The cash-strapped Mongolian government has reached a deal with the International Monetary Fund (IMF), World Bank, Asian Development Bank, and sovereign nation funds from Japan, South Korea, and China to bail out its stricken economy. A US$5.5 billion bailout has been agreed to, part of which includes a US$440 million loan package.
China Plans Revamp of its Medical Devices Industry, Date Set for India’s GST, and Details of Hong Kong’s DTA With Russia
On June 20, 2016, the China Food and Drug Administration (“CFDA”) proposed the “Priority Review Designation Procedure for Medical Devices (Exposure Draft)” in an effort to cut through the persistent bureaucratic red tape in the registration process of medical devices and fulfill China’s rising clinical demand for medical devices.
The release of the Exposure Draft came after the State Council’s publishing of the “Opinions on the Reform of Review and Approval System for Drugs and Medical Devices” back in 2015, the focal point of which was the inefficiency of the medical device approval process. In response, the CFDA proposed a new approval mechanism – “Priority Review Designation Procedure” – and drafted the eligibilities, application and opposition procedures, as well as other requirements for joining the special treatment.
China Introduces New Transfer Pricing Rules, India Set to Implement National Education Policy, and Opportunities in ASEAN’s Emerging Sharing Economy
On June 29, China’s State Administration of Taxation (SAT) issued the “Announcement on the Administration of Related-party Transactions and Contemporaneous Documentation (SAT Announcement  No. 42)”, which introduces a three-tiered documentation framework that will replace its current transfer pricing documentation rules.
The Announcement was released following the opinion-seeking draft publicized by the tax bureau in September 2015, and is largely consistent with the BEPS (Base Erosion and Profit Shifting) project launched by the Organization for Economic Cooperation and Development (OECD). Compared to the 2015 Draft – which has been discussed in our previous article – the Announcement revised some terms and further clarified the requirements for reporting companies, as well as the information they need to submit. Below, we provide a brief summary of the key information taken from the Announcement, and offer suggestions for multinational companies seeking to repatriate their profits from China to their headquarters.
China Targets Reduced Meat Consumption, India Looks to Allow Foreign Law Firms to Practice, and Malaysia Raises Minimum Wage
The Chinese government has issued new dietary guidelines recommended by the country’s Health Ministry, which aim to reduce the country’s meat consumption in half by 2030. China consumes around 30 percent of the world’s meat, including half of its pork, even though average per capita meat consumption is half that of the average American or Australian. The guidelines recommend eating around 40-75 grams of meat per day, closer to recommendations made by the UK Department of Health.
Some commentators have pointed out that these guidelines have the potential to be instrumental in reducing the country’s greenhouse gas emissions. Globally, the livestock industry produces 14.5 percent of greenhouse gas emissions, totaling more than that of the global transport sector. If the guidelines are met and China’s meat consumption is reduced by 50 percent, one billion tons of carbon dioxide emissions could be cut. In addition, it would alleviate stress on land and water resources which would be significantly strained if meat consumption continues to increase at the current rate.
New 24/7 Trading Law in India, the Philippines to Lower its CIT, and an Analysis of China’s e-Waste Crisis
Late last month, the United States Congress introduced a new bill aimed at stemming the country’s regular flow of electronic waste to China. The U.S. is one of many foreign countries that exports huge amounts of e-waste to the Middle Kingdom – albeit often unintentionally – contributing to the numerous health and environmental problems that such waste creates, and leading to e-waste becoming a source of Chinese counterfeit electronic goods that are fed back into the global market.
But China’s status as a dumping ground for the world’s e-waste is only a part of the problem, and increasingly a comparatively smaller one. China has in place a blanket ban on all e-waste imports, and although several loopholes exist that illicit exporters continue to exploit, the country is now producing greater amounts of e-waste domestically. Government programs and general recycling efforts to tackle the issue have proven either ineffective or outright dangerous, raising the question of whether foreign involvement can form a part of China’s e-waste solution.
China’s NGO Law and the Higher Education Industry, Lessons from Patanjali on the Indian Market, and an ASEAN Regional Minimum Wage
China’s recently released law to regulate the activities of foreign non-governmental organizations (NGOs) has raised fresh doubts regarding foreign investment into China’s higher education industry. Set to come into effect in January next year, the law contains provisions that will further regulate education institutions with operations in the country and affect the entry strategy of new players looking to enter the market.
Powered by China’s economic development and a rapid increase in university student enrollment, there has been a sharp rise in interest from foreign education providers to invest in China since the turn of the century. The industry is potentially hugely profitable, with China’s increasingly affluent population willing to pay more in tuition fees to enroll at foreign education institutions, which are generally seen as more prestigious. However, Sino-foreign education institutions have long been subject to special scrutiny in China, resulting in 70 percent of Sino-foreign education applications being rejected in 2011. The new law is set to further complicate the industry for foreign education providers, raising questions of how foreign investment can effectively be channeled.
A Comparison of WeChat and Alipay, India’s Signing of OECD Reporting Agreement, and Vietnam’s Updated Criminal Code
The Chinese Central Bank has announced significant regulatory change to the operation of online payments, widely affecting service providers and their millions of users in China. From July 1, 2016, third party online payment service providers must ensure that all user accounts bear the real name of the account holder. In addition, accounts will be categorized into three types based on security requirements, capped with maximum annual payments. The policy was created with an aim to prevent large deposits of money into third party payment accounts unprotected from bank deposit insurance.
In 2015, the size of China’s third party mobile payments market reached RMB 9.31 trillion, up 57.3 percent from 2014. Analysts expect that the industry will continue to grow at a fast rate in the coming years, reaching RMB 52.11 trillion by 2018. Mobile payments have become an extremely useful tool for companies to optimize in their China market strategy. Here, we examine the two largest third party online payment platforms used in the country: Alipay and WeChat.
China is expected to increase its wind power installed capacity from the current 149 gigawatts (GW) to 495 GW by 2030, according to a recently released report from GlobalData. This substantial rise would represent a Compound Annual Growth Rate (CAGR) of nine percent and is in line with plans laid out in China’s 13th Five Year Plan, which targets an increase in domestic wind capacity to 250 GW by 2020.
China already dominates the global wind energy market. Last year, the country overtook the EU to become the industry world leader by adding 30.5 GW to its overall installations – fully half of what was installed worldwide in 2015. However, while wind power is undeniably a rising segment of the Chinese economy, the sector has experienced a sharp decrease in foreign participation over the past ten years. Despite having an attractive incentive framework for investment in place, 98 percent of the market is now controlled by domestic players compared to approximately 40 percent in 2006. With more growth predicted for the future, the question now posed to foreign alternative energy companies looking at China as a potential production base is how, and indeed if, to enter this dynamic yet seemingly unwelcoming market.
China’s Elderly Care Industry, Fish Deaths in Vietnam, and Duterte’s Economic Plan for the Philippines
The latest issue of China Briefing Magazine, titled “China Investment Roadmap: the Elderly Care Industry“, is out now and available to subscribers as a complimentary download in the Asia Briefing Bookstore through the month of May.
In this issue of China Briefing magazine, we present a roadmap for investing in China’s elderly care industry. We provide the latest market research, detail the procedures and benefits for foreign direct investment, and examine the main barriers and risks that foreign companies are likely to encounter when entering the market.
Since China’s reform and opening up in the 80s, foreign NGOs have been instrumental in channeling capital, intelligence and expertise into the country’s development and expansion. Over the years, this contribution has alternately been welcomed and looked upon with skepticism by the state. Now, with the recent ratification of the “Administrative Law on Activities of Overseas Non-government Organizations within the Territory of the People’s Republic of China” – the first comprehensive guiding law for foreign NGOs – China’s position on their activities is set to take a new and more restrictive form.
Promulgated on April 28 and due to come into effect on January 1, 2017, the new law places stringent constraints on the registration, operation and funding of foreign NGOs in the name of protecting national security. It is estimated that around 7000 foreign groups and organizations with existing operations in China will be affected, and that the incorporation process for new NGOs will be significantly more difficult.
Many in the industry already saw it coming, but China now officially outranks the United States in one more category: sales of new-energy vehicles (NEVs). According to 2015 statistics provided by the China Association of Automobile Manufacturers (CAAM), China produced and sold over 300,000 units of NEVs, an increase of over 300 percent year-on-year. Other areas of the industry are almost as dynamic: battery electric vehicles (BEVs) totaled almost 250,000 units during the same year – an increase of over 400 percent year-on-year – while plug-in hybrid electric vehicle (PHEV) sales totaled over 80,000 units, increasing almost 200 percent year-on-year.
Conversely, the United States saw its NEV sales slow down as oil prices decreased. This change in ranking comes as China continues to strengthen its push towards green development. NEVs, which here refers to all-electrics, plug-in hybrids, and hydrogen fuel-cell vehicles, is one of the key industries that China will foster for at least the next half-decade.
Effective as of May 1, China completed the last step in its extensive business tax to VAT reform by extending the previous pilot programs to cover the remaining sectors of finance, life services, property and construction. The reform was initiated with the aim to reduce the tax burden of businesses, with an estimated 97 percent of tax payers to pay less tax with savings of over RMB 300 billion.
Previously, the real estate and construction industries were subject to three and five percent business tax (BT) respectively, but both are now subject to 11 percent VAT. There is no value in making a direct comparison between the two, however, as VAT is assessed on a net basis, and BT on a gross basis.
Recent legislative and judicial actions in India’s capital of Delhi have caused significant disruption to the establishment of businesses. In the past few weeks, Delhi has implemented two measures to combat the rising levels of pollution in the mega city. Both have influenced various facets of Delhi’s economy, were particularly harsh on certain businesses, and inadvertently punished consumers in the city.
The plans were introduced with noble intentions, but affected business operations for numerous companies. Most of these companies were underprepared to cope with changes in Delhi’s economic landscape. This underlined the importance of preparation and adaptation for businesses that operate in India – companies that keep abreast of changes in the legislative and judicial space can mitigate the risks that their businesses face.
On May 6, LG Display Group, a subsidiary of South Korea’s LG Electronics, pledged US $1.5 billion to establish a screen factory in Hai Phong. Launching next year, the factory will produce high-tech digital displays using LG’s organic light emitting diodes. This investment comes just a year after LG opened a US $1.5 billion factory in Hai Phong and follows similar investments from the likes of Samsung and Nokia.
Over the past four years, Vietnam’s electronics sector has grown by 78 percent, becoming the country’s number one export in 2013. With pro-foreign investment policies and a competitive labor force, Vietnamese electronics production has also quickly surpassed regional rivals such as Thailand and the Philippines and is expected to grow at a modest five percent over the next two years, positioning Vietnam to surpass Singapore as the region’s fifth largest electronics exporter.
Spurred on by domestic demand, the Philippine economy is performing the best out of the ASEAN-5, according to the IMF’s latest Regional Economic Outlook (REO). Gross Domestic Product is forecast for growth rates of 6.0 percent for 2016 and 6.2 percent for 2017. Underpinning these gains, higher public consumption and investment are pointed to as the drivers of demand as the country progresses from its rate of 5.8 percent in 2015.
Private demand is shown to be increasing as a result of low unemployment, low oil prices, and higher worker remittances. Private investment is also expected to perform well as infrastructure has developed and public-private partnership projects are on the rise. The Philippines didn’t suffer too badly from the spillover effects coming from China’s slowdown, however, the country needs to do more to catch up on regional export levels.
Mikhail Dmitriev, President of New Economic Growth in Moscow, is one of Russia’s leading strategic thinkers, and an ex-member of the Russian Government, being Vice-Minister for Finance from 2000-2004 and chairing the Centre for Strategic Research in Moscow, the countries top think-tank.
In his recent Asia House presentation “Russian Society and the Economic Turning Point: Opportunities Missed, Opportunities Taken”, Dmitriev’s comments are, for a change, more upbeat about Russia’s immediate prospects. While the difficult situation in Russia is old news, according to official data provided by the Federal State Statistics Service (FSSS), in 2015 Russia’s GDP decreased by 3.7 percent and industrial production dropped by 3.4 percent. Based on that data, it appears that there are no reasons to be optimistic in 2016. The fundamental factors that caused the recession are still there: oil prices are low, and international sanctions have not been lifted.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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The Asia Sourcing Guide 2015
In this issue of Asia Briefing, we explain how and why the Asian sourcing market is changing, compare wage overheads, and look at where certain types of products are being manufactured and exported. We discuss the impact of ASEAN’s FTAs with China and India, and highlight the options available for establishing a sourcing model in three locations: Vietnam, China, and India. Finally, we examine quality control in each of these markets.
Managing ASEAN Expansion from Singapore
For the second issue of our ASEAN Briefing Magazine, we look at the benefits of using Singapore a hub for the management of regional operations throughout ASEAN. We firstly focus on the position of Singapore relative to its competitors, such as the Netherlands and Hong Kong. We then provide step-by-step instructions on corporate establishment, and provide expert insight on maximizing returns through the reduction respective tax burdens.
The 2015 Asia Tax Comparator
In this issue, we compare and contrast the most relevant tax laws applicable for businesses with a presence in Asia. We analyze the different tax rates of 13 jurisdictions in the region, including India, China, Hong Kong, and the 10 member states of ASEAN. We also take a look at some of the most important compliance issues that businesses should be aware of, and conclude by discussing some of the most important tax and finance concerns companies will face when entering Asia.