via notayesmanseconomics
There has been a flurry of background economic news from China this week and we can start with an issue that the present UK government is attempting to grapple with.
China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades as Beijing seeks to fill a deepening fiscal hole by targeting the ultra-rich.
Authorities have stepped up scrutiny of overseas capital gains and investments, in some cases going back as far as 2000, in a campaign that comes as Beijing also seeks to significantly expand control of outbound capital flows. (Financial Times)
Now let’s switch to my home country the UK.
HMRC is considering extending the period of time it can investigate people’s tax affairs to 20 years – up from the six as it stands. The consultation, launched by HMRC, which is now under the scope of Labour Party Chancellor John Healey, risks reopening disputes over returns filed up to two decades ago. (Birmingham Mail)
So in spite of the differences of which one is clearly different rates of economic growth both are singing along with The Adventures of Stevie V.
Money talks, mm-hmm, money talksDirty cash, I want you, dirty cash, I need you, ohMoney talks, money talksDirty cash, I want you, dirty cash, I need you, oh.
This is a new feature of a plan we have been observing for quite some years which is wealthy Chinese trying to get money out of the country into what they consider to be a safer bolthole. Then the authorities looking to put either a stop to it or to tax it.
Their efforts, part of a suite of tax reforms targeting the country’s wealthy — including offshore trusts — are focusing on gains made from purchases of real estate, equities, precious metals and cryptocurrencies, among other assets.
We have looked in the past at such moves to get money out of China. One of the places it has gone is not far from me as I used to wonder who the expensive flats in Nine Elms would be sold to and these days there are an awful lot of Chinese there. There have at times been fears about the impact of this on the Chinese Yuan. But China must be wryly smiling at all the efforts to support the Japanese Yen last week and is not seeing a weak currency at the moment.
The Property Crisis
This looks to be at the back of this.
China’s budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7 per cent to Rmb21.6tn ($3.2tn) in 2025. Total government revenue from land sales, once a core revenue source for the state, collapsed from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.
It is revealing to see how the property boom was not only supposed to be a boon for consumption but was a boon for tax revenues especially at the local level. This is why local government in China has been struggling and borrowing. For different reasons this again echoes where the UK stands as for example my borough Wandsworth recently sent round a pamphlet somewhat ironically called Brightside explaining it was having budget issues,
One plus of the campaigns that have been happening is that income tax revenue has risen.
And there are signs that stricter tax collection from China’s wealthy has borne fruit in recent years. Individual income tax revenue rose 11.5 per cent in 2025 on the back of earlier campaigns, including taxes on stock trading in Hong Kong. This far outpaces overall tax growth of 0.8 per cent, official data showed.
There is a catch though at the end. Those who believe that the economy is growing strongly might wonder at what tax growth which others use as a signal is relatively weak? The property impact should have declined by then.
Equity Impact
The news led to what in America would be called a dash for cash.
Shares of banks and insurers tumbled in Hong Kong on Thursday amid fears of a tax crackdown on insurance products sold to mainland Chinese savers.AIA led the declines, sliding almost 9 per cent, while Prudential’s Hong Kong-listed shares dropped close to 6 per cent after ending 6.4 per cent lower in London a day earlier. HSBC and Standard Chartered fell 2.3 per cent and 1.7 per cent, respectively. (Financial Times)
As ever three things will be in play here. Firstly equity market-makers will be expecting sellers and thus will look to buy off them cheaply. Next up we will have some selling in an attempt to hide the evidence and others will be wanting cash to pay their taxes.
Bond Markets
Something else we have been following over the years was also in the news yesterday and here we have a clear distinction between China and the UK. On the 14th of July I pointed out this.
At the moment the gap between China and the West is widening. What I mean by that is the Chinese ten-year yield is 1.74% and little change today. There is a gap with my home country the UK in several ways as our benchmark yield has gone above 5%.So we have the gap of over 3%
Also in the past regular readers will recall when we looked at the Chinese benchmark going below 2% and also when it went below the Japanese one,
The Financial Times has noted that China is making an effort to encourage investment in its bond market.
In June the People’s Bank of China, the central bank, launched a renminbi repo facility for foreign central banks, while the Hong Kong Stock Exchange this week rolled out Chinese government bond futures. At the same time LCH, one of Europe’s largest clearing houses, has started to accept offshore renminbi-denominated CGBs as collateral.The moves follow a decision in April to grant access to China.
There is rather an elephant in the room which is the relatively low yield and there is another one.
As you can see from the Financial Times chart debt has been increasing. That is either a challenge to my rule than sustained 3% GDP growth can fix almost any fiscal issue or another suggestion that economic growth has not been as good as officially reported. The Financial Times seems to be suggesting the numbers below should bring investors in but I wonder if it has put them off.
With about Rmb44tn ($6.5tn) of CGBs outstanding, and a larger amount of debt issued by local governments and other institutions implicitly backed by central government, China’s bond market is one of the world’s largest debt pools.
After all with the falls in Chinese bond yields overseas investors have been able to sing along with the Steve Miller Band.
Go on, take the money and runGo on, take the money and runHoo-hoo-hoo.
Also there is the issue of inflation which in consumer terms has been favourable but some are worried about further along the chain
Well, PPI (higher producer costs) rose but the ability to pass onto CPI (consumers) is limited because domestic demand is weak. (@Trinhnomics)
Plus there is the currency and if you think there is a devaluation risk then you also end up singing with Steve Miller.
Comment
As you can see there is a lot happening in the financial space and it does link with the Chinese version of main street.
The Chinese service sector economy lost further growthmomentum in July, according to the latest RatingDog PMI® survey data. The rates of expansion in both total activity and new business moderated for the second month running, and the 12-month outlook softened.
That was from yesterday and showed quite a decline since June.
The Composite Output Index fell to 50.8 in July, from 53.6 in June, signalling sustained expansion in business activity in China. The rate of growth was the slowest for a year, however, and reflected softer gains in both manufacturing and services.
