Seeing as it’s been nearly eight months since I last wrote about this topic, I figured there’d be something new to say. But there really isn’t. The “best effort” negotiations conducted “as early as practicable” last summer with the aim of reaching a FATCA IGA “in advance of the January 2014 deadline in the legislation” have clearly produced no results, as law firm Dezan Shira’s China Briefing noted last week. Interestingly, mainland financial magazine Caijing reported on Dezan Shira’s article just yesterday — but only in English, not in Chinese. Other Compliance-Industrial Complex members are less honest about the lack of FATCA progress in China, and have taken to calling a pedestrian set of updated Chinese asset self-declaration regulations by the misleading name of “China FATCA” in an effort to generate hype.
The biggest genuine FATCA news I have to report is that finally, for the first time in nearly a year, a Hong Kong newspaper decided to let someone besides Patrick Yip at Deloitte and Jennifer Wong at KPMG say something about FATCA. Du Jinsong — apparently an MD in equity derivatives trading at Bank of China (International) Hong Kong — wrote a short opinion column in Wen Wei Po, one of Hong Kong’s “traditional left” pro-Beijing newspapers, telling us something we already know: Hong Kong’s finance industry would really like a FATCA IGA. What’s interesting about this column is the way in which he says it: he presents FATCA as a grand opportunity for Hong Kong to gain valuable “experience” with automatic information exchange and to help China to expand the previously-mentioned pedestrian set of updated asset self-declaration regulations into genuine control of the international financial system.
New version of Statistical Declaration in tune with reform trends
|國務院決定從今年元旦開始，施行新版《國際收支統計申報辦法》。新辦法首次將中國居民對外金融資產、負債狀況納入統計申報範圍。隨着中國逐步推進資本項目雙向開放，此舉有着多重意義。||Starting from this year, the State Council has decided to implement the new version of the International Payments Statistical Declaration Regulations. For the first time, the new regulations will bring Chinese residents’ external financial asset and liability positions within the scope of the statistical declaration system. Along with China’s gradual promotion of two-way current account liberalization, this step has multiple implications.|
|在國家層面，以「統計申報」逐步取代行政管制，是順應金融改革潮流、提高及經濟和金融體系效率的積極舉措，也是新形勢下確保國家金融安全的重要技術手段之一。預計，未來相關監管部門將以新版統計申報所累積的大數據為基礎，不斷優化宏觀調控的技術參數。||At the national level, the gradual replacement of administrative controls by “Statistical Declaration” conforms to the trend of financial reforms, and is not only a proactive step to increase the efficiency of the economic and financial system, but given new developments is also one of the important technical measures to guarantee the country’s financial safety. It is expected that in the future the regulatory authorities, on the basis of the “big data” collected under the new statistical declaration system, will be able to continuously optimize the technical parameters of macro-economic regulation.|
|須制訂中國版FATCA||The need to create a Chinese version of FATCA|
|在國際層面，新版統計申報亦可視為中國主動適應，並積極參與制訂國際遊戲規則而邁出的一個重要步驟，儘管可能僅僅是第一步。以美國推出的《海外賬戶納稅法案》(FATCA)為例，不僅美國人需要申報其海外資產，所有在美國經營的外國銀行、在海外經營的外國銀行也需要遵從相關的規定，向美國政府提供美國人的海外資產信息。否則，對於不合作的金融機構，如果有美國來源所得，美國將會對其總收入徵收30%懲罰性稅收。||At the international level, the new statistical declaration system can also be seen as China grasping the initiative and proactively taking an important step in participating in the formulation of the rules of the international game, even though it is only the first step. Looking at the United States’ Foreign Account Tax Compliance Act (FATCA) as an example, not only are Americans required to report their overseas assets, but all foreign banks doing business in the United States and all foreign banks doing business overseas must comply with the rules and provide information about Americans’ overseas assets to the U.S. government. Otherwise, for those financial institutions which do not comply, if they have U.S. source proceeds, the U.S. will impose a 30% punitive tax on that income.|
|眾所周知，在當今的國際金融市場，稍具規模的外國金融機構都不可能不與美國金融機構打交道，因此美國此舉事實上是要求全世界的金融機構都需要遵從FATCA法案。未來，隨着中國經濟規模的持續增長和深度參與國際金融市場，中國必須借鑒美國的做法，對等地制訂中國版本的FATCA。從這個意義上講，新版統計申報是在國際收支角度邁開了第一步。但是，內地需加強相關政策的協調性，尊重和遵守國際慣例，避免新政頻出，卻又在技術細節方面懸而未決(諸如QFII資本利得稅問題，即屬長期困擾海外投資者的懸案之一)。||Everyone knows that in today’s international financial markets, foreign financial institutions with even the slightest amount of scale cannot avoid dealing with U.S. financial institutions, and as a result this step by the U.S. is in effect a demand that financial institutions in all the world must comply with FATCA. In the future, along with the continued growth in the scale of the Chinese economy and its deepening participation in international financial markets, China must draw on the United States’ methods, and correspondingly formulate a Chinese version of FATCA. In regard to this idea, from the perspective of international payments, the new statistical declaration system has taken the first step. However, the mainland must strengthen the coordination of its various policies, respect and comply with international rules, avoid frequent policy shifts, and [deal with] unresolved technical details (such as the problem of capital gains tax for QFII, one of the various issues which has long troubled overseas investors).|
|助維護國家金融安全||Aids in protecting country’s financial security|
|在香港層面，本地金融機構、特別是在港中資機構，應該站在建立和完善香港國際金融中心、維護國家金融安全的戰略高度，做好提前規劃和佈局。香港是公認的離岸人民幣業務中心和中國居民、企業走出去的「樞紐」，香港金融機構應該善用在實施美國FATCA項目中的經驗和教訓，持續性地優化金融基礎設施，為中國金融市場未來進一步對外開放、為確保國家金融安全做出應有的貢獻。||And at the Hong Kong level, local financial institutions, especially Chinese-financed institutions in Hong Kong, should stand behind the high strategic importance of establishing and improving the Hong Kong international financial centre and protecting the country’s financial security, and complete all preliminary planning and arrangements. Hong Kong is a well-established offshore renminbi business centre and a “hub” from which Chinese residents and firms can go out into the wider world. Hong Kong financial institutions should make good use of their experience and lessons from implementing the U.S.’ FATCA project, and sustainably improve the financial infrastructure, for the sake of the next step of opening China’s financial markets, and to make a needed contribution to guaranteeing the country’s financial security.|
|■ 中銀國際 杜勁松博士||■ Bank of China (International), [Duke] DU Jinsong, Ph.D.|
FATCA has indeed put Hong Kong’s pro-establishment finance types in an amusing pickle. They’d love nothing more than for Beijing and Hong Kong to sign a FATCA IGA and exempt them from the tiresome responsibility of obeying the Personal Data (Privacy) Ordinance and getting specific consent from all customers whose data is to be sent to a foreign government. Of course, just like in the Chief Executive (s)election last year, very few people want to actually stand up before they know which way the wind is blowing and express their opinions on a process which is largely controlled by Beijing, but this is a survival imperative: their ability to keep on privatising the profits and socialising the costs is threatened.
Unlike in Canada where the number of innocent accidentals threatened by FATCA may be in the hundreds of thousands, in Hong Kong there are perhaps fifty thousand U.S. citizens, and they do not enjoy any constitutional or statutory protection against discrimination by nationality. Furthermore, few are accidental: the vast majority of blue passport holders migrated to the US of their own volition in the 1980s panic (most often after failing to qualify for Canadian landed immigrant status, by far the preferred choice even at the time — there’s a reason why Li Ka-shing’s sons are Canadians of convenience rather than Americans of convenience). Most of the remainder are transient expats whom the Hong Kong government has little interest in protecting. In short: if FATCA were merely a local issue, our local politicians would have already surrendered. Fortunately, it seems like someone, somewhere is engaging in a higher level of strategic thinking about this issue.
Homeland American observers may take Du’s piece in one of two ways. First, his entire train of thought might just be an exercise in sophistry and self-delusion: Du would like to support the Hong Kong finance industry’s interests, but he’s also a patriotic man who has done well in his country and would like to believe he can do good for his country, and so he performs some mental gymnastics to reconcile his ideology to his self-interest and convince himself and others that implementing FATCA on Chinese soil is not actually a gross and craven surrender of sovereignty to rival the treaties imposed by the previous world power after the Opium Wars of the mid-19th century.
But what if he’s right?
On the other hand, Du may genuinely believe that FATCA compliance is the first step towards forcing other countries to make similar obeisances to Beijing if they would like to have any direct or indirect contact with any bank which does business in China. He might even be right about that, though of course this probably rests on the assumption that Beijing wants to and actually can force
Mordor Washington to offer up genuine reciprocity rather than the dishonest and easily-repudiated “commit[ment] to further improve transparency and enhance the exchange relationship … by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic information exchange”.
If that really came to pass, it would mean, pace Karl Marx, that comedy has preceded rather than followed tragedy. It’s not a new prediction that China would eventually come to sit at the hub of any system of automatic financial information exchange — and would use the data and control over financial flows it acquired precisely as the U.S. does: in any fashion it pleases to advance its own interests which certainly will not coincide with the interests of many citizens, companies & countries whose data has been collected. (For example, it doesn’t take much foresight to guess that this might include the imposition of sanctions against those who failed to follow the rules of the system’s most powerful participant.) But of course, all this was previously forecast in a much more humourous fashion at 3:49 in this video previously featured on the Isaac Brock Society:
Female IRS agent: “See, banking is a rich man’s game, and we kinda like the idea of keeping it to ourselves. We’ve got a system, and we’re gonna set it up right.”
China: “Interesting …”
Female IRS agent: (knocks over table) “Oh what the *beep* China, you want some of this?”
China: “Oh no not at all. We love it. A one world taxation system run by the most powerful country is a great idea …”
Male IRS agent: “That’s right. A one-world taxation system run by the United States of America.”
China: “For now …”
Finally, Wen Wei Po clearly didn’t put much effort into copy-editing Du’s submission, or they would have noticed all the “隨覑”s resulting from failed encoding conversion (and they might have even cleaned up some of his stranger sentence patterns). As of several days past its publication date, no mainland newspapers have picked up Du’s column, which should probably tell you something about the degree of enthusiasm for his ideas up north.