This episode contains segments on the extension of China’s IIT policy for foreign nationals; on China’s manufacturing activity that continued to decline in August; on the slowing decline of the profits of China’s larger industrial firms; on China’s newly established bureau that is to promote the development of the country’s private economy. From the Chamber’s side: join us online or in person in Beijing on 13th September to hear prominent experts discuss issues related to FDI in China.
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Announcement on the Continuation of the Implementation of Non-taxable Allowances of Individual Income Tax Policies for Foreign National individuals
China Official Manufacturing and Services PMI, August (in Chinese)
China Industrial Profits, January-July (in Chinese)
New bureau set up to promote the development of China’s private economy
Chamber event: Explore the new landscape of foreign direct investment in China
XINHE: Hello and welcome to China Shortcuts,
XINHE: On 29th August, China’s State Council and the State Taxation Administration jointly announced that they would extend the current individual income tax regime for foreign nationals, under which certain expenses—including housing, children’s education and language training—are treated as non-taxable.
MARIANN: This is positive news for the foreign business community, as the extension can help to stem the outflow of foreign talent that has taken place over the last few years. Announced on the margins of the start of the new school year, it is especially welcome news for families that have made the decision either to come to or remain in China. However, it is likely that more policies that can attract new talent will still be needed.
XINHE: Manufacturing activity in China continued to decline in August, while the rate of expansion in services activity sank to the lowest level recorded all year thus far.
MARIANN: China’s official manufacturing purchasing managers’ index or PMI climbed to the highest level of the past five months, but it still remained slightly under the 50-point benchmark separating growth from contraction. Activity at larger manufacturing firms expanded in August, but continued to shrink at small- and medium-sized companies. The increase in production accelerated from July, and new orders also expanded after an extended period of decline. At the same time, however, manufacturing firms seemed to have stayed cautious about hiring, as employment levels dipped slightly further in August.
Meanwhile, the non-manufacturing PMI showed a weakened rate of growth in August, compared to data from the previous seven months. Activity in the construction sector strengthened from July, but grew at the slowest pace since the beginning of 2023 in the services sector, primarily due to a significant drop in demand.
XINHE: The year-on-year fall in profits at larger industrial firms in China slowed further in the January-July period compared to the first six months of 2023, but was still significant at 15.5 per cent.
MARIANN: Out of the 41 sectors surveyed by China’s National Bureau of Statistics, 28 recorded a year-on-year drop in profits in the first seven months. While energy producers and electrical machinery and equipment manufacturers saw their profits rise sharply, firms in the ferrous metal smelting and rolling processing industry, as well as in the coal and other fuel processing industries continued to suffer stark losses to their profits compared to the same period last year.
XINHE: On 4th September, China’s top economic planner, the National Development and Reform Commission announced the establishment of a new bureau that is to promote the development of the country’s private economy.
MARIANN: The bureau will work under the Commission, and it will be responsible for formulating policies to advance the growth of private investment, for strengthening policy coordination and for ensuring that relevant measures get implemented in a timely and efficient manner. The new bureau’s stated aim of helping to improve the international competitiveness of private companies raises a question as to whether this initiative will include foreign enterprises.
XINHE: As Beijing has been trying to balance the priorities of national security and economic growth, Chinese policymakers have given mixed signals to foreign investors so far in 2023. On one side there are regulatory efforts, such as the newly introduced Anti-espionage Law and tightened supervision over data, that could negatively impact foreign companies’ investment decisions. On the other, the State Council has released a guideline to optimise the business environment for foreign investors.
MARIANN: This complex context has led to discussions on whether China is still an attractive investment destination, especially amid the ongoing global trend of supply chain diversification prompted by the COVID-19 pandemic as well as geopolitical factors.
XINHE: Join us online or in person in Beijing on 13th September to hear prominent experts discuss issues related to FDI in China and explore questions, such as what strategic and tactical approaches should multinationals have in place to manage risks and realise opportunities in the Chinese market.
MARIANN: Thanks for listening. Tune in again next week.
XINHE: In the meantime, please find useful links in the episode notes.