Tag Archives: shanghai
Tibet Opens Up As New Domestic Tax Haven
http://www.ft.com/cms/s/0/657d21a0-00e4-11e3-8918-00144feab7de.html#ixzz2cmpNISU2 By Simon Rabinovitch in Shanghai Cayman Islands, step aside. Private equity funds looking to cut their tax bills have a new option some 3,600 metres above sea level at the foot of the Himalayas. The only catch is, they will be playing a role in China’s strategy to tighten its grip on Tibet. The government of Shannan prefecture, which lies in Tibet between Lhasa and the Buddhist kingdom of Bhutan, has started offering generous tax breaks and other sweeteners in an attempt to make itself a home for private equity funds and investment companies. Cities across China regularly compete for investors, but lawyers and advisers say the package of incentives available in Shannan, known as Lhoka in Tibetan, is unusually aggressive and is beginning to attract interest. The enticements for private equity funds to set up shop in Tibet are part of the Chinese government’s push to develop the region’s economy at the same time as establishing firmer control over it. Some scholars have called for a more flexible approach to the country’s restive Tibetan minority, but top leaders have vowed to take a hard line against anyone seen as agitating for independence. Of the 300,000 people in Shannan, more than 90 per cent are of Tibetan ethnicity. The investment companies that have been lured there are almost entirely managed by Han Chinese, consistent with the government’s strategy of encouraging Han to populate areas inhabited by minority groups. Tibet has set the corporate tax rate for investors at just 15 per cent, well below the national norm of 25 per cent. Companies that pay more than Rmb5m ($820,000) in tax can have as much as 40 per cent returned to them. The Tibetan government has also introduced a flat tax of 20 per cent on the incomes of some partners in private equity firms, a steep discount on the national rate where the highest bracket pays 45 per cent tax. And, unlike many other regions of China, it does not require that funds registering in Tibet invest in local companies; simply having Tibet as a domicile is enough. “Many places throughout China, especially big cities like Beijing and Shanghai, have been offering preferential policies to private equity firms. But over the past year, lots more investors have been mentioning Tibet and talking about moving there,” said Wang Jinghe, a lawyer with Dacheng law offices in Shanghai. Mr Wang said foreign private equity firms with renminbi funds in China would in theory be allowed to base themselves in Tibet but he had not heard of any doing so. Foreign visitors need special permits to enter Tibet and these can be difficult to obtain. Zero2IPO, a research and advisory firm, had no record of Chinese private equity funds establishing themselves in Tibet until last year when three registered there. Figures are not yet available for this year, but anecdotal evidence points to a growing flow towards Tibet. At the start of the year Dingxin Growth Fund established what analysts say is the biggest private equity fund to date in Tibet, a Rmb400m vehicle, though its mandate is to invest in property in other regions of China. “Every lawyer we spoke to suggested that we consider basing ourselves in Tibet,” the manager of a newly established fund told the Financial Times. Tibet is also emerging as a haven for investors who want to limit their taxes when selling off shares. Conant Optical, an eyewear maker listed on China’s venture capital stock exchange, announced on August 8 that its founder’s investment company had moved from Shanghai to Shannan in Tibet and reduced its overall stake. Golden Securities, an investment magazine, said in an article on Friday that it was “an open secret” that Tibet was the place to go to register shareholdings before selling them. The magazine said: “It’s not hard to see that Shannan has become a hotspot for listed companies that are cutting their holdings.” The government of Shannan reported that its tax revenues in the first half of 2013 reached Rmb726mn, a 110 per cent increase over the same period a year earlier. Continue reading
Echoes Of Mao In China Cash Crunch
http://www.ft.com/cms/s/0/1c2f126c-d982-11e2-bab1-00144feab7de.html#ixzz2WqmbUIgr June 20, 2013 11:51 am Echoes of Mao in China cash crunch By Simon Rabinovitch in Shanghai As China’s credit crunch takes a turn for the worse, the question of why the central bank has permitted market conditions to deteriorate so suddenly and so sharply looms ever larger. Short-term money market rates surged to more than 10 per cent on Thursday, a record high and nearly triple their level just two weeks ago, after the central bank refused to inject extra funds into the strained financial system. Analysts have mostly viewed the squeeze in economic terms, as a warning to lenders that they must rein in dangerously fast credit growth. But in the midst of the extreme market stress, a statement issued late Wednesday by the central bank raised the possibility that politics are also playing an important role. Bankers had been calling for the central bank to ease the pressure and a few investors had even predicted that it might cut interest rates. Instead, the People’s Bank of China ordered a thorough implementation of the new “mass line education” campaign launched this week by President Xi Jinping – a campaign that in its propaganda-style and potential scope carries echoes of the Mao era. The Communist party cadres that run the central bank were told to attack the “four winds” of “formalism, bureaucracy, hedonism and extravagance”, as demanded by Mr Xi. “It is quite possible that the central bank’s policies have some connection to Xi’s campaign,” said Willy Lam, an expert on Chinese politics at the Chinese University of Hong Kong. “It seems to be much more serious than the short anti-corruption campaigns launched by Hu Jintao and Jiang Zemin [Mr Xi’s predecessors over the past two decades].” In monetary policy terms, the central bank could certainly be said to be waging war on hedonism and extravagance. The seven-day bond repurchase rate, a key gauge of liquidity in China, surged 270 basis points to more than 10.8 per cent on Thursday – a punitively high rate that could force cash-hungry banks to call in the riskiest of their loans. “There are definitely political calculations,” said Ken Peng, an economist with BNP Paribas. “The senior leadership is much more worried about ‘correcting behaviour’ and political considerations than just protecting their 7.5 per cent growth target.” Unlike the cash crunch that occurred in developed markets when the global financial crisis erupted in 2008, the squeeze in China has been almost entirely self-inflicted, a deliberate move by the central bank. Market players had hoped the central bank might inject extra cash in the economy at a scheduled auction on Thursday. But it rebuffed the pleas for help, putting more pressure on overstretched lenders. Concerns about financial risks appear to be the immediate trigger for the central bank’s actions. A surge in credit growth at the start of this year, despite a slowdown in the economy, has alarmed regulators. The central bank wants to send a message to banks to be more cautious in their risk control and to improve their own liquidity management – Peng Wensheng, China International Capital Corp The overall credit-to-gross domestic product ratio in China has jumped from roughly 120 per cent five years ago to closer to 200 per cent today, an indication of rising leverage throughout the economy. Song Yu, an economist with Goldman Sachs, said the tightening was “aimed at preventing the leverage ratio from reaching an even higher level”. With money market rates soaring, interbank rates have also shot up over the past two weeks. This has punished lenders that have used their privileged access to the stable, central bank-controlled interbank market to fund purchases of risky, high-yielding bonds. “The central bank wants to send a message to banks to be more cautious in their risk control and to improve their own liquidity management,” said Peng Wensheng, an economist with China International Capital Corp. “It is saying that you cannot expand credit as you like, and then simply rely on the central bank to back you up.” But the risk of dangerously fast credit growth in China is not new. The biggest change over the past half year has been political, with the ascension of Mr Xi as the country’s new paramount leader. Zhou Xiaochuan, central bank governor, is believed to have a good personal relationship with Mr Xi. Both are “princeling” sons of Communist revolutionary leaders. Mr Zhou had been expected to retire this year, having reached the mandatory retirement age, but Mr Xi allowed him a special dispensation to remain in office. Mr Xi’s campaign against the “four winds” was officially announced on Tuesday. The order that central bank cadres across China should study and implement the campaign was transmitted less than 24 hours later, ahead of virtually all other government units. Continue reading
China In Carbon Trading Experiment
18 June 2013 China in carbon trading experiment China will pilot its scheme in seven places; Shenzhen, Beijing, Shanghai, Tianjin, Chongqing and the provinces of Hubei and Guangdong China, the world’s biggest carbon emitter, is to launch its first carbon trading scheme as a pilot project in Shenzhen. The test scheme, which will be rolled out to seven areas by 2014, could be spread across the country after 2015. Beijing is aiming to reduce the amount of carbon dioxide emitted per unit of gross domestic product by 40-45% from 2005 levels by 2020. The government has previously faced pressure to reduce pollution in cities. Expensive habit? Carbon emissions trading schemes are meant to encourage companies to reduce their carbon dioxide emissions by setting a limit, called a cap, on the level of carbon dioxide that can be emitted in a region. Companies are given credits, each equal to one tonne of carbon, which they can then buy and sell according to individual needs. Watch: China is launching a new carbon trading scheme in the country’s southern city of Shenzhen. The bigger polluters have to bear the added cost of buying more carbon credits, while the less polluting companies can make money by selling their credits. The Shenzhen Carbon Exchange is set to launch on Tuesday. It will cover 635 industrial and construction companies. A previous statement from the exchange said it expected to add transport firms as well as all major companies that consume oil, gas, coal and power. Shenzhen is the smallest of the test regions in terms of overall carbon emissions. China will pilot its scheme in six other places; Beijing, Shanghai, Tianjin, Chongqing and the provinces of Hubei and Guangdong. Price swings Carbon trading schemes have encountered problems elsewhere in the world. Recently the biggest carbon-trading scheme in the world, run by the European Union, nearly collapsed. Launched in 2008, the system began successfully with the price for carbon emission credits rising to $40 (£25.50) a tonne, encouraging some companies to switch to using cleaner fuels. However, as Europe entered its prolonged economic crisis, industrial activity fell dramatically, reducing the need for companies to buy emissions credits. Along with other factors, this caused a gradual fall in the price of carbon credits and in recent weeks the price has fallen below $4 a tonne. “In Europe there was definitely a lot of speculation around the credits – it was one of the most volatile commodities,” said Winnie Tang, a director at Kind Resources an investment and deal advisory firm. “A lot of traders were speculating that the price will keep going up and up, but then all of a sudden the financial crisis hit and the prices dropped.” Continue reading
