Under the Biden administration, the US has further restricted exports of US technology to China. European companies are also affected by tightened US licensing rules due to the extraterritorial application of the rules and because of the increasing pressure, the Biden administration puts on partner countries to coordinate export controls with the US.
Von Experts Table.Briefings
The Chinese government’s efforts to revive the economy are restrained by high debt levels and decreasing tax revenues. In the first half of 2022, the top 10 tax revenues totaled ¥9.7 trillion, 12 percent lower than the tax revenues in the first half of 2021. Value Added Tax (VAT), vehicle purchase tax and taxes related to real estate show the largest decrease. This raises the question of how much further stimulus the government can provide to revitalize the Chinese economy weakened by covid disruptions.
Von Redaktion Table
Foreign enterprises in China are re-assessing their China strategy in face of both stringent covid policies and decoupling trends. The statistics on their business performance, as given by the National Bureau of Statistics, underline that they have reasons to be worried. Foreign companies in China have recorded low revenue growth in 2022 year-to-date compared to the same period last year. Further, their operating profitability decreased from the high point in 2021.
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In past years, Chinese governmental authorities have improved the enforcement and implementation of laws and regulations in several areas, creating a more effective and, from the firms’ perspective, more challenging regulatory environment for both domestic and Foreign Invested Businesses. Sinolytics’ analysis of administrative penalties in six selected regulatory areas from 2017 to 2022 (year to date) identifies production safety and environmental protection as the two areas with the largest and quickly growing number of administrative penalties. This also reflects the resources the government allocates for compliance inspection and enforcement in these two particular fields.
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China is currently specifically promoting the development of battery swapping for electric vehicles. Eleven cities already started or planned trials, including preferential policies and active participation of domestic companies. Foreign companies need to monitor the progress in battery swapping closely and prepare for possible challenges.
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As bilateral tensions between the US/EU and China grow, all parties are extending their decoupling toolbox to increase leverage. China created the legal foundation in 2020 and 2021 introducing several new instruments to retaliate against US trade sanctions. While these instruments give the Chinese government sweeping power to retaliate against US measures, their actual implementation has remained slow.
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The Chinese leadership has long seen data as a strategic resource and has declared it a “factor of production” in 2020. This frames data protection and cross-border data transfer in an explicit national security light. The lack of clarity of rules has been a major concern to MNC’s globally integrated IT systems. The release of recently published regulations sheds some light on requirements for cross-border data transfer.
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China’s State Council, led by Premier Li Keqiang, issued large-size economic stimulus programs in May to absorb some of the economic damage caused by Covid-related restrictions. However, it is becoming increasingly clear that achieving the desired economic growth while continuing current Covid policies will be impossible.
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“Internet + Supervision” platform is a digital regulatory system initiated by the State Council to upgrade market regulation. It is the result sharing backbone of China’s Corporate Social Credit System and an integral part of China’s push for the buildup of a “digital government”.
Von Redaktion Table
In addition to its security-driven strategy in the Indo-Pacific, the US finally introduced an economic component in form of IPEF (Indo-Pacific Economic Framework) aimed at reducing China’s economic dominance. However, this will be difficult to achieve given the strong dependence of IPEF members on China and the preference among ASEAN countries to hedge between US and China.
Von Redaktion Table
