FINANCE and ECONOMICS
1. Tax deferrals offered to shore up growth
Stop us if you’ve heard this one before…
Chinese regulators are doing their utmost to help the private sector.
The latest agency to get in on the action is the State Administration of Taxation. On Monday, it announced measures intended to ease the tax burden on struggling companies (Caixin):
- “Local taxation bureaus should develop practical tax policies to support distressed companies with a good record of paying their taxes on time, according to the administration’s notice, implying further tax cuts and simplified tax reporting procedures could be on the way.”
The plan is to use a special provision baked into the tax law:
- “Taxpayers experiencing ‘special difficulties’ are allowed to request a tax deferral of up to three months, according to the tax collection law.”
- “The ‘special difficulties’ are defined as taxpayers who suffer great loss due to circumstances outside of their control.”
Get smart: Tax deferrals may help the worst-hit companies from going under during an economic slowdown. But it’s not the kind of thing that leads a business to ramp up production or investment.
Caixin: China Lets Struggling Private Companies Delay Tax Payments
FINANCE and ECONOMICS
2. The monetary-fiscal debate is back
Xu Zhong is at it again.
Who is Xu? He is the head of the central bank’s research bureau. You probably remember him from the August 9 Tip Sheet, in which we highlighted his public spat with the Ministry of Finance (MoF).
Some context: Monetary and fiscal authorities have been arguing for months about who should do more to support the economy – with both sides saying the other should carry the load. The State Council tried to settle the debate by saying both need to do their part.
Apparently that wasn’t enough for Xu. Speaking at a forum on Tuesday he made the argument again (Reuters):
- “Monetary policy is more effective in curbing economic overheating than stimulating growth.”
- “Our country should implement more active fiscal policy…[which] should focus on boosting infrastructure investment.”
But he doesn’t want to overdo it either:
- “But Xu cautioned against fiscal stimulus that was too forceful.”
- “China’s policymakers have been working for several years to tackle a mountain of debt…”
Get smart: That last comment shows again how policymakers are trying to have their cake and eat it too (see Monday’s Tip Sheet).
Get smarter: The fact that Xu is at it again shows how a lack of policy direction has opened some space for debate.
Reuters: China should lean more on fiscal policy to spur growth: central bank researcher
POLITICS and POLICY
3. Daigou clampdown
Authorities are clamping down on the daigou trade.
Some context: Daigou is the practice of hiring someone to buy goods overseas on behalf of a Mainland resident and then ship them back through the mail.
The advantage of daigou: It avoids import tariffs, sales tax, and other restrictions on imported products.
But new regulations seek to regulate daigou more stringently (FT):
- “A new law…requires all daigou who advertise online to register with the government and pay full import taxes.”
Authorities are already being more stringent:
- “In recent months, customs have stepped up airport checks, while Chinese courts have jailed several merchants for up to 10 years for tax evasion.”
The big winners are the e-commerce platforms:
- “The clampdown is deterring daigou traders and channelling customers towards cross-border ecommerce sites, which allow sales of imported goods at lower tax rates.”
International e-commerce is set to enjoy at least another year of preferential treatment:
- “At this month’s [Shanghai import] expo…officials announced they would delay new rules governing the sector for another year.”
- “Those regulations…would increase import taxes and ban any goods not on a specified list of approved products.”
Get smart: The crackdown on daigou and the delayed regulations on e-commerce reflect the clout of China’s large e-commerce platforms.
POLITICS and POLICY
4. Heads roll in Shaanxi
The National Supervisory Commission (NSC) is already getting things done.
Case in point: Shaanxi Province.
Some context: The NSC is a new branch of government, established in March, that extends the remit of the Party discipline authorities. The NSC is focused as much on penalizing poor policy implementation as it is on going after corruption.
One mini-case study:
- Over the past several years, Xi Jinping has sent six different instructions to officials in Shannxi Province and the city of Xi’an, telling them to tear down illegal villas that have been constructed at the foot of the Qinling mountains.
- Qinling is an important ecological protection zone in the middle of China.
- The villas have been expanding in the area for the past 20 years, and are damaging the environment.
- But several senior local officials either own a villa or are in hoc to the developers who built them. So nothing has gotten done.
- In July, Xi sent in a team to the area – led by Xu Lingyi, deputy head of both the party discipline inspector (CCDI) and the NSC.
- By the end of October, the mayor of Xi’an was removed from his post.
Get smart: The fact that local officials ignored six (!) instructions from Xi gives lie to the notion that local officials have fallen into line in the Xi era. That means the discipline campaign is far from over.
POLITICS and POLICY
5. Xi and Duterte sign 29 agreements
Xi Jinping arrived in the Philippines on Tuesday for a two-day visit. It was the first visit by a Chinese head of state since 2005.
Relations have been on the upswing in recent years (Time):
- “Beijing’s relations with Manila stagnated over long-seething territorial rifts in the South China Sea until Duterte won the presidency in mid-2016 and rebuilt ties with China.”
- “Duterte’s rapprochement has fostered a new era of warming relations with the Asian economic powerhouse, with which he has sought trade and investment, infrastructure financing and weapons to fight insurgents.”
Xi and Duterte got down to business, overseeing the signing of 29 bilateral agreements.
This will make Xi happy:
- The two signed an MOU to cooperate on the Belt and Road.
But the most important agreement was one to jointly explore for oil and gas in disputed areas of the South China Sea.
Why it matters: It could potentially serve as a template for cooperation with other countries with which China has territorial disputes.
Get smart: Just because it could serve as a template, doesn’t mean that it will serve as a template.
Time: China’s President Xi Jinping Visits the Philippines to Deepen Ties With the U.S. Ally
SCMP: China and Philippines sign oil and gas exploration deal as Xi Jinping meets Rodrigo Duterte
POLITICS and POLICY
6. Dolce and Gabbana doubles down on bad behavior
Italian fashion house Dolce and Gabbana are offering a masterclass in how to offend their Chinese customers.
First, they released a series of questionable commercials that offended Chinese netizens (CNBC):
- “The series of three videos, entitled ‘Eating With Chopsticks,’ show a woman eating large plates of pizza, spaghetti and a giant Italian cannolo pastry, while a male voiceover tells her what to do.”
- “Some people have reacted angrily to them, with one writing ‘Orientalism is expressed so explicitly in this ad. It’s [a] very offensive to portrait all Chinese ppl.'”
Some angry online comments would likely have been the end of it. But then company co-founder Stefano Gabbana decided to take to his Instagram (pinkvilla.com):
- “from now on in all the interviews that I will do international I will say that the country of ????? is China.”
The company alleges that their account was hacked.
The result: The Ministry of Culture and Tourism just cancelled a Dolce and Gabbana fashion show scheduled for tonight in Shanghai.
Get smart: The fact that a government agency stepped he in underscores how closely tied market strategy and government affairs are in China. Pissing off your customers is never good, but once the government is involved, things only get worse.
CNBC: Dolce and Gabbana accused of racism in Chinese ‘chopsticks’ ads
Pinkvilla: Diet Prada leaks controversial chats with Stefano Gabbana over racist Chinese ad
Phoenix: DandG涉辱华风波 文旅部下达通知品牌上海时装秀取消