China will start enforcing a tax on overseas investment gains by the country’s wealthiest individuals, Bloomberg reports. The tax already existed but has long been overlooked, according to people familiar with the matter.
Some people living in major Chinese cities have already been contacted in recent months about conducting self-assessments or discussing potential payments with tax authorities in the country.
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Those contacted face up to 20% levies on investment gains and may be subject to penalties for overdue payments. In 2018, BCG estimated that out of China’s $24 trillion of personal wealth, around $1 trillion of it was held abroad.
The move comes as China struggles to turn around downward trends facing its economy. The country’s economy grew 4.7% in April-June, showing the slowest rate of growth since the first quarter of 2023 and missing a 5.1% forecast based on a Reuters poll. The economy has been contracting ever since.
Adding to the trouble are the US’s aggressive efforts to curb Chinese exports, particularly in the semiconductor sector. It has also been convincing allies such as the Netherlands and Japan to align their policy with them.
Domestically, China has been facing a persistent property crisis and low consumer demand. This past summer, bank loans to the real economy shrank for the first time in 19 years. Local government is also facing mounting debt as the real-state crisis hurts revenues from land sales and limits their ability to bring in funds.
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By GlobalDataIn September, Beijing passed a package of stimulus measures that resulted in cautious optimism and a stock rally. Some of the measures include cutting rates to outstanding mortgages and loosening regulations in the housing market. Additionally, authorities cut interest rates in order to unlock liquidity and encourage lending. They also pledged up to $340b to help the country’s equity market.
In 2023, China’s overall outward direct investment reached $147.9b.
