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China’s Aggressive Tax Collection Sparks Anxiety Among Private Businesses

Recent tax-related announcements by Chinese companies have caused anxiety among private businesses in China. Two notable cases involve Weiwei Co., Ltd. being ordered to pay 85 million yuan in back taxes dating back to 1994, and Ningbo Bouquet Chemical facing a 500 million yuan tax bill affecting its profits.

These incidents, along with similar cases involving other companies and the establishment of “police-tax joint operation centers” in over 20 provinces, have led to concerns about aggressive tax collection practices. Rumors spread online about the government conducting “30-year retroactive tax inspections.”

The State Taxation Administration quickly denied organizing any large-scale or industry-wide tax inspections, stating that recent cases were part of routine tax collection efforts.

The government’s actions come amid financial challenges, with tax revenues decreasing by 4.9% in the first four months of 2023, while public expenditures increased by 3.5%. A significant factor is the decline in land sale revenues, which many local governments heavily rely on.

These developments have worried private businesses, particularly those focused on the domestic market with thin profit margins. Some fear that retroactive tax inspections could potentially bankrupt companies, especially if they include penalties for late payments.

While tax regulations typically allow for 3-5 year retroactive inspections, there are exceptions for cases involving tax evasion or fraud.

Source: BBC Chinese, June 24, 2024
https://www.bbc.com/zhongwen/simp/chinese-news-69137259

Shanghai Expands “Recent Graduate” Definition to Combat Rising Youth Unemployment in China

China’s youth unemployment rate remains high, with August figures showing 18.8% unemployment for 16- to 24-year-olds, a new high for the year. To address this issue, Shanghai has announced measures to ease unemployment by expanding the definition of “recent graduates.”

Shanghai’s Human Resources and Social Security Bureau has issued a notice requiring state-owned enterprises and central enterprises in Shanghai to open campus recruitment positions to university graduates within two years of graduation, regardless of work experience or social security contributions.

This policy change is not unique to Shanghai. Other provinces like Hunan, Shandong, Guizhou, and Guangxi have also adjusted their criteria for recent graduate status, with variations in the time frame (e.g., Hunan extending it to three years post-graduation).

Xiong Bingqi, dean of the 21st Century Education Research Institute, suggests focusing on overall employment rather than emphasizing recent graduate status to reduce job seekers’ anxiety about their status.

China’s youth unemployment rate had previously exceeded 20% for three consecutive months from April to June 2023, peaking at 21.3% in June. The government then suspended publishing age-specific urban unemployment rates until January 2024, when they resumed with adjusted statistical methods excluding in-school students.

These measures reflect China’s ongoing efforts to address high youth unemployment and create more opportunities for recent graduates in a challenging job market.

Source: Central News Agency (Taiwan), October 6, 2024
https://www.cna.com.tw/news/acn/202410060127.aspx

China’s Current Economic Challenges Far Exceed Those of 2008

A commentator discussed the difference between China’s current economic predicament and the situation back in 2008. In 2008, China was able to issue 4 trillion yuan (US$ 570 billion) to pump up the economy. This time, however, Beijing may not be able to regenerate the same result as the current situation is far worse than before.

He gave the following example:

  1. In 2008, China’s GDP was about 30 trillion yuan. By 2023, its GDP reached 126 trillion yuan, a fourfold increase, making rescue efforts much more difficult.
  2. In 2008, M2 (money supply) was 47.5 trillion yuan. By the end of 2023, M2 had exceeded 300 trillion yuan, more than six times that of 2008, leaving very little room for further monetary expansion.
  3. In 2008, the household debt ratio was less than 18 percent; it is 65 percent in 2024.
  4. At the end of 2008, local government debt was around 5 trillion yuan (roughly balanced); by 2023, the outstanding balance of local government debt was 40.74 trillion yuan.
  5. At the end of 2008, the national debt balance was about 5.33 trillion yuan, with 854.9 billion yuan in national debt issued that year. By the end of 2023, the national debt balance had reached 30.03 trillion yuan, with 11.14 trillion yuan of national debt issued over the year.

Source: Epoch Times, October 10, 2024
https://www.epochtimes.com/gb/24/10/9/n14347115.htm

Chinese September Manufacturing PMI Remains in Contraction Range

Chinese state-run media People’s Daily recently reported that China’s official September 2024 Manufacturing Purchasing Managers Index (PMI) was 49.8 percent, remaining in the contraction range. The PMI numbers were sourced from the Chinese National Bureau of Statistics.

Among the five sub-indices that make up the manufacturing PMI, the production sub-index was higher than the critical point (51.2 percent), and the new order sub-index (49.9 percent), raw material inventory sub-index (47.7 percent), employment sub-index (48.2 percent) and supplier delivery time sub-index (49.5 percent) were all lower than the critical point of 50 percent. The official government manufacturing PMI has now been in contraction territory for five consecutive months.

Meanwhile, the Caixin media group has just released its own Chinese Manufacturing PMI numbers for September. The Caixin PMI is a well-respected economic indicator monitored globally by financial institutions. The September Caixin PMI was 49.3 percent. According to Caixin, the September production sub-index is still in the expansion range. However, the new orders sub-index fell below the critical line, recording its lowest value since October 2022. Employment, raw material and product inventory, procurement and factory prices fell within the contraction zone. Caixin indicated that the problem of insufficient domestic effective demand is prominent, and uncertainty about foreign demand increased at the same time.

Sources:
(1) People’s Daily, September 30, 2024
http://finance.people.com.cn/n1/2024/0930/c1004-40331760.html

(2) Caixin, September 30, 2024
https://pmi.caixin.com/2024-09-30/102241625.html

Economist on China’s Real Estate Problem

Lu Ting, Chief Economist for China at Japanese Nomura Securities, delivered a speech at the 2024 Tsinghua Wudaokou Chief Economist Forum on September 28. Lu pointed out that the most significant pressure on China’s economy comes from the real estate sector and “ensuring housing delivery” is at the core of resolving the issue.

He explained that in China, real estate operates on a pre-sale system – people buy and pay (including mortgage payments) before the property is built and delivered to them. This is more akin to a futures market than a spot market. Many people propose policies to address extra houses being built but not sold. However, the real issue is not the extra houses being built, but that too many have been sold without being completed.

Using data from real estate builder Country Garden, Lu noted that the company has approximately 36,000 completed but unsold houses, 730,000 houses sold but still under construction, and 350,000 houses currently being built but not sold yet, reflecting a ratio of about “1:20:10.”

Lu estimates that the government needs over 3 trillion yuan (US$ 426 billion) to address the issue of “ensuring housing delivery.”

Source: Net Ease, September 28, 2024
https://www.163.com/dy/article/JD6DHME005568W0A.html

Beijing News: CADA Estimated Major Loss in China’s Automobile Market

Beijing News reported that China Automobile Dealers Association (CADA) recently submitted to the Chinese government an emergency market study named “Urgent Report on the Current Financial Difficulties and Risks of Closure Faced by Car Dealers.”

The Report indicated that, in recent times, CADA has received reports from a large number of member companies that the drastic changes in the Chinese domestic automobile market brought by the continued price war and other factors have left automobile dealers in a quagmire and facing the outstanding problem of extremely tight capital liquidity. CADA estimated in the first eight months, the price war caused the overall retail sales of the new car market to lose a total of RMB 138 billion yuan (around US$19.7 billion). The Report also mentioned that, at present, car dealers are experiencing large-scale losses in new car sales. They are generally operating with cash flow deficits and rapidly increasing risk of capital chain disruption. Car dealers are struggling for their survival, and the overall discount rate for the new car market reached 17.4 percent in August.

CADA called on the government to pay extra-close attention to the current financial difficulties and shutdown risks faced by the automobile dealership sector, and decisively adopt phased financial relief policies and measures to effectively prevent the occurrence of systemic landslide failures. The association especially called for more supportive and flexible loans from financial institutions.

Source: Beijing News, September 23, 2024
https://www.bjnews.com.cn/detail/1727081393129918.html

Chinese Universities Push Undergrads Towards Postgraduate Studies Despite Oversupply Concerns

In a surprising trend, Chinese universities are actively encouraging their undergraduate students to pursue postgraduate degrees, even as concerns mount over an oversupply of postgraduates and rising youth unemployment rates.

Recent reports indicate that several institutions across China have been holding “graduate school motivation meetings” aimed at inspiring students to apply for advanced degrees. This push comes despite a growing phenomenon where some universities are experiencing a “reversal,” with postgraduate students outnumbering undergraduates.

At Taizhou University’s Marxism School, officials emphasized that future secondary school teachers will primarily need postgraduate qualifications. Meanwhile, the School of Electrical Power at Shenyang Institute of Engineering urged students to consider postgraduate studies as a means to enhance their competitiveness in the job market.

Taking this trend a step further, the vice president of Shandong Taishan University called for mobilizing all undergraduate students to view postgraduate education as a significant opportunity for personal development. The university plans to create a “positive graduate school ecology” through various motivational activities and personalized guidance for aspiring postgraduate students.

To support this initiative, universities are offering an array of incentives, including financial aid, mentorship programs, specialized guidance, and improved study environments for those pursuing advanced degrees.

However, this aggressive promotion of postgraduate education raises questions about its long-term impact on China’s job market and educational landscape, particularly in light of the country’s already high youth unemployment rate and the existing oversupply of postgraduates in certain fields.

As this trend continues to unfold, it remains to be seen how it will affect China’s education system and labor market in the coming years.

Source: Central News Agency (Taiwan), September 22, 2024
https://www.cna.com.tw/news/acn/202409220178.aspx

China’s Sees Lower-Than-Usual Mooncake Sales During Mid-Autumn Festival

The Mid-Autumn Festival is a Chinese festival where people celebrate by eating mooncakes. The holiday is usually China’s peak season for gift-giving. This year, the market for mooncakes in mainland China is particularly sluggish. According to the China Bakery and Confectionery Industry Association, mooncake sales are projected to decline by 2 billion yuan (US$ 280 million) compared to last year. Some market analysts have labeled this as the “coldest Mid-Autumn Festival in history.”

An article on Yahoo Finance listed three reasons for this to happen:

  1. With the mainland economy struggling, corporate gift-giving this year has completely dried out, especially in the four major “gift-giving industries”: real estate, construction, building materials, and finance. These sectors have realized that “relying on mooncake gifts isn’t bringing in business.”
  2. Family gift-giving has also decreased significantly due to reduced consumer spending power. In an environment of consumption downgrade, consumers are opting for lower-priced, homemade mooncakes with simpler packaging.
  3. Also young people are increasingly seeking healthier diets, and traditional mooncakes, which are high in oil and sugar, are viewed as unhealthy.

Source: Yahoo Finance, September 16, 2024
https://hk.finance.yahoo.com/news/史上最冷中秋?月餅滯銷-市場盤點三大終極原因-042821633.html