Banking Reform in China

On December 11, China's banking sector will be fully opened to foreign banks, permitting them to deal in renminbi business across the country, inline with its World Trade Organization commitments. Some foreign banks have already started to register their operating branches into local corporations in preparation for the anticipated renminbi business.

This unprecedented development in the banking system will mean that competition in the financial sector will intensify, forcing Chinese banks to undergo radical reforms to stay competitive. However, it is important to note that domestic banks still dominate China's banking market. Foreign banks that want a share of the market may have to join with local banks as strategic partners, or take the more time-consuming option to develop their own niche markets

What this means for foreign investors?
 
With the opening of China's banking sector, China has essentially become an important part of the world's financial system. Chinese banks are no longer insulated from market forces, and they can no longer afford to be poor performers.

Chinese banks need to improve on areas such as corporate governance, transparency, asset structure, technology as well as services to meet the needs of customers to maintain a place in the market.

Foreign investors will benefit from improvements in the financial infrastructure, including greater efficiency, more sophisticated IT systems, and dealing with better trained staff.

Although China's banking sector may have greatly reformed in recent years, China's tight monetary controls continue to pose problems for foreign investors investing directly into China. Investing through Hong Kong is still the preferred choice, with its world class banking infrastructure and reliable legal system.
 

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TRADE

Hong Kong

Hong Kong Retains Top Position in the “Economic Freedom of the World” Report

According to the 2006 Annual Report released by Canadian body, The Fraser Institute, Hong Kong retains its top position in the latest ranking of the “Economic Freedom of the World”. The ranking is based on the average ratings given for the degree of economic freedom in individual economies in five major areas. Read more...

Hong Kong Remains the Preferred Base for International Companies

In Hong Kong, the number of regional headquarters and local offices run by overseas enterprises reaches its highest-ever level this year, topping 6,350. Among the factors affecting the decision to set up offices in Hong Kong, 71 percent of companies considered a low and simple tax system as the most important, followed by free flow of information and absence of exchange controls. . Read more...

China's Economy Expected to Maintain a Steady and Fast Growth

According to the latest report published by a research group under the People's Bank of China, China's economy grew at 10.2 percent last year and the growth rate was 10.9 percent in the first half of this year. It is expected to grow by 10.5 percent and the consumer price index by 1.5 percent in 2006. Read more...

China, EU Sign Agreements on Toy and Food Safety in a Bid to Further Boost Bilateral Trade

The two co-operation agreements signed on 19 September 2006 are expected to boost bilateral trade between China and the European Union through the improvement of consumer safety on toys and food. Strategies for improving safety include training and technical assistance, exchange of information feedback and follow up mechanisms for dangerous products.
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EU Succeeds US as China's Biggest Trading Partner

According to Xu Kuangding, Chairman of the China Federation of Industrial Economics, Sino-European trade exceeded the Sino-US trade volume by 5.7 billion dollars in 2005, making the EU China's largest trading partner for the second year. China was also the first non-EU country to participate in the Galileo program, marking a new stage of the China-EU co-operation.. Read more...

Taxation Cost Causes US–Based Manufacturers to Lag Behind

According to a new study by the National Association of Manufacturers (NAM), structural costs for US manufacturers have increased from 22.4% to 31.7% since 2003. Among the non-production costs analysed, corporate tax was both the highest burden in absolute terms and the largest contributor to the increase in structural costs responsible for more than one third of the increase in the cost burden. Read more...

TAX

Hong Kong

Hopes Are Low for GST in Hong Kong

In an attempt to end consultation over the controversial Goods and Services Tax five months before its due date, lawmakers in Hong Kong voted 40-4 to oppose the introduction of a GST in a non-binding motion on Thursday, 19 October 2006. Although some agreed that Hong Kong's tax base was narrow, they were not convinced that GST was the right way. There were also concerns that GST would harm Hong Kong's compelling advantage as a simple and low tax jurisdiction. Read more... | related link

North America / Europe

Dutch Government Announces Further Cuts in Corporate Tax

Netherlands' Finance Minister, Gerrit Zalm, has announced the country will continue to cut the rate of corporate income tax from 29.1% to 25.5% in 2007, putting it below the European Union average. In addition, small and mid-sized companies whose profits are liable to income tax will receive an exemption of 10%. The government is also taking steps to reduce unnecessary business regulation. Read more...

UK Amends Omission in the Trust Modernisation Legislation

Earlier in October 2006, the UK's Chancellor, Gordon Brown, announced an amendment to be made to the Trust Modernisation Legislation due to an omission in the wording of the Finance Act 2006. As a result of the omission, in the situation of a buy-back of shares, the whole of the payment by the company is taxable and not just the amount representing the distribution. The amendment will be made in the Finance Bill 2007, and effects backdated to 6 April 2006. Read more...

EU Moves Towards a Harmonized Tax Base

European Commissioner for Taxation and Customs Union, László Kovács, in speaking at the Conférdération Fiscale Européenne (CFE) about the EC's Common Consolidated Corporate Tax Base (CCCTB) project, advised that although the majority of the EU member states are supportive of CCCTB, a unanimous agreement is required for it to come into force. CCCTB which will enable companies to calculate their tax base on all EU activities based on the same rules, while member states will retain full sovereignty over their national tax rates, is aimed at removing many of the tax obstacles to companies operating across the Internal Market. A progress report on CCCTB is planned for 2007 and a legislative proposal on the initiatives by 2008.
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Pricey Compliance for Small Offshore Centres

Small offshore financial centres are said to be suffering from having complied with international standards set out by the Organisation for Economic Co-operation and Development (OECD), and the Financial Action Task Force (FATF) as the cost of compliance far outweighs any benefits to their reputation. Read more...