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a candlelight vigil in Hong Kong

Kitty Miv, Editor
19 June, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

In a week when international attention was focused, apart from the unavoidable World Cup, on the 25th anniversary of the Tiananmen Square massacre, commemorated this year as every year with a candlelight vigil in Hong Kong, it was praiseworthy of China to issue a "White Paper" lauding Hong Kong's economic and financial achievements over the 17 years since it returned to Chinese rule. Of course, having Hong Kong on its doorstep is a massive advantage for China, which can use it as a free-market laboratory, as its own private "offshore" center, and as a source of investment funds via Hong Kong stock exchange listings. A slightly more cavalier commentator might wonder about the extent to which Chinese officials and quasi-state business operators might use Hong Kong as a laundry-basket for their wealth: without Hong Kong, they would find it far more difficult to stash their dollars or renminbis in a safe place, however gotten. Whatever the motivation of Chinese leaders, it is clear that they are going to continue to allow Hong Kong to maintain its independent financial regime. What is not so clear is whether and how they are going to honor their rash promise to allow a form of democracy in Hong Kong by 2017. The place is notably undemocratic at present, although in a completely different way from China. In 1997, 2017 must have seemed a long way off; now, there is not much time left. This week's Beijing pronouncements, alongside the eulogies for the SAR, included a more menacing reminder that Hong Kong is subject to China's political will, which won't have done much for the hopes of the ex-colony's democrats.

One of the more curious international initiatives taking place at the moment is the G8-inspired push for beneficial ownership disclosure regimes. Guernsey is just one of the "low-tax" jurisdictions which is expressing caution over what it sees as a Gadarene rush towards a dangerous free-for-all in which basic principles of privacy might be compromised. In fact the Loch Erne G8 summit, now just a year ago, failed to reach agreement on public registers of beneficial ownership, although you would hardly know it from the spin put on the final communique by the British. The actual words used were: "Beneficial ownership information on companies should be accessible onshore to law enforcement, tax administrations and other relevant authorities, including, as appropriate, financial intelligence units." Every G8 country has put its own interpretation on these words, but the UK, no doubt egged on by the Treasury, has laid into its "dependent territories," demanding immediate action on the creation of beneficial ownership registers, and making sure that the goal was incorporated into the Queen's Speech last week, which forms the Government's legislative agenda for the next year. The underlying UK agenda is of course mostly to do with taxation, although the given reason for tightening up on transparency is always the anti-terrorist-financing mantra, which permits all manner of anti-libertarian initiatives.

Guernsey's point however is that there should be a level playing field, and it seems to be a very good point, given that the chances of a US beneficial ownership register are fairly close to zero. In the US, unlike most other G8 members, there is no federal company law – companies are formed at state level. One of the most popular locations is Delaware, and a high proportion of US companies are registered there. Legislation passed earlier in the month by the Delaware House of Representatives, in professed response to the G8's initiative, establishes a daisy chain of people that need to be consulted, one after another, in order to find the person at a given limited liability company or limited partnership who has charge of information about the entity’s legal owners. These may be yet other companies, or even nominees. So there has actually been no progress whatsoever towards a transparent beneficial ownership regime. We may also note that the G8 is now reduced to a G7 by the exclusion of Russia, which may possibly not have too much transparency in mind. Mr Cameron must have known that his initiative was doomed to failure, although he hoped no doubt that the media hoopla might panic such as the Cayman Islands and Guernsey into compliance. It looks as if he is going to be disappointed.

Mexico's Ministry of Economy has been taking lessons from the US Department of Commerce and is imposing anti-dumping duties on, improbably, imports of Chinese synthetic blankets. Needless to say, it's at the behest of domestic producers, and it will be their fault that Mexican consumers have to pay more for their blankets. It's an odd thing for Mexico to do, given the emphasis put by the country's new administration under President Peña Nieto on improving and expanding trade relations with China, which has an amazingly large trade imbalance with Mexico: USD5.7bn of exports to China and USD57bn of imports. That's an awful lot of blankets! China has been investing a great deal in Latin America, but apparently not in Mexico, and Nieto hopes that China, as an energy importer, will be a major player in the liberalization of Pemex, the center-piece of his reform program. The enabling legislation for that was passed last December, but there is strong public resistance to the changes (it doesn't take an expert economist to realize that loss of Government income from Pemex, which currently provides a third of the country's budget, would have to be compensated by higher taxes) and detailed implementation rules have had a difficult ride in Congress. Meanwhile the President has guaranteed the jobs of all 153,000 Pemex workers for life, and the legislation bristles with difficulties for would-be investors. Hence the importance the Government attaches to relations with China, although it is not clear why the Chinese should want to entangle themselves with a basket-case like Pemex. At all events, it's evident that someone forgot to tell the Ministry of Economy to be nice to the Middle Kingdom.

No-one yet knows what sort of economic steward new Egyptian President Abdel Fatah al-Sisi will be of his country, although his attempt to throttle back on fuel subsidies by riding a bicycle around Cairo seems to have more to do with spin than substance. He has had one clever idea, though: faced with a drop in tourist arrivals from 14 million to 9 million, he has decided to impose an exit tax of USD25 on them. If we can't force them to arrive, at least we can stop them leaving!


Kitty's Encomiums and Execrations

Methodology: each week (this is the 109th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at neutral, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc and now it's on plus 1 again.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

China loves Hong Kong

Guernsey cautious

And Kitty's Execrations:

Egypt: a military solution

Mexico blankets China




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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