Financial Services Focus Group Quarterly Update – Q2 2017

Published on 2017-07-21

China’s GDP increased by 6.9% in Q2 2017. Growth in China's economy in the past 6 months has beaten expectations as exports recover and property construction booms.

China’s GDP increased by 6.9% in Q2 2017. This pace was slightly higher than previous market consensus of 6.8% and well above the government’s annual target of around 6.5%. Growth in China's economy in the past 6 months has beaten expectations as exports recover and property construction booms. China's factory output in June grew 7.6% year-on-year, the fastest pace in three months, while fixed-asset investment expanded 8.6% in the first six months of the year, both beyond forecasts. In addition, with the furtherance of supply-side structural reforms, enterprises saw their profits continue to improve, and emerging industries grew rapidly.

China's foreign exchange reserves grew for a fifth consecutive month to reach USD 3.057 trillion in June 2017, which is the highest level since October 2016. Since the beginning of the year, the capital outflows have slowed as China tightened rules on moving capital outside the country.

2017 Summer Davos Focused on Inclusive Growth

The World Economic Forum, themed "Achieving Inclusive Growth in the Fourth Industrial Revolution," focused on how technology and policy innovations can accelerate a more inclusive style of economic growth that prioritises meaningful job creation and sustainable development. On June 27 2017, Premier Li Keqiang attended this meeting and highlighted the importance of promoting inclusive growth to build a sustainable world economy. He also called for increased investment, inviting foreign firms to build research centers and manufacturing facilities in China. With China's business environment improving and its enormous market potential untapped, China's door of opening-up will only open wider, Li said.

MSCI to Add China A-share in Emerging-Markets Index

MSCI announced in June 2017 to include China’s A shares in its Emerging Markets Index (EMI) starting from June 2018, signaling a large-scale repositioning of USD 1.6 trillion in funds tracking the MSCI EMI. MSCI selected 222 A shares to be included, accounting for 0.7% of the MSCI EM index. That is more than the 169 stocks it initially proposed. In line with its decision, the index provider will also launch the MSCI China A International Large Cap Provisional Index and other index covering China market in the future.

Additional Notice on VAT of Assets Management Businesses

On 30 June 2017, the Ministry of Finance and the State Administration of Taxation issued the Notice on Issues Relating to VAT on Asset Management Products (CAI SHUI [2017] No. 56) (“Notice No. 56”) which has clarified issues relating to VAT on asset management products, answered taxpayers’ questions about the scope of asset management products that will be liable to VAT, the method of levying, accounting and the filing of tax returns. The effective time of imposing VAT on those products has been postponed to 1 January 2018, thus asset managers will have six more months to get ready. As it has been made clear that the simplified calculation method with a tax rate of 3% will be applied, it will be less difficult for asset managers to comply with the provisions in paying VAT on asset management products. However, asset managers still need to determine the tax treatments on asset management products, amend contracts, sort out and transform business processes, communicate with stakeholders.

Implementation of Common Reporting Standard in China

On 19 May 2017, the State Administration of Taxation along with the Ministry of Finance, Peoples’ Bank of China, China Banking Regulatory Commission, China Insurance Regulatory Commission and China Securities Regulatory Commission jointly released the final public version of China’s Common Reporting Standards (CRS) rules and the Measures on the Due Diligence of Non-resident Financial Account Information in Tax Matters. CRS will be implemented in China to increase tax transparency through strengthening global tax cooperation and combatting tax evasion through offshore accounts. It is expected that in September 2018, China will exchange the first batch of collected information with other participating countries/jurisdictions. Financial institutions operating in China should conduct certain due diligence procedures to identify any reportable non-resident account holders as well as the controlling persons of passive non-financial enterprises, then report the required financial account information to the Chinese authorities.