Review meeting of phase one trade deal postponed indefinitely
Aug-18-2020 By : fcccadmin
A meeting originally planned on August 15 to review the progress of the phase one trade agreement between China and the U.S. has been postponed without a new date being set. According to the South China Morning Post the review was delayed because of scheduling conflicts with the annual Beidaihe meeting, where the top Chinese leadership discusses key policy issues. However, the Beidaihe meeting is an annual tradition around this time of the year, so the question remains why the review meeting was canceled at the last minute. According to the Global Times, the postponement was likely due to the lack of a good “atmosphere” after a series of aggressive moves from the U.S. against China in a wide range of areas, including crackdowns on Chinese tech firms. Though Chinese officials never confirmed the meeting, they have repeatedly called on the U.S. to create a better environment for the implementation of the phase one agreement, while maintaining that China’s long-standing commitment to carry it out has not changed in spite of rapidly deteriorating bilateral relations.
Some Chinese analysts said the delay was “not a bad thing” as China could continue buying U.S. goods and deflect increasing demands from the Trump administration in the run-up to the U.S. presidential election. News of the delay surprised the markets because the U.S. had struck a positive note the day before, with White House Economic Adviser Larry Kudlow saying that the administration was “satisfied with China’s progress”. “We have big differences with China on other matters, but regarding the phase one trade deal, we are engaging,” Kudlow said.
The last public communication between top negotiators dates back to May 8, when Vice Premier Liu He held phone conversations with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin over economic and public health cooperation.
As China-U.S. relations have deteriorated to the worst level since the establishment of diplomatic relations in 1979, the U.S. rejected a request from the Chinese government to widen the discussions beyond the trade relationship. By the end of the first half, China had purchased about 23% of a total target of USD170 billion of goods in 2020, according to Bloomberg, showing an uptick on a month-on-month basis from the 19% by May.
In recent weeks, U.S. President Donald Trump unveiled bans on U.S. transactions with the companies owning the Chinese apps TikTok and WeChat, and imposed sanctions on Chinese officials over the enactment of Hong Kong’s national security law. Trade remains one of the very few areas on which Washington and Beijing still engage but observers said it was no longer an anchor for the overall relationship. Renmin University International Relations Professor Shi Yinhong said China was unlikely to accept demands that the U.S. considers necessary to improve the relationship.
Ren Hongbin, Assistant Minister of Commerce, said relevant government departments in China have done a lot of work to put the phase-one deal into place, despite the Covid-19 pandemic. Tighter controls imposed by the U.S. on exports to China and other restrictive measures have impacted goods and services imports from the country, he said. The official said it was necessary for both sides to work together to strengthen cooperation and overcome difficulties. China’s goods trade with the U.S. declined by 3.3% on a yearly basis to CNY2.03 trillion in the first seven months of this year, with China’s exports to the U.S. falling by 4.1% and imports by 0.3% amid the Covid-19 pandemic and other economic uncertainties.
Although the U.S. government has pressured companies to cease operations in China, 18,800 foreign-funded companies were newly established across China between January and July, including 415 Japanese firms, 860 U.S. companies and 849 South Korean businesses. Foreign direct investment from the U.S. continued to flow into China, rising 6% year-on-year in the first half of 2020, according to China’s Ministry of Commerce (MOFCOM). Zong Changqing, Director General of the Department of Foreign Investment Administration (FIA) said that according to a recent survey about 99.1% of foreign-funded enterprises indicated that they would continue to invest and operate in China.
This overview is based on reports by the Global Times, South China Morning Post, China Daily and Shanghai Daily.
U.S. President Trump revokes Hong Kong’s trade privileges, imposes sanctions
Jul-22-2020 By : fcccadmin
U.S. President Donald Trump has revoked Hong Kong’s special trade privileges – putting it on par with any other Chinese city as foreign trade is concerned – and signed the so-called Hong Kong Autonomy Act, which mandates imposing sanctions on China for promulgating the Hong Kong National Security Law. According to the Act, the U.S. administration has 90 days to identify Chinese officials to be sanctioned, and must impose sanctions on designated individuals and entities within a year. In its turn, China may impose sanctions on Senators Chris Van Hollen and Pat Toomey, the sponsors of the Act, House Speaker Nancy Pelosi, and others.
The executive order followed Secretary of State Mike Pompeo’s official determination in May that China has undermined Hong Kong’s autonomy to a degree that it is no longer different from any other Chinese city. The autonomy act requires “mandatory sanctions” against any foreign individual for “materially contributing” to the violation of China’s commitments to Hong Kong under the Sino-British Joint Declaration and the Basic Law, the city’s mini-constitution. The Joint Declaration prescribes that the city would enjoy a “high degree of autonomy” until at least 2047.
Existing punitive tariffs the U.S. imposed on the mainland will be applied to Hong Kong exports. License exceptions for exports and re-exports to the city and transfer within the mainland are revoked, while exports of defense items are banned. According to the U.S. Department of Commerce’s Bureau of Industry and Security, U.S. exports subject to export control and shipped to Hong Kong amounted to between USD400 million and USD500 million each year from 2016 to 2018, consisting mainly of telecoms and information security products and electronics. In the decade to 2018, the U.S. recorded an annual trade surplus of at least USD30 billion with Hong Kong, the highest among U.S. trading partners. But amid the trade war between the United States and China, the surplus fell to USD26 billion last year. Extradition agreements between Hong Kong and the U.S. will be suspended.
The EU is also preparing sanctions on China, but EU foreign policy chief Josep Borrell said nothing specific had been decided. The EU extended the EU’s ban on exports of sensitive technology to Hong Kong. But analysts said that with each member having its own interests in relation to China or the U.S., and having different views about Hong Kong issues, it would be difficult to reach a consensus on whether to impose heavy sanctions on China, with likely opposition from Hungary and Greece. Sweden, Denmark and the Netherlands on the other hand, are likely to exert pressure to push the EU to be tough on China. German Chancellor Angela Merkel said that the new national security law for Hong Kong is no reason for the European Union to sever dialogue with China. “It is important that EU member states are trying to find a common policy toward China and a common answer,” Merkel said during a press conference with Italian Prime Minister Giuseppe Conte. Apart from an export ban on “sensitive technology” to Hong Kong, Borrell said EU governments could also review their extradition agreements with Hong Kong, review travel advice, increase scholarships for Hong Kong students and offer more visas to Hong Konger citizens. EU Ambassadors stressed the likely steps would not amount to economic sanctions.
The U.S. also imposed sanctions on some Chinese officials it alleges are involved in human rights violations in Xinjiang. One of them is Politburo Member and Xinjiang Party Secretary Chen Quanguo. China retaliated by imposing its own sanctions on Members of the U.S. Congress, including Marco Rubio and Ted Cruz, considered to be “China hawks”. The sanctions include restricting visas and freezing properties.
Meanwhile, as a result of the Covid-19 pandemic, Hong Kong is suffering as a tourist market. Hong Kong tourist arrivals enjoyed a mini-revival in June with 80% more visitors than the previous month, but that was still nearly 100% down on 2019. Latest figures from the city’s Tourism Board showed that 14,600 people visited last month, compared with 8,100 in May. June’s numbers represented a 99.7% year-on-year drop. Overall in the first six months of the year, arrivals were down 90% at 3.52 million from the same period in 2019. With Hong Kong now battling a third wave of coronavirus infections, and with stricter social-distancing measures in place, the Board was forced to postpone a campaign designed to boost the flagging industry by encouraging residents to spend and travel locally. “The tourism industry remains in winter,” Lawmaker Yiu Si-wing said. “We don’t see any light at the end of the tunnel yet.” Although all but three border checkpoints with mainland China remained closed, 18% more mainland visitors, or 6,633 people, crossed the border into the city in June, compared with May. The number was down 99.8% from the same period last year, the South China Morning Post reports.
In a move that would make Hong Kong less attractive to mainland Chinese professionals, China’s Tax Administration has decided to start taxing the income of Chinese citizens worldwide. This means that Chinese nationals working in Hong Kong are now facing a tax rate of as much as 45%, compared with the previous 15%. Some are considering moving back to mainland China or applying for a Hong Kong passport if they have lived in the city long enough to qualify. Hong Kong has granted more than 340,000 immigration visas to people from mainland China over the past five years.
China and U.S. imposing reciprocal sanctions over promulgation of Hong Kong National Security Law
Jul-07-2020 By : fcccadmin
U.S.-China relations are further deteriorating following the promulgation of the Hong Kong National Security Law. As the U.S. imposed sanctions on Chinese officials, the Chinese government retaliated by imposing visa restrictions on U.S. personnel who have “behaved badly” on Hong Kong-related issues. U.S. Secretary of State Mike Pompeo, Assistant Secretary for East Asia and Pacific Affairs David Stilwell and major sponsors of the Hong Kong Autonomy Act could be on the list of China’s visa countermeasures, according to Lü Xiang, Research Fellow of U.S. studies at the Chinese Academy of Social Sciences (CASS) in Beijing. Also on the list could be diplomats from the U.S. Consulate General in Hong Kong who frequently met with Hong Kong opposition leaders. Both countries did not publicly disclose which officials they were targeting.
The U.S. Senate also approved a law that would impose sanctions on banks that do business with anyone backing any “crackdown on the territory’s autonomy.” This could endanger Hong Kong’s status as an international financial center.
The U.S. ended exports of defense equipment and restricted dual-use technology to Hong Kong. “We can no longer distinguish between the export of controlled items to Hong Kong or to mainland China,” U.S. Secretary of State Mike Pompeo said. Hong Kong had previously been able to import dual-use technologies without the licenses required when the same items were sold to the mainland. The U.S. “is forced to take this action to protect U.S. national security,” Pompeo added. In May, the State Department had told Congress that Hong Kong was no longer considered autonomous from China.
The South China Morning Post notes that experts warn U.S. restrictions on the sale of sensitive technology to Hong Kong could “hammer the city’s re-export business”. Washington’s move is seen as the first in a potentially long line of steps towards removing the city’s special trading privileges, and a further tightening of the screw on China’s access to hi-tech goods. The plan, announced by U.S. Commerce Secretary Wilbur Ross just hours before Beijing passed the national security law for Hong Kong, could see the city relegated from the group of countries enjoying export license exceptions such as Australia, Britain and Taiwan, to a category that includes Russia, Syria and Venezuela. According to the U.S. Bureau of Industry and Security (BIS), license requirements covered 1.2% of U.S. exports to Hong Kong in 2018, while for China, license requirements covered 3% of total U.S. exports.
The U.S. Federal Communications Commission (FCC) designated China’s Huawei and ZTE as national security threats, which means that U.S. tech firms are banned from using the Universal Service Fund to purchase equipment or services provided by these suppliers. The announcement is a step forward in restricting 5G equipment made by Chinese companies from entering U.S. telecoms infrastructure. “Both companies have close ties to the Chinese Communist Party and China’s military apparatus, and both companies are broadly subject to Chinese law obligating them to cooperate with the country’s intelligence services,” said FCC Chairman Ajit Pai. The annual USD8.3 billion Universal Service Fund, established in 1997, is a program of telecoms subsidies for companies to purchase equipment and services. The FCC has recently moved toward revoking the licenses or refused to issue licenses for China Mobile, China Telecom, and China Unicom, commonly referred to as the “Big Three”, to provide telecoms services in the U.S., the South China Morning Post reports.
Foreign firms lukewarm about China’s relaunched Go West strategy
Jun-30-2020 By : fcccadmin
China’s latest blueprint to stimulate its western region is receiving a lukewarm welcome from foreign firms, many of which are suffering from “regional development plan fatigue”, the South China Morning Post reports. Referred to as the Go West strategy, the Chinese government attempts to corral investment into its lesser developed inland regions, as it seeks to add an engine for economic growth. The Go West strategy is also complementary to its Belt and Road Initiative in Central and South Asia. “The strategic importance of the western regions was elevated after Covid-19. China wants to strengthen its influence in Central, Western and Southeast Asia for national security reasons and to protect China’s central position in global supply chains,” said Dan Wang, Analyst at the Economist Intelligence Unit in Beijing. But the plan is still vague and has failed to capture the imagination of foreign firms in China, as many are distracted by the global economic downturn, a prolonged recovery from the coronavirus outbreak, and the risk of new outbreaks. “Unless you follow these issues really closely it is hard to understand what differentiates them from any of the other development initiatives that have come before, a lot of which has been very disappointing,” said Allison Sherlock, China Researcher at the Eurasia Group. “Investors have got regional development plan fatigue at this point.”
The plan is the latest in a succession of efforts to revive the economically underdeveloped regions stretching from Inner Mongolia in the far north to Xinjiang and Tibet in the far west, following the first western development plan 20 years ago. China’s industrial and commercial hubs are still mainly located along the coast, even as the territories designated by the government as “western regions” cover almost three-quarters of China’s land mass and a third of its population. But analysts and business figures are skeptical as to whether it has resonance among international firms as yet.
“This plan sounds interesting. But my first thought was: what’s that?,” said Paul Sives, Chairman of the European Chamber of Commerce in China’s Southwest Chapter in Chengdu, the capital of Sichuan province, which is one of the 12 provincial economies covered. Sives presides over a Chamber with 178 members, largely split between Chengdu and Chongqing. He said that among foreign firms the plan is not a topic of conversation. “At recent meetings with officials there has been a definite push to announce attractive policies for foreign investment. But in this current situation of Covid-19 and with the global economic situation being what it is, wouldn’t it be better to focus on the businesses that are already here and ensure that they stay here, rather than looking for foreign investment, which is very unlikely to come right now?,” Sives added.
The Samsung foundry in Xian in Shaanxi province suggests that some local governments are aware of the need to take care of their current investors, as well as attracting new ones. In April, China allowed 200 of the firm’s South Korean employees to return to Xian to continue expanding a memory chip plant, after agreeing to some exceptions to the sweeping coronavirus-linked travel ban for some vital technical staff. Sives said that European firms in the southwest have not had the same treatment, and that he had written letters to the Mayors of Chongqing and Chengdu, along with Sichuan’s Governor, to suggest that this issue should be a priority, rather than “pushing hard for new foreign investment in an economic environment that is falling apart”. Chapters of American Chambers of Commerce in China declined to comment on the plan, saying that their priorities are elsewhere, given that the U.S.-China rivalry continues to deteriorate, with American businesses caught in the crossfire, the South China Morning Post reports.
Those who have studied the Go West plan, suggested that it is likely to be met with a mixed response among international firms, some of which have been chastened by previous ventures outside traditional business and export hubs in the east. “European companies will contribute to the Go West campaign only where it aligns with their long-term business interests,” said Joerg Wuttke, President of the European Union Chamber of Commerce in China. “That’s a ‘yes’ for industrious and innovative up-and-comers like Sichuan and Chongqing, and a ‘no’ for areas that lack the stability that major investments require.” Wuttke added that rather than shooting for minor changes that “may result in a small increase in foreign investment”, Beijing should implement “concrete measures to create an open and fair business environment that would have a far greater impact”. “The same is true for all of China’s major regional development plans, whether it is the new announcements on the Hainan free trade zone, or the perennial efforts to rejuvenate the northeast,” he said. “European companies invest for the long-haul, and will commit to a region based on long-term factors, not short-term subsidies and tax deferrals.”
Foreign companies are also worried about the effect of U.S. sanctions imposed for alleged human rights violations in Xinjiang, a large area targeted by the Go West campaign. The textile industry fears that companies found to be producing garments using cotton grown in Xinjiang, where most of China’s crop is harvested, and linked to alleged forced labor, could be subjected to punitive actions, including export controls, an industry source told the South China Morning Post.
Master plan for Hainan free trade port unveiled
Jun-09-2020 By : fcccadmin
China unveiled a much-anticipated 14,000 words master plan for the Hainan free trade port, aiming to build the 35,000 sq km tropical island province into a globally influential free trade port by the middle of the century. Chinese President Xi Jinping announced the decision to develop Hainan into a pilot free trade zone during a visit to the island in April 2018. The blueprints include numerous policies, such as duty-free import status for a broad range of industries, the gradual opening-up of the capital account, more data access, and freer cross-border flows of people and capital. To achieve these goals, a set of free trade port policies focusing on trade and investment liberalization and facilitation across the entire island of Hainan will be rolled out by 2025 and be refined by 2035, according to the plan jointly issued by the Central Committee of the Communist Party of China and the Chinese government. The authorities expect to make Hainan, China’s largest special economic zone, the frontline of China’s integration into the global economic system. Chinese President Xi Jinping called for more efforts to free minds and enable bold innovations so reform measures can be rolled out immediately after successful test runs.
Chinese experts said the rise of a world-class free trade port from what are now picturesque beaches will redefine China’s relationships with its major trading and investment partners in the decades to come. “Hainan will morph from being the remote southernmost province of China to become the focal point of three large regions: the Chinese hinterland, Northeast Asia featuring South Korea and Japan, and the vast market of the Association of Southeast Asian Nations (ASEAN),” said Liang Haiming, Dean of the Belt and Road Institute at Hainan University. ASEAN is becoming increasingly important as a trade and investment partner of China amid intensifying trade conflicts between China and the U.S. ASEAN overtook the EU as China’s largest trading partner in the first quarter of 2020 and ASEAN’s standing will be further supported by the signing of the Regional Comprehensive Economic Partnership free trade agreement expected later in 2020.
The China-proposed Belt and Road Initiative (BRI) will also have Hainan as a vital node. “Companies from countries and regions along the route of the BRI are expected to flock in to invest in China’s special zones,” Liang said. New foreign direct investment (FDI) in the tourism, modern services and high-tech sectors will be exempted from corporate income tax until 2025, according to the blueprint. Foreign educational institutions in science, engineering, agriculture, and in medical and technical training, can also set up wholly-owned entities on the island. Tian Yun, Vice Director of the Beijing Economic Operation Association, told the Global Times that the Hainan free trade port will be an experiment in how China can become a globally recognized developed country. “It is a pilot project with China in the driver’s seat to lead the next round of globalization, amid a wave of anti-globalization sentiment in some major Western countries,” Tian noted. The master plan also contains proposals to build innovation centers and trial areas for blockchain technology, cruise ships and the yacht sector, the Global Times reports.
Instead of rushing for quick results, China will advance the plan gradually, the Shanghai Daily adds. Hainan will be given more autonomy in reform and will be encouraged to make both the laws and the regulatory system more flexible and efficient, thus clearing institutional obstacles hampering the flow of production factors. The construction of the free trade port will provide support to national strategic goals in terms of institutional innovation, growth impetus and greater opening-up. The master plan also envisions grasping opportunities in the technological and industrial revolution, focusing on tourism, modern services and high-tech industries.
Shanghai’s free trade zone (FTZ) unveiled a raft of measures aimed to further open up the Yangshan Special Comprehensive Bonded Zone. The eventual aim is to turn Yangshan, covering just over 8 kilometers and a key gateway to the East China sea, into an internationally recognized free trade port. The zone includes small Yangshan island, Luchao Port and the southern part of the Pudong International airport. Shanghai also wants to develop the integration of onshore and off-shore business, finance, trade and industry, Wu Wei, Deputy Director of the Lingang Special Area Administrative Committee, said. Yangshan island will focus on shipping and logistics, port services, the international trans-shipment trade, international transfer and assembly, and other businesses. Luchao Port will focus on attracting major international companies to establish their regional headquarters and becoming a hub for bulk commodities. It also aims to be a center for financial leasing, offshore trade, cross-border finance, international research and development, and manufacturing and to become a multifunctional cross-border trade hub. The southern part of the Pudong international airport will become a civil aviation innovation demonstration area, prioritizing aviation research and development and manufacturing, air freight cold chain logistics, and aviation services, the Shanghai Daily reports.
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