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Sofreight: China Planning Tariff-Free Trial in Shanghai Free-Trade Zone

Sofreight, a China-based international freight information platform, recently posted an article in its news section indicating that the Chinese central government has been considering and is now planning to remove all tariffs in the Shanghai Free-Trade Zone. In the midst of a grand trade war with the United States, the Chinese government wants to position itself as the leader of free trade. The plan may be announced within this year at the earliest. According to the draft plan, foreign companies will not pay any tariff for cargo staying in the Zone, with a much-simplified customs process. Currently, normal tariffs still apply to cargo in the Zone with Chinese Customs still administering them. Today, to establish a company registered in the Shanghai Free-Trade Zone, the process takes a few months, though the government claims it takes only five days. If the plan succeeds, it has the potential to be deployed to all of China’s free-trade zones. Neither officials in the Zone nor the Chinese National Development and Reform Commission (NDRC) responded to requests for confirmation or comments.

Source: Sofreight, August 6, 2019

The Paper: The Renminbi Becomes Independent

On August 5, for the first time since 2008, the exchange rate between the Chinese Yuan and the U.S. dollar surpassed 7:1. The Paper published a commentary analyzing the meaning.

“It reflects a big change in China’s currency policy. It will no longer attempt to keep the exchange rate below 7. From the short-term perspective, under the pressure of Trump’s new tariff on over $300 billion of Chinese goods and the downward pressure on China’s economy this year, devaluing the Renminbi will help the economy.”

“A deeper meaning of the exchange rate’s breaking the 7 limit is that the Renminbi has become more independent. The U.S. dollar index went down in the past three days. The Renminbi went lower against the U.S. dollar but higher against other currency (had the Renminbi followed the U.S. dollar, it would have gone lower against other currency since the U.S. dollar went lower against them).”

“Putting the information together, it showed that the Renminbi has started to cut its tie to U.S. dollar and has started to be independent. This will weaken the dollar’s global position in the long run. After breaking away from the U.S. dollar, the Renminbi will gradually obtain a stronger position in the world. Finally, China made this step (to make Renminbi independent from the U.S. dollar). It is a bit too late to do so, but it is still better than not to make this move at all.”

The author predicted that the Renminbi will continue going down.

Source: The Paper, August 5, 2019

Chinese Manufacturers Move to Vietnam to Evade Tariffs

As the prospect of the US-China trade war continues to be unpredictable, many Chinese manufacturers have turned to Vietnam to set up plants in the hope of avoiding high tariffs.

The statistics show that, in the first seven months of this year, the Southeast Asian country attracted US$20.2 billion in foreign investment, down 13.4 percent from the same period last year.

China topped other countries by investing US$1.78 billion in Vietnam in the first seven months. However, due to the large number of investment projects, a total of 364, the average size of each investment was quite small.

With the ongoing US-China trade war, since last year, Chinese manufacturers have set up small-size plants in Vietnam. The purpose is to import semi-finished products from China, change the country of production, and then sell to the U.S. and European markets to avoid high tariffs.

The General Department of Vietnam Customs reported that 15 products imported from China have shown a significant growth. Six of them are on the list of targets for high tariff sanctions that the United States has imposed on China, including timber products, electric wires, electronic components, mobile phones, furniture, household appliances, and leather shoes.

Source: Central News Agency, July 30, 2019

VOA Chinese: China Lost Nearly Two Million Jobs in the Trade War

Voice of America (VOA) Chinese edition recently published an article stating that, according to a report that a large Chinese investment bank CICC (China International Capital Corporation) just released, China’s manufacturing industry has lost around five million jobs. Among the jobs lost thus far, the trade war was responsible for the loss of about 1.8 million to 1.9 million of them. The CICC economists pointed out that the five million positions reflect roughly 3.4 percent of the total number of manufacturing jobs. The report also indicated that, in addition to the trade war, the domestic economic structural adjustments as well as seasonal factors have also heavily impacted the manufacturing job market. However, the data used for the CICC report were collected before May. It therefore did not reflect the effect of the 10 percent to 25 percent U.S. tariff increase on the US$200 billion Chinese exports to the U.S. All experts expected a much larger scale for job loss once the tariff increase was factored in. In the meantime, China’s second quarter GDP increase slowed down to 6.2 percent, which was the slowest pace of growth since 1992.

Source: VOA Chinese, July 25, 2019

BBC Chinese: Multiple Reports Showed HK Protests Impacted Retail

BBC Chinese recently reported that, over the past month or so, Hong Kong has had several major protests against the “Extradition Bill.” More protests are expected in the coming days. The frequent protests have had an impact on the local retail industry because they introduced uncertainty into this region’s traditional “shopping haven.” According to a data report that the Hong Kong Retail Management Association (HKRMA) provided, most of its members suffered a decline in sales in the past month, with an expectation of a further downturn. The Hong Kong Federation of Trade Unions (KFTU) also released reports showing that, since June, there has been a significant decline in tourists from the Mainland. In the meantime, the hotel occupancy rate declined by 20 percent. However, many owners of the local small businesses and restaurants polled expressed their support for the city-wide protests and even strikes because the damage from passing the Extradition Bill is considered to be much more significant than the temporary loss of retail sales. Most analysts expressed the concern that the political situation may cause the U.S. to re-evaluate Hong Kong’s special tariff status, which can heavily damage Hong Kong’s position as a financial center.

Source: BBC Chinese, July 19, 2019

RFA: CCP Encourages Party Members to Invest in the Stock Market

Amid the stagnant, weak stock market, the Chinese Communist Party (CCP) recently issued an order to encourage party members to invest in the stock market.

Radio Free Asia (RFA) reported that, in the past, Beijing had discouraged people working in the government from buying stock. On June 24, however, Beijing asked them to invest in the stock market. The CCP Central Committee for Disciplinary Investigation’s (CCDI’s) website claimed, “The stock market is a main component of China’s socialist market economic system. For the staff members of the party and the government to invest their legally-obtained property in the stock market will support our country’s development. Party cadres can legally invest in legitimate stock transactions.”

People commented that this indicates that the CCP is desperate to inject money into China’s stock market and at this time they are looking at party members’ money. Some also pointed out that this gives the party members a money laundering opportunity so they can cleanse their illegal money.

Source: RFA, June 25, 2019