In Brief: Tariff tantrums, Taxman’s treat & China property


Ratcheting up the tariff tantrums

Analysts who have been low-key about the prospects of a trade war between the U.S. and China will be spending this week recalibrating their forecasts. Rating agencies have described Beijing’s initial reactions to tariff plans as “measured.”

Other experts agreed. Wendy Chen, an economist at Nomura, said she viewed the tit-for-tat tariff plans “more as a bargaining tactic rather than a legitimate threat of a trade war.”

But the news this week has rewritten the battle plans. First, on April 3 Washington slapped 25 percent tariffs on 1,333 items made by China, ranging from industrial robots to jet engines.

When Beijing indicated its potential counter-tariffs could affect US$3 billion of U.S, imports, S&P described the response as “measured.” Then Beijing announced on April 4 that it would target US$50 billion worth of U.S. products, including vital soybean exports.

Although none of the latest tariffs have actually gone into effect, it is the most aggressive trade conflict involving China since it joined the World Trade Organization in 2001, the Financial Times noted.

Snow joke...

Still, Zhu Guangyao, China’s vice minister of finance, remained unflappable in the wake of the April 4 tariff announcement. “Given the economic cooperation of such scale, trade frictions are unavoidable,” he said. Zhu added that China would not sell off U.S. Treasury bonds or devalue the renminbi.

Moody’s says watch the markets. “If such tariffs are seen by global market participants as signaling an escalation in trade tensions, they will eventually have a broader macroeconomic impact by dampening market sentiment as well as business investment decisions.”

Already, commodities have taken the first hits, thanks to the soybean tariff. However, there’s another potential blowback for Washington: As parts of the U.S. recover from near blizzard conditions in April, consumers may find it chilling that the 25 percent tariff also applies to imported Chinese snow blowers.

One country, two tiers

Small and medium-sized enterprises have been celebrating April Fool’s Day. This year, April 1 brought an amendment reducing corporate profit taxes in Hong Kong.

The tax rate on the first HK$2 million of a company’s profit has been halved to 8.25 percent.  Anything above that will be subject to the usual 16.5 percent charge.

“This is a positive step towards making Hong Kong a competitive tax regime,” said Ryan Chang at Deloitte, noting that as global tax rates fall, Hong Kong has to introduce new tax measures to attract foreign investment.

“In particular, the lower tax rate will reduce the tax burden on SMEs and startup businesses and help foster a favorable business environment, drive economic growth and enhance Hong Kong's competitiveness in general,” he said.

Mindful of Hong Kong business culture, the government put a restriction on the benefit to prevent larger companies taking advantage. Only one enterprise can be nominated among connected entities to receive the lower rates.

Return of the property tax

While fewer Hong Kong homeowners will be subject to property tax in the wake of the last budget, the Mainland is pivoting in the opposite direction. 

After being taken off the table in 2017, a long-discussed property tax was aired at last month’s session of the National People’s Congress, China’s rubber-stamp legislature. Draft legislation is likely by the end of 2018 but analysts say property-owners should not expect any shocks.

“The tax is likely to be narrowly based and structured in a way that minimizes the impact on prices,” said Rosealea Yao at GaveKal Dragonomics. “The rollout of the tax is also likely to be extremely gradual, and could easily be postponed once again.”