BEIJING: Chinese companies with international ambitions are caught in a serious dilemma by the U.S. move to cut corporate tax rates.
The move has made the U.S. an attractive destination for Chinese companies facing very high taxes and other restrictions at home. On the other hand, they face the risk of being punished by Chinese authorities who are opposed to “unnecessary” overseas investments.
Earlier this week, China wrapped up a top-level annual economic policymaking conference, with a three-year pledge to “fight financial risks.” Though there was no specific mention of the U.S. tax reform, it was clear that Chinese authorities are gearing up to counter any external risks to the domestic economy.
Speaking before the conference, Chinese Vice Finance Minister Zhu Guangyao said the fallout of the U.S. tax reform should not be overlooked, but he also added there is no reason to fear because China is planning some initiatives to minimize the impact.
Beijing gave a demonstration of its determination in this area Tuesday as Chinese police broke up an underground bank in Guangdong suspected of involvement in cross-border transactions worth over $70 million in the past month alone.
Chinese companies and wealthy individuals are known to use underground banks to move funds abroad when breaching Beijing’s strict controls on investing in areas the government does not want to encourage. Chinese investors worry both about official disapproval at home as well as the possibility the Trump administration might take new measures to curb foreign investments in the U.S.
