Included in the plans is a measure to cancel tax exemptions for foreign individuals who obtain dividends and bonuses from foreign-invested enterprises, according to a report in the mainland business magazine Caixin.
SCMP, February 8
Let's start by putting this hit-the-foreigners element of Beijing's latest tax initiative into perspective. The first chart shows you the share of foreign-invested enterprises in the mainland's exports. From less than 30 per cent 20 years ago it rose to almost 60 per cent in 2006 and has now declined again to about 50 per cent.
This, however, is still a very high figure. Try to imagine that half of Japan's industrial export base was foreign-controlled. It wouldn't be Japan. Has China sold out its birthright?
And now the real story: turn to the second chart of Hong Kong's foreign direct investment (FDI) inflows and outflows. I admit that it's a bit of a jumble with two lines tracing up and down over each other but this is just the point.
Most economies are by a wide margin either net recipients or net donors of foreign investment but it's hard to tell which way things go in our case. For every dollar we take in we seem to send a dollar out again and, on the face of it, this seems pointless. Why don't we just use our own money for our own investment? Surely this would be both cheaper and more trouble-free.
Notice also the scale of these FDI flows. Over the past three years they have each averaged about HK$700 billion a year, or more than 35 per cent of gross domestic product.
Put this into perspective. Taiwan is a much bigger industrial investor in the mainland than we can ever hope to be. Apple, for instance, uses a Taiwan-owned company as its major manufacturer in the mainland. Yet Taiwan's FDI outflows still manage to amount to less than 3 per cent of its GDP.
The fact, of course, is that very little of these FDI flows through Hong Kong are anything of the sort. They just constitute the usual money laundering in which we quietly engage for mainland entities and hide by false descriptions of the data, while our judiciary makes loud noises about how tough we are on money laundering. Greater hypocrisy is rarely to be found than in a Hong Kong courtroom.
Follow the trail of the money. In order to avoid mainland tax, mainland companies export their goods at cost to Hong Kong, where the profits are added (and not taxed). The goods are then re-exported to their intended destinations.
The profits are subsequently re-invested in the mainland business but, as the money supposedly originated outside of the mainland, it is treated as foreign investment, with all the tax breaks and priorities on repatriation abroad, which come with foreign investment.
And now Beijing has decided to narrow this loophole in order to squeeze a little more money from these supposed "foreigners".
Well, it's not quite so big a hit as being called a money launderer in Hong Kong and sent to jail for 10½ years.