China Competing for Capital
The Standing committee of China’s 10th National People’s Congress is meeting in Beijing all week to consider new legislation. Here are a few of the items on their agenda.
1. Reducing the personal income tax by doubling the personal exemption, below which no tax is paid, from 800 Renminbi ($99) per month to 1500 RMB ($185) per month. In recent years personal income tax revenues have grown faster than all other taxes.
Why? Growth of 9 % per year. In 1993, when current exemption levels were set, only 1% of wage-earners made more than 800 yuan a month. Today, 52% of incomes exceed the limit. Per capita consumption by urban workers hit 1143 RMB per month ($138) last year.
2. A new law to protect minority shareholders, giving them the right to audit a company’s accounts and the right to put their shares back to the company if the company makes profits but refuses to pay dividends to shareholders.
3. A law giving more power to the China Securities Regulatory Commission, their securities watchdog, to give them the ability to freeze bank accounts of companies violating securities laws.
4. A law to guarantee the assets of foreign central banks.
Sound familiar?
Every day, China is passing laws to improve the rule of law and reduce the risks a foreign investor must consider before investing in China. They know that the key constraint to growth today is a country’s ability to compete for capital. It would serve us well to remember the same lesson when Congress comes back to town after their August recess.
JR
More analysis on China’s economy
Here are several recent newspaper articles and blog posts on China that are worth a look: * Will Hutton writes in Saturday’s Guardian on how China’s poorest will suffer if the self-defeating trade war on textile imports is allowed to continue. * Robert…
There is an interview of Dr. Manmohan Singh (the Indian Prime Minister) at http://www.mckinseyquarterly.com/article_abstract.aspx?ar=1674&L2=19&L3=67&srid=17&gp=0
He also touches upon the importance of raising capital. To quote
The Quarterly: Are you happy with the pace of foreign direct investment? And, specifically, how do you feel about foreign direct investment in retail?
Manmohan Singh: I do believe that India needs a lot more foreign direct investment than we’ve got, and we should have the ambition to move in the same league many other countries in our neighborhood are moving.
Krishnan
You are absolutely right, Krishnan. India is becoming a feerocious competitor for capial for both direct and portfolio investments. I saw Dr. Singh’s impressive speech before the US Congress earlier this summer where he invited investors into the country.
JR
China & Capital
Dr. John Rutledge has a great post on his blog concerning China and how it is competing for capital. Like most others, I think China is going to be the story in business for several years to come. I urge…