in Xi’s China
Current developments seem like a throwback to the authoritarianism that characterized imperial times and the early People’s Republic, says Shi Ming. There is still room for debate, but it is small.   There is undoubtedly some diversity of opinion on Chinese social media. Mao is celebrated as the greatest leader ever, but so is Marshal Lin Biao, who is said to have tried to kill him. The ubiquitous praise of Xi exasperates many in China surfing the web. “We long for our leader Hu Jintao,” is a not an uncommon remark. Hu was Xi’s predecessor and is blamed by the current leader of having done too little to counter threats to the CCP’s monopoly on power. On “Jinri Toutiao” (Today’s Headlines), China’s largest social media portal with over 200 million subscribers, contentious posts can go undeleted for weeks. So there is still some room for debate in China, even if it seems very small.

What’s Behind Richemont’s Delvaux Purchase?
Richemont is expanding its leather goods portfolio by acquiring Belgian brand Delvaux. Will this give the luxury conglomerate ammunition to challenge LVMH?  Swiss luxury conglomerate Richemont will continue to expand its leather goods empire by acquiring the Belgian luxury leather goods house, Delvaux. The Belgian Maison was previously owned by the Hong Kong-based billionaire brothers Victor and William Fung in partnership with Singaporean state investment company Temasek. Delvaux, known by fashion connoisseurs as the oldest luxury leather goods house in the world, is a veritable gem. According to a Richemont press release: “Delvaux was the first to file an official patent for a leather handbag and can thus be called the inventor of the modern luxury handbag.”    Richemont believes that through this acquisition, Delvaux will be better positioned for its next stage of development.

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