How the state gets grip on housing, education and health care – Arthur Kroeber

 

Arthur Kroeber

The Chinese state is extending its grip on previously private investments in different areas like housing, health care, and education, similar to its crackdown on tech sectors in the past, says leading economist Arthur Kroeber to Reuters. Investors now prefer to turn to those industries, as they have the state as a backup.

Reuters:

China’s recent sweep of the medical sector came as a shock to many investors who had thought the end of Beijing’s three-year regulatory purge of the property and tech sectors meant there would be no more industry-wide crackdowns as policymakers prioritised economic recovery.

Several government bodies in July launched a year-long anti-corruption campaign into the medical system, making clear that China’s drive to deliver affordable housing, education and healthcare to its masses was more important.

That forced many investors to quickly draw parallels with last year’s crusade against private tutoring and a long-running one against tycoon Jack Ma’s consumer finance firm Ant Group.

The one unanimous conclusion they came to was that Beijing wants a greater state presence in these sectors.

“The underlying principle is that healthcare is kind of like a social service that should principally be in state hands,” said Arthur Kroeber, partner and head of research at Gavekal in New York. Kroeber says the crackdowns are about “defining what the state does, what the private sector does, and creating a more limited sandbox for the private sector to play in.”

“This links to the idea of common prosperity because it’s the state’s job to guarantee a level of provision of basic services, whether it’s education or healthcare, so it’s important for the state to have a role,” he said.

That has left investors now picking the state over the private sector.

More in Reuters.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.

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China housing market is going to be weak – Shaun Rein

 

Shaun Rein

Business analyst Shaun Rein experts the housing market in China is going to get weak as consumers are not buying big-ticket items for the near future, he tells CNBC.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.

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Why China cannot solve its housing bubble – Jim Rogers

 

Jim Rogers

China cannot solve its housing bubble until they deal with inflation to adjust pricing, says China watcher Jim Rogers in the Finance Enthusiast.

Jim Rogers is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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How the new income tax will drive out expats - Paul Gillis

Paul Gillis

The reform of the income tax in China will drive many expats out of the country as it will kick in by 2021, as foreign and local taxpayers will fall under the same taxation rules, says financial expert Paul Gillis on his weblog. Especially the equal treatment for housing and education costs will become too costly for expats, or their companies.

Paul Gillis:

Tax reform will lower the tax burden on lower- and middle-income people, while leaving the top rates intact. China has a progressive tax system with rates topping out at 45% on income over 960,000 RMB (US$143,000). 

Foreigners used to get special treatment. While China taxes its own people on worldwide income, expatriates were only taxed on worldwide income after they had been resident for five years. The five-year period could be restarted by leaving China for 30 consecutive days or 90 days in a year.  The 30 day “tax break” was the most popular tax provision in the world. Initial proposals would have revoked this rule, but the final version makes it even better. It retains the 30-day tax break but requires it only every six years. The 90 days in a year provision is gone. 

More important for expatriates was the allowance of special exclusions from income for housing, education and home leave expenses. These expenses are very high in China.  A home in the Yosemite development near the international schools rents for 55,000 RMB per month ($98,500 per year) and tuition for two kids at the International School of Beijing (ISB) runs 600,000 RMB ($89,500 per year).  Local nationals did not get to exclude these costs. 

The new law treats locals and expatriates the same.  Both will obtain deductions for housing and education, but the benefit for rent is limited to 18,000 RMB (US$ $2,700) a year, far below what most expatriates pay. Education is limited to 12,000RMB (US$1,800) per child. 

That will be a tax cut for locals, and a big tax increase for many expatriates. While it may be fair to treat foreigners and locals the same, fairness is in the eyes of the beholder. 

Expatriates can stay under the old system through December 31, 2021. After that some expatriates will see staggering increases in tax. The expatriate living in Yosemite with two kids at ISB will see taxes increase as much as $82,000.  Since most expatriates at that level are also tax equalized, the total cost increase to their companies is likely to be as much as $149,000. That will force many companies to reconsider whether they can keep these expatriates in China.

More at the Chinaaccountingblog.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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