To The Moon

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That's  bad news. 

Hong Kong's market took a hit Tuesday, with the Hang Seng Index tumbling 3.82% to 20,287.11, as investors' hopes for concrete stimulus measures from China were dashed. The Shanghai Composite Index followed suit, shedding 2% to 3,218.70.

China's latest trade data has investors worried, with exports and imports missing expectations in September. Exports rose by 2.4% from a year ago, while imports only added 0.3%, falling short of analysts' forecasts of 6% and 0.9% growth, respectively ¹.

This lackluster performance is especially concerning since exports have been a key driver of China's economic growth, which has been struggling with sluggish consumer spending and a real estate slump. The situation is made more challenging by escalating trade tensions, particularly with the US and EU imposing tariffs on Chinese goods like electric cars.

Some experts, like Zhiwei Zhang from Pinpoint Asset Management, believe China's exports will face significant headwinds in maintaining strong growth next year. However, others, such as Zichun Huang from Capital Economics, predict import volumes will rebound in the short term due to increased fiscal spending driving demand for industrial commodities.

The sell-off underscores market disappointment over Beijing's vague stimulus package, lacking tangible details to revitalize China's economy. Investors had anticipated more substantial measures to boost growth, but the lack of clarity has sparked concern.

According to Bloomberg citing people familiar with the matter, China has begun to tax the overseas investment income of the country's super-rich, and the relevant tax rate may be as high as 20%. In recent months, some wealthy people in China's major cities have been asked to self-assess or have been asked to meet with tax authorities to assess potential taxes due, including arrears from past years.

People familiar with the matter said that individuals who are taxed will face investment income taxes of up to 20%, and some may also be penalized for late payment, but the final amount can be negotiated.

Bloomberg reported that as land sales revenue declines and economic growth slows, the Chinese government is increasingly urgent to expand revenue. This move is also consistent with the "common prosperity" policy promoted by the central government.

Mainland China implemented the Common Reporting Standard (CRS) in 2018, a global financial information disclosure system designed to prevent tax evasion. People familiar with the matter said that although regulations provide for taxing residents on their worldwide income, including investment income, enforcement of the regulations has only recently begun.

People familiar with the matter added that it was unclear how extensive the tax would be and how long it would last. Some of the targeted Chinese tycoons have at least US$10 million in offshore assets, while others are shareholders of companies listed in Hong Kong and the United States.

It is reported that since the introduction of CRS rules, China has been automatically exchanging information with nearly 150 jurisdictions over the past six years, involving accounts belonging to tax residents of each member country. Patrick Yip, deputy chairman of Deloitte China, said that China has mastered the CRS database and tax authorities can easily discover tax collection opportunities from these data.

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