China
US institutions will keep Trump’s currency war at bay, but for how long?
Author: Adam Triggs, ANU
‘China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices’ tweeted the President of the United States. ‘Not anymore!’ Mr Trump’s assertions on currencies range from overblown to completely baseless. But this has not stopped his actions likely to endanger the US and global economies.
US authorities labelled China a currency manipulator on 5 August 2019 for the first time in 25 years after the RMB fell below the 7 RMB-per-dollar level. This was despite China’s actions failing to satisfy the US Treasury’s own definition of a currency manipulator. While US institutions may keep President Trump in check in the near term, this represents a dangerous escalation in tensions and a serious challenge to financial markets, US institutions and the rules-based system.
An undervalued exchange rate makes a country’s exports cheaper than they otherwise would be compared to those of other countries. Economists measure whether an exchange rate is undervalued by calculating what an exchange rate ought to be based on the characteristics of that economy, how much it trades with the world, how much it invests overseas and how much other countries invest in it. If an exchange rate is below what these fundamentals imply it ought to be, it is possible (though not conclusive) that the country is depreciating its exchange rate to achieve a competitive advantage.
This has not been the case for China. The IMF judges that China’s exchange rate in 2018 was broadly in-line with its fundamentals. This is not new. The IMF reached the same conclusion in its analyses of China’s currency for at least the last five years and, before that, found that China’s exchange rate was only marginally undervalued. US Treasury analysis comes to the same conclusions, supported by the fact that China’s current account surplus is almost non-existent: down from 10 per cent of GDP in 2007 to almost zero today.
Economists also assess whether a country is manipulating its exchange rate to achieve a competitive advantage by monitoring whether they persistently engage in one-sided interventions in foreign exchange markets. The US Treasury has never been able to demonstrate this for any major US trading partner, including China.
It is therefore perplexing why China has suddenly been labelled as a currency manipulator, a label which opens the door to sanctions and further trade restrictions. The trigger was that, for the first time in 10 years, China’s central bank has allowed the RMB to fall below the 7 RMB-per-dollar level. But the key word in this sentence is ‘allow’. A slowing Chinese economy, weakening exports due to US trade restrictions and an almost balanced current account means a weaker Chinese currency is to be expected. ‘They are not driving the currency down’ notes Marc Chandler, Chief Market Strategist at Bannockburn Global Forex ‘but just accepting market forces’.
Cornell University’s Eswar Prasad notes that China doesn’t even meet the US Treasury’s own definition of a currency manipulator. Mark Sobel, a 40-year US Treasury veteran, made a similar point. ‘It [China] has not been intervening’, he says. ‘By Treasury’s own foreign exchange-report criteria, China doesn’t even come close to meeting the terms for manipulation’. Labelling China as a currency manipulator, contrary to its own criteria, undermines the credibility of the US Treasury.
China is not alone. President Trump has regularly accused Europe and Japan of pushing down the value of their currencies to unfairly compete with the United States. It is true that the exchange rates of Germany, Japan, South Korea, Mexico and the euro area have been persistently undervalued in recent years. But even for these economies, the reality is more complex than what Trump suggests.
Germany’s exchange rate, for example, is undervalued by between 8 and 18 per cent. But this is primarily because it shares an exchange rate with the rest of the euro area. And although the common currency gives Germany an undervalued exchange rate, it gives France, Italy and a host of other euro area economies an overvalued exchange rate, netting-out most of the euro-wide impact.
US punishment of these economies for currency manipulation would rightly leave them feeling aggrieved and make the prospect of a currency war more likely. The costs would be substantial. Most economic models suggest that a currency war will distort trade and investment…
Business
China’s Golden Rooster Film Festival Kicks Off in Xiamen – Thailand Business News
The 2024 China Golden Rooster and Hundred Flowers Film Festival began in Xiamen on Nov 13, featuring awards, cultural projects worth 31.63 billion yuan, and fostering international film collaborations.
2024 China Golden Rooster and Hundred Flowers Film Festival Opens
The 2024 China Golden Rooster and Hundred Flowers Film Festival commenced in Xiamen, Fujian province, on November 13. This prestigious event showcases the top film awards in China and spans four days, concluding with the China Golden Rooster Awards ceremony on November 16.
The festival features various film exhibitions, including the Golden Rooster Mainland Film Section and the Golden Rooster International Film Section. These showcases aim to highlight the achievements of Chinese-language films and foster global cultural exchanges within the film industry.
On the festival’s opening day, a significant milestone was reached with the signing of 175 cultural and film projects, valued at 31.63 billion yuan ($4.36 billion). Additionally, the International Film and Television Copyright Service Platform was launched, furthering the globalization of Chinese film and television properties.
Source : China’s Golden Rooster film festival opens in Xiamen – Thailand Business News
China
Italy and China New DTA Set to Take Effect in 2025: Important Changes and Implications
Italy ratified an upgraded Double Tax Agreement (DTA) with China, effective in 2025, to reduce tax burdens, prevent evasion, and enhance investment. The DTA introduces modern provisions aligned with international standards, targeting tax avoidance and improving dispute resolution for Italian businesses.
Italy recently ratified the upgraded Double Tax Agreement (DTA), which will finally take effect in 2025. This agreement was signed in 2019 and was designed to reduce tax burdens, prevent tax evasion, and promote Italian investment in China.
On November 5, 2024, Italy’s Chamber of Deputies gave final approval to the ratification of the 2019 Double Tax Agreement (DTA) between Italy and China (hereinafter, referred to as the “new DTA”).
Set to take effect in 2025, the new DTA is aimed at eliminating double taxation on income, preventing tax evasion, and creating a more favorable environment for Italian businesses operating in China.
The ratification bill for the new DTA consists of four articles, with Article 3 detailing the financial provisions. Starting in 2025, the implementation costs of the agreement are estimated at €10.86 million (US$11.49 million) annually. These costs will be covered by a reduction in the special current expenditure fund allocated in the Italian Ministry of Economy’s 2024 budget, partially drawing from the reserve for the Italian Ministry of Foreign Affairs.
During the parliamentary debate, Deputy Foreign Minister Edmondo Cirielli emphasized the new DTA’s strategic importance, noting that the agreement redefines Italy’s economic and financial framework with China. Cirielli highlighted that the DTA not only strengthens relations with the Chinese government but also supports Italian businesses, which face increasing competition as other European countries have already established double taxation agreements with China. This ratification, therefore, is part of a broader series of diplomatic and economic engagements, leading up to a forthcoming visit by the President of the Italian Republic to China, underscoring Italy’s commitment to fostering bilateral relations and supporting its businesses in China’s complex market landscape.
The newly signed DTA between Italy and China, introduces several modernized provisions aligned with international tax frameworks. Replacing the 1986 DTA, the agreement adopts measures from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and the OECD Multilateral Instrument (MLI), targeting tax avoidance and improving dispute resolution.
The Principal Purpose Test (PPT) clause, inspired by BEPS, is one of the central updates in the new DTA, working to prevent treaty abuse. This clause allows tax benefits to be denied if one of the primary purposes of a transaction or arrangement was to gain a tax advantage, a move to counter tax evasion through treaty-shopping.
| This article was first published by China Briefing , which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, and India . Readers may write to info@dezshira.com for more support. |
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Business
China’s New Home Prices Stabilize After 17-Month Decline Following Support Measures
China’s new home prices fell for the 17th month in October, declining 0.5% from September, but slowing, indicating potential market stabilization amid supportive measures. Second-hand home prices showed mixed trends.
Decline in China’s Home Prices Stabilizes
China’s new home prices continued to decline in October for the 17th consecutive month, although the drop showed signs of slowing. Recent support measures from Beijing appear to be inching the market toward stabilization, as evidenced by a lighter decline compared to earlier months.
Monthly and Yearly Comparisons
According to the latest data from the National Bureau of Statistics, new home prices across 70 mainland cities fell by 0.5% from September, marking the smallest decrease in seven months. Year-on-year, prices dropped by 6.2%, slightly worse than the September decline of 6.1%. In tier-1 cities like Beijing and Shanghai, prices decreased by 0.2%, a smaller fall than 0.5% in the previous month.
Second-Hand Home Market Trends
Second-hand home prices in tier-1 cities experienced a 0.4% increase in October, reversing a 13-month downward trend. Conversely, tier-2 cities observed a 0.4% drop in second-hand prices, while tier-3 cities faced a similar 0.5% decline. Overall, recent trends indicate a potential stabilization in China’s property market.
Source : China’s new home prices slow 17-month decline after support measures kick in
- China’s Golden Rooster Film Festival Kicks Off in Xiamen – Thailand Business News
- Italy and China New DTA Set to Take Effect in 2025: Important Changes and Implications
- China’s New Home Prices Stabilize After 17-Month Decline Following Support Measures
- U.S. national debt is its Achilles’ heel, but China sees it as an opportunity
- Business Update: Southern Sun Reports Earnings Growth; China Stimulates Property Market – News24
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