China
Foreign firms in China resist Trump’s trade war
Author: Nicholas Lardy, PIIE
In defence of his trade war with China, US President Donald Trump has yet again let his Twitter fingers get ahead of reality. He tweeted in late August 2019 that ‘China wants to make a deal so badly’ and that ‘Thousands of companies are leaving because of the Tariffs’. This supposed exodus of foreign firms is another element informing his view that China is under increasing economic pressure and is anxious to accept US terms for a trade agreement.
Yet the facts fail to support Trump’s view as is the case with his claim that US tariffs are slowing China’s economy and increasing its unemployment.
The trade war is not dampening foreign direct investment (FDI) into China. Non-financial FDI is currently running at almost US$140 billion annually, meaning that thousands of new foreign firms are established in China every month. Since the tariff war broke out in mid-2018 FDI has expanded at about 3 per cent annually, a similar pace to the previous five years. And the recent data does not include the massive new investments in chemical plants — China recently approved wholly foreign-owned investments by both ExxonMobil and BASF, each at a record US$10 billion.
Continued large inbound FDI flows are consistent with the expectations of member companies of the US–China Business Council. The Council’s recent member survey found that 97 per cent reported that their operations in China are profitable and 87 per cent said they had not relocated and had no plans to relocate any of their activities. In short, there is little support for the view that large numbers of foreign firms are fleeing China — the opposite seems to be the case.
A few foreign firms have recently left China but two points need to be kept in mind.
First, foreign firms have been moving out of China for decades. Some firms enter with business strategies that fail, leading to their exit. The best example is Occidental Petroleum. It entered China in 1983 with a flawed business strategy and was forced to write off its US$250 million investment when it withdrew in 1990. Other foreign firms, especially those exporting the most labour-intensive consumer goods, flourished in China for many years. But as local wages continued to rise, these firms eventually moved production to other countries with much lower wages such as Bangladesh.
Second, China has over a half million foreign-invested firms. Anecdotes of a handful of firms leaving China do not confirm a broad trend.
While some foreign firms report that they are considering alternatives to producing in China, it remains to be seen how many will actually leave and how many of those that leave will relocate to the United States. A large share of foreign firms in China, especially US firms, are there primarily to produce goods to sell on China’s still rapidly growing domestic market. These firms have no incentive to relocate within Asia, much less to the United States.
Caterpillar, for example, has more than 30 plants in China to make construction equipment that is mostly sold on the domestic market. The high costs of shipping relative to value make it infeasible to make heavy machinery in the United States and then export it to China. Caterpillar, like other foreign producers of capital goods in China, is very unlikely to relocate any of its production.
And relocating production out of China is easier said than done. Foreign affiliates operating in China draw on an extensive local supply chain that has been built up over decades and employ about 25 million Chinese workers, a significant share of which are skilled engineers and managers. Vietnam is commonly suggested as an alternative but it could only absorb a tiny fraction of production by foreign enterprises now operating in China. Vietnam’s total non-farm employment is only 44 million and foreign firms operating there already report shortages of skilled engineers and managers.
Relocating a significant number of foreign firms from China to Vietnam would put further upward pressure on Vietnam’s already rising wages, intensify existing skilled labour shortages and stretch its limited logistical capacity to breaking point.
Apple contracted Taiwanese manufacturer Foxconn to produce 220 million iPhones in China in 2018. Foxconn would face a number of difficulties if Apple asked the firm to relocate from China as Foxconn employs hundreds of thousands of factory workers and tens of thousands of skilled engineers and managers in China and draws on a network of more than 1500 local suppliers.
It appears that…
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
- Vietnam’s Approach to China: A Balance of Cooperation and Struggle