From China to Europe and much more
We start with China before moving to the Netherlands & France. We look at changing world order with UN Tax Conventions while wondering why we are struggling to keep climate change goals.
Chinese stocks markets losing foreign investments
During the initial seven months of the year, over 75% of the foreign capital that entered China's stock market has exited, resulting in a divestment exceeding $25 billion.
Despite Beijing's initiatives to instill confidence in the second-largest global economy, international investors have divested significant share holdings.
In the beginning of 2023, there was a notable surge in the acquisition of Chinese stocks by global investors, anticipating an economic recovery following the abandonment of the disruptive "zero-Covid" regime.
However, in recent months, foreign funds have actively reduced their positions due to escalating concerns surrounding a liquidity crisis in the real estate sector and underwhelming growth indicators.
Since attaining a peak of Rmb235 billion ($32.6 billion) in early August, attributable to government assurances of substantial economic policy support, net foreign inflows into China's stock market have plummeted by 77%, reaching only Rmb54.7 billion for the year.
Financial institutions have redirected their preferences towards markets in India and South Korea, witnessing net inflows of $12.3 billion and $6.4 billion, respectively, as per estimates from Goldman Sachs.
German bosses are praising France; it used to be the other way around
France is reaping the rewards of President Emmanuel Macron's pro-business initiatives. As EY reports, for the fourth consecutive year in 2022, France outpaced other EU nations in attracting foreign direct investment projects.
Additionally, Paris is emerging victorious in the competition to attract financial services relocating from post-Brexit Britain, earning the title "France – the better Germany" in a recent Der Spiegel headline.
President Macron, leveraging his background as a former investment banker, has strategically placed individuals with business expertise in key government positions.
Looking ahead, the ambitious "France 2030" plan aims to invest €54 billion in cutting-edge technologies, with a focus on future and green initiatives.
This includes endeavors such as green-hydrogen production, development of new modular nuclear reactors, battery and semiconductor manufacturing, and the creation of low-carbon aircraft.
The nation's trajectory under Macron's leadership showcases a commitment to economic growth and technological advancement.
It’s time for the far-right taking charge of Netherlands
The 2024 Netherlands elections were won by the Party for Freedom (PVV), led by Geert Wilders. The party secured a victory, winning 37 seats in the 150-seat lower house of parliament. This marked a significant shift to the far right in Dutch politics.
Some of his election campaign promises include the following:
A key proposition involves advocating for a mandatory referendum to determine the Netherlands' departure from the European Union.
Additionally, there is a push for the country to disengage from its global climate commitments
Plus there’s a strong stance on significantly limiting immigration.
Furthermore, there is a commitment to halt financial assistance to Ukraine.
Notably, there are calls to ban the Quran and close down mosques.
Despite his extreme views, Wilders began courting other conservative and centrist parties by saying in a victory speech that whatever policies he pushes will be “within the law and constitution”. Time will tell how the extreme policy promises made by Wilders are kept.
UN Tax Convention & the probability of changing global tax laws
India, alongside 125 nations, has cast its vote in support of a groundbreaking resolution advocating for a 'UN tax convention,' marking a pivotal moment poised to reshape the global tax landscape. This strategic move signifies a significant departure from the prevailing influence of the Organization for Economic Cooperation and Development (OECD), which, with its 38 members largely dominated by affluent nations, has been the primary arbiter of such matters.
Noteworthy is the opposition from key OECD-member countries, including the United States, United Kingdom, Netherlands, Switzerland, Japan, France, and Germany, who voted against the resolution.
In solidarity with other BRIC nations—Brazil, Russia, and China—India stood in favor of this transformative initiative.
Practically, the envisaged paradigm shift aims to ensure a just distribution of taxes to source jurisdictions, such as India, and, more broadly, to the developing world.
The objective is to forge a global consensus on fair and equitable international tax rules, countering the prevailing bias in the current international tax rules favoring capital-exporting countries, as guided by the perspectives and commentaries of the OECD.
The essence of the resolution lies in the establishment of an ad-hoc inter-governmental committee comprising no more than 20 member states.
The proposed timeline involves reaching an agreement on the terms of reference within the first year, followed by the development of a UN Framework Convention on international tax cooperation.
It's crucial to note that the OECD-led forums have previously delved into the 'Two-Pillar solution.'
Pillar One addresses taxation in the digital economy, focusing on the allocation of taxing rights and profits of Multinational Enterprises (MNEs) to countries where the customer base resides.
Pillar Two proposes a global effective minimum tax rate, marking a comprehensive approach to international taxation.
The world is way behind reaching climate goals?
The 2015 Paris Agreement underscored a commitment among signatories to limit the increase in global temperatures to "well below" 2°C above pre-industrial levels, with a preference for achieving 1.5°C.
However, the current trajectory, as dictated by countries' "nationally determined contributions" (NDCs) — the emissions reduction commitments mandated by the agreement — is steering the world toward a warming of 2.5-2.9°C by 2100.
In a more optimistic scenario, where all NDCs and net-zero pledges are fully realized, a temperature rise could be contained within the 2°C threshold, according to a recent report.
A significant challenge lies in the conditional nature of many NDC promises, contingent on countries securing additional funding. To stay below the 2°C target, it becomes imperative that every aspect of each NDC — both conditional and unconditional commitments — is met.
The failure of affluent nations to deliver the promised $100 billion annually to developing countries by 2020 stands out as a major source of discontent in international environmental negotiations.
Countries are already falling short in swiftly reducing emissions to meet their own commitments.
Projections indicate that:
Canada is anticipated to miss its 2030 emissions reduction target by 27%
United States by 19%
United Kingdom by 11%
European Union by 9%.
Concerns are already raised that 2024 may witness global average temperatures surpassing the 1.5°C mark above pre-industrial levels for the first time.