China Competing for Capital
(8/24/2005)
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.