Posts Tagged ‘taxation’

American Entrepreneurs Who Flocked to China Are Heading Home, Disillusioned

December 7, 2018

Worsening costs, taxation, tech transfer and regulation prompt foreign-owned businesses to throw in the towel

Image result for Xi Jinping, waving, photos



SHANGHAI—Fifteen years ago in California, a tall technology geek named Steve Mushero started writing a book that predicted the American dream might soon “be found only in China.” Before long, Mr. Mushero moved himself to Shanghai and launched a firm that Inc. and Alibaba Group Holding Ltd. certified as a partner to serve the world’s biggest internet market.

These days, the tech pioneer has hit a wall. He’s heading back to Silicon Valley where he sees deeper demand for his know-how in cloud computing. “The future’s not here,” said the 52-year-old.

For years, American entrepreneurs saw a place in which they would start tech businesses, build restaurant chains and manage factories, making potentially vast sums in an exciting, newly dynamic economy. Many mastered Mandarin, hired and trained thousands in China, bought houses, met their spouses and raised bilingual children.

Now disillusion has set in, fed by soaring costs, creeping taxation, tightening political control and capricious regulation that makes it ever tougher to maneuver the market and fend off new domestic competitors. All these signal to expat business owners their best days were in the past.

The Trump administration is making a hard-nosed challenge to China using trade tariffs, investment controls and prosecution of technology thieves, and many in American business are cheering, if silently, having soured on the market after years of trying.

At a curry luncheon hosted a few times a year by Steven Bourne, a law professor and 13-year resident of Shanghai from Massachusetts, guests these days chew over shrimp samosas and exit plans. On a recent Friday, a Swedish maker of beauty products said he would move his family to Hong Kong, where regulations are clearer and taxes are lower. An American art dealer who suffered when his rich clients got pinched by currency controls was headed to California.

Another, Jack Tung, a 47-year-old who grew up near Philadelphia and had the costumes made for Hollywood movies like “The Painted Veil” and “The Great Wall,” said absorbing a sixfold rise in tailoring rates since 2003 changed China into a high-cost, low-profit, stressful hardship. He lost the feeling “it’s all happening” in Shanghai and will try Thailand.

Expats always ebb and flow, said Mr. Bourne, but for entrepreneurs “it’s harder for them to live here now.”

Bob Boyce at the opening party for one of his Blue Frog restaurants in Shanghai in 2007.
Bob Boyce at the opening party for one of his Blue Frog restaurants in Shanghai in 2007. PHOTO: CHARLIE XIA

Relocations firm Santa Fe Group A/S said it moves more families out of China than into it these days. Enrollment at Shanghai American School—where annual tuition tops $30,000—is nearly 17% off its peak five years ago. The American Chamber of Commerce in China said 75% of its members are feeling less welcome. Its Shanghai chapter lost over 600 members in recent years, while a poll of U.S. businesses by the organization in manufacturing-heavy Guangdong found 70% may delay China investment or shift it overseas.

“How can it be that those who know China best, work there, do business there, make money there, and have advocated for productive relations in the past, are among those now arguing for more confrontation?” former U.S. Treasury Secretary Henry Paulson asked at a November conference in Singapore.

Many mark a turn in the climate for foreign businesses at around 2012. China was reckoning with how boom times had weighed it down with debt and overcapacity plus widespread corruption and appalling pollution. When Xi Jinping became Communist Party leader, he used the power of the state to shore up employment and living standards. Government-owned companies shielded from daily business hassles were in favor.

Authorities stepped up scrutiny of visas and actively enforced pollution controls. A new social security law lifted local wages and made it tough to fire workers, so much that some employers called the policy a modern “iron rice bowl.” Mr. Xi reinforced China’s Great Firewall of internet controls; big domestic tech firms thrived while laws excluded foreign rivals or pressured them to share technology.

About 20 years ago, when China fever was building, Bob Boyce’s hankering for an affordable beer and burger in Shanghai prompted him to “jump into the sea,” as locals then called starting a business. The Montanan’s bar and grill featuring $5.80 burgers proved an immediate hit.

“It was a time in China if you made some effort, people responded well and you could figure things out,” said Mr. Boyce.

Mr. Boyce targeted China’s white collar crowd, which was taking off along with the economy. The Beijing Olympics in 2008 seemed to crystallize China’s ascendancy. Money was pouring in. Foreign direct investment topped $100 billion for the first time in 2008, helped by new spending by Boeing Co. , Goodyear Tire and Rubber Co. and Microsoft Corp.

Mr. Boyce at the construction site for a Blue Frog restaurant in Chengdu, China, around 2014.
Mr. Boyce at the construction site for a Blue Frog restaurant in Chengdu, China, around 2014.PHOTO: BOB BOYCE

Over the years, Mr. Boyce expanded his single burger joint into a 10-city, $70 million chain of restaurants under the names Kabb and Blue Frog. He figures they employed a total of 12,000 over the years, some of whom went on to launch their own restaurants.

Still, he said, “the label of ‘foreigner’ is always on your forehead.”

Health inspectors were initially so unfamiliar with Western kitchens that he said they nitpicked—he was cited for out-of-date dried oregano—then new rules started cropping up. Officials required restaurants to dedicate a separate space of exactly 8 square meters to prepare salad, not a staple of Chinese cooking. After a retired Chinese leader moved in near his original Blue Frog outlet, police checked noise levels nightly and the restaurant closed in 2012.

“China started to become less clear about what the endgame was for foreigners,” said Mr. Boyce. Last year, he decamped to Seattle after selling his chain to a European company.

From Silicon Valley in 2003, Mr. Mushero felt China’s rumblings and started writing his book, “Off-Shoring the Middle Class.” He saw U.S. companies save money by shifting accounting, X-ray evaluations and other technical jobs overseas. China, he thought, was becoming globalization’s “one-stop-shop” for manufacturing, basic tech work and advanced research.

He predicted a broad shift to China of not only factory work, but U.S. white collar jobs, too. “Imagine these people’s surprise to be out of work, having lost their job to a young Chinese girl earning 25% of their salary,” he wrote.

In 2004, he ran into a friend working at International Business Machines Corp. who asked: “Have you thought about living in Shanghai? We’re hiring like mad.”

An Alibaba office at the internet giant’s headquarters in Hangzhou, China.
An Alibaba office at the internet giant’s headquarters in Hangzhou, China. PHOTO: WANG HE/GETTY IMAGES

By September 2005, he was in Shanghai to pursue consulting leads. His first night, Mr. Mushero was on the terrace of a riverside nightclub chatting with his mother by mobile phone when a burst of fireworks lighted the skyline. “Awesome, they’re celebrating my arrival,” Mr. Mushero told her.

A few evenings later, Mr. Mushero attended an American Chamber of Commerce mixer where he met two future business partners: an American techie, James Eron, and a local businesswoman, Gu Yinan, whom he would marry.

The first foreigner hired at a video sharing service called, a China version of YouTube, Mr. Mushero got a fast education about keeping a site functioning on China’s rough-and-tumble internet. One duty involved locating clips of pornography hidden in uploaded cat videos.

He wondered: “What is everybody else doing?”

At a Starbucks in mid-2008, he sketched out “a napkin business plan” for a new company called ChinaNetCloud (Shanghai) Co. with Mr. Eron. China was overtaking the U.S. as the biggest internet market, and the partners would trail-blaze into cloud services by managing the online operations of local businesses. To a Silicon Valley investor named Dave McClure known for early bets on tech trends, ChinaNetCloud was a proxy for “the exploding Chinese internet market,” he said in a 2010 blog, and he pumped in $200,000 for his first China investment.

Companies such as Alibaba and Tencent Holdings Ltd. soon harnessed cloud technology and today deliver on-the-go shopping, gaming, payments and other consumer services. When Alibaba and Amazon Web Services began selling enterprise cloud space in China, each certified ChinaNetCloud to configure and monitor software for their corporate clients.

Tougher regulations and competition deterred foreign players. China’s reputation for technology theft kept many out of the market, which reduced the number of Mr. Mushero’s potential clients. In 2013, the American Chamber of Commerce said only 10% of its members trusted data security enough to consider cloud services in China.

A night view of Shanghai in 2005, when new companies launched by foreigners were soaring.
A night view of Shanghai in 2005, when new companies launched by foreigners were soaring. PHOTO: CANCAN CHU/GETTY IMAGES

Walt Disney Co. tapped ChinaNetCloud to manage the computers hosting some interactive games in 2012, including one based on its hit movie “Frozen.” Mr. Mushero looked forward to more work with the U.S. entertainment giant, but Disney scrubbed the gaming push in mid-2014. Disney declined to comment. Online gaming in China is dominated by big domestic tech companies; it is derided by regulators as chaotic and harmful and hit regularly with new rules.

Soon another customer, British online retailer ASOS PLC, pulled out of China after three years trying to compete in a market dominated by giants Ailbaba and Inc. ASOS didn’t respond to questions.

Mr. Mushero pushed on, setting his sights on taking ChinaNetCloud public, after Alibaba’s $25 billion initial public offering in 2014 boosted investor enthusiasm for Chinese tech.

ChinaNetCloud lifted staffing to 125 and fancied up its offices in a high-tech zone with a second floor that featured colorful wall-size monitors Mr. Mushero likened to the Starship Enterprise. He hung up the napkin business plan and hired lawyers, figuring the company was worth $60 million.

Mr. Mushero in 2008 at ChinaNetCloud.
Mr. Mushero in 2008 at ChinaNetCloud. PHOTO: STEVE MUSHERO

As a foreign-owned company, ChinaNetCloud couldn’t easily raise money from local investors, and rules blocked listed Chinese companies from buying it before it was profitable. Foreign investors, meanwhile, were uneasy about China’s tightly regulated internet sector. “We were too Chinese for the Americans and too American for the Chinese,” said Mr. Mushero.

When China’s stock markets crashed in mid-2015 so did ChinaNetCloud’s fundraising hopes. The setback left Mr. Mushero and his co-founder, Mr. Eron, personally liable for a $6 million loan from local firms. Mr. Eron quit and returned to the U.S.; he declined to comment.

Lacking funds, ChinaNetCloud later restructured into Shanghai YunChang Network Technology Ltd. to become a fully China-registered company instead of a foreign enterprise. Mr. Mushero’s wife, Ms. Gu, took over as chief executive, while he stuck to technology.

In August 2017, Ms. Gu appeared on the season finale of China’s version of Shark Tank, a TV show where entrepreneurs try to sell famous investors on their business plan. Ms. Gu raced through the story of the company’s early success and more recent money challenges. When a panelist asked about juggling family and work, Ms. Gu broke down in sobs.

“We have been struggling for nine years. Nine years,” she said. The panelist leapt up to hug a trembling Ms. Gu. Soon, all five investors were wiping away their tears as they pledged Ms. Gu the equivalent of $1.5 million. “We’re very touched by your story,” one said.

Still only occasionally profitable and down to about 40 employees, the company in October fled the tech-zone for a cramped office near a railway station. The Shark Tank funding wiped away Mr. Mushero’s debt but slashed the company’s valuation.

On a recent drizzly afternoon, flanked by framed commendations from Amazon and Microsoft for his firm’s achievements in China, Mr. Mushero said that after New Year’s he will head back to California, where he sees burgeoning demand for corporate online services, to market the company’s cloud-management tools. China is big, messy and complicated, he said. “We have been out there in the trenches for many years.”

Write to James T. Areddy at


China’s middle class spend less as they scrimp and save for their children’s education

October 16, 2018

“All I can do now is save, save, save.” — Spending on education is eating all the money — Parents prioritise school fees and tutoring costs but forgo other spending that the government is counting on to stabilise economic growth

Image result for china, school children, photos

South China Morning Post

PUBLISHED : Tuesday, 16 October, 2018, 6:00am
UPDATED : Tuesday, 16 October, 2018, 6:51am

China’s middle class is something of a mythical entity, with wide-ranging estimates of its size and economic power. Optimists believe a large and growing middle class has the ability to lift China and even the world to a more prosperous level, while pessimists foresee an increasingly burdened group that could cause the economy to stagnate and even lead to political chaos. In this, the last of a four-part series, theSouth China Morning Post continues to examine the myth to reveal the economic and political implications of its evolution.

It’s a Sunday afternoon, and Amy Jiang is rushing through a packed lunch with her seven-year-old daughter outside her classroom in a shabby building in Beijing. They are on a break between two lessons, each two hours, given by an after-school tutoring company.

Like millions of middle-class parents on the mainland, Jiang, a 35-year-old engineer, spends most of her weekends attending tutoring sessions with her child.

“I have to be here,” Jiang said. “Some topics are too advanced for kids to understand, such as permutations and combinations in maths, and classical Chinese.”

The question mark hanging over China’s 400 million-strong middle class

As the trade war with the United States continues to rage, China’s burgeoning middle class, people like Jiang, are seen by some as a potential white knight for its slowing economy. The purchasing power of the group – ranging from 100 million to 400 million people, according to different estimates – is widely believed to be ballast for the economy. But fresh signs show their high spending on education is sucking up an increasing portion of the family budget and constraining other consumption.

Spending on education is eating up an increasing portion of family budgets. Photo: Simon Song

Investing in education

Studying a wider range of subjects in more depth than the public school syllabus requires and getting a head start by studying topics before they are covered in school have become common tactics used by parents trying to help their children compete in a challenging educational environment in China.

Beijing-based New Oriental and TAL Education Group, the two largest listed education companies, both reported accelerating double-digit revenue growth in the first half of this year. New Oriental said total student enrolment in academic subject tutoring and test preparation courses increased by 44.9 per cent year-over-year to 2.06 million for the quarter ended May 31. TAL, meanwhile, said total student enrolment surged by 88.7 per cent from a year earlier to nearly 2 million students in the same quarter.

“Chinese parents, especially the middle class, understand it’s hard to climb the ladder of success if children from ordinary families do not possess degrees from a good university,” Hu Xingdou, an independent economist, said. “Amid fear and anxiety, the middle class are pushing their children to study hard and are willing to save every penny to invest in education.”

In fact, parents around the world are going the extra mile to ensure their children have a good start in life. According to an HSBC report, the “Value of Education, Higher and Higher”, released in June last year, over half of the 8,481 parents surveyed in 15 countries and territories are paying for some sort of educational training for their children, and almost two-thirds are paying for private tuition or have done so in the past.

The highest proportions of parents with at least one child in paid-for education are in India (96 per cent), the UAE (93 per cent) and Indonesia (87 per cent), while the highest proportions of parents currently paying for private tuition (or who have done so in the past) are in mainland China (93 per cent), Indonesia (91 per cent), Hong Kong (88 per cent) and Egypt (88 per cent).

Chinese parents understand the competition is especially intense on the mainland. Their children will be competing with nearly 10 million peer students – more than the population of Hong Kong – in the national college entrance examination for the chance to be admitted to one of 150 tier-one universities. Their chances are less than 6 per cent, if history provides a guide. And the calculation excludes those from privileged or well-connected families who can be sure of being admitted.

Words of encouragement before the national entrance exam. Chinese parents understand how intense the competition is for university places. Photo: Xinhua

China amended its compulsory education law in 2006, banning entrance exams for primary schools and junior middle schools to relieve the burden on young students. Since President Xi Jinping took office in 2013, he has underscored the need for equity and fairness in the nation’s nine-year tuition-free compulsory education system, emphasising a “more balanced” allocation of educational resources. Under that programme, students go to primary schools near their home and are enrolled in one of several nearby primary schools under a so-called computer allocated system.

But the rules for how the allocation is conducted have not been made public and the idea that it comes down to “luck” does not explain why children from well-connected families are always enrolled in better schools. As a result, middle-class parents pin their hopes on a few public middle schools that recruit high IQ students through tests in maths, Chinese and English for their special programmes.

“At least those tests are transparent and relatively fair. I know the chance is slim for her to get into a prestigious middle school,” Jiang said, watching her daughter Jiejie yawning after a hectic morning. “Eventually Jiejie will have to compete with other students in the university entrance examination and her fate will mainly be decided by the test scores. So it’s never too early to prepare for it,” she said.

‘Don’t call me middle class’

Jiang is from a rural part of northern Shanxi province, but she graduated from a top university in Beijing. Her annual income of 100,000 yuan (US$14,500) is twice that of the average urban worker’s in the city. That makes her a member of China’s so-called middle class of three million, with a yearly salary of between US$3,650 and US$36,500, according to the World Bank definition.

She attributes this success to the education she received. So now, Jiang spends 12,000 yuan a year on maths lessons for her daughter, 12,000 yuan on Chinese, and 25,000 yuan on English. On top of that, she has spent about 50,000 yuan on dancing and piano lessons for Jiejie, and 20,000 yuan on an overseas trip to help the child “gain some international experience”.

Education expenses account for about 30 per cent of her household income, she said.

“Don’t call me middle class – my husband and I have never bought any clothes priced higher than 100 yuan since we had Jiejie,” she said. “We’re saving every penny for our daughter, as education provides the only channel in China for ordinary people like me to secure a decent life in the future.”

According to a survey of nearly 52,000 parents across the nation, most of them middle class, conducted by website in November, spending on education accounted for an average 20 per cent of household income.

About 90 per cent of preschool children and 81 per cent of K12 students, aged six to 18, have attended tutoring courses. Families with preschoolers spent an average 26 per cent of their income on education, while those with K12 children had education-related outlays of 20 per cent of their income. Of all the respondents, about 61 per cent said they had plans to send their children to study overseas.

Since 2013, Chinese spending on education, culture and entertainment, medical care and health has risen steadily, while that for food, tobacco, alcohol and clothing has been declining, official data shows.

Many Chinese have plans to send their children to study overseas. Photo: Simon Song

“Many families are willing to pay a lot of money for education and related services such as tourism and entertainment,” Li Chao, an analyst with Huatai Securities, said. “Generally speaking, it’s a sign of consumption upgrading. The risk is when people don’t expect household income to rise, the high education expenditure, which they give the highest priority, will crowd out other spending.”

Retail sales growth, including goods and catering and excluding other services, decelerated from 10.2 per cent last year to 9.3 per cent in the first eight months of this year in nominal terms. The growth slowed from 9.1 per cent last year to 7.5 per cent this year in real terms, according to the calculation of UBS Securities economists led by Wang Tao. Weaker car sales accounted for more than half of the moderation, while spending on medicine, appliances and other goods slowed, as well.

Wang expects overall consumption growth to slow in 2018 and 2019. “As export and economic growth slows, wage and income growth is expected to weaken. At the same time, softer property sales and a smaller wealth effect (from the rising value of property), and tighter consumer lending should also have some negative impact on consumption,” she said.

Even with the government’s policy easing, the UBS economists expect real consumption growth to slow from 7.3 per cent this year – down from 7.5 per cent in 2017 – to 7 per cent in 2019, with the risk to the forecast more on the downside.

Ernan Cui, an analyst with consultancy Gavekal Dragonomics, said China’s consumers should be providing “a bit of ballast” amid the economic slowdown and escalating trade tensions with the US, as growth in household spending, which accounts for about 40 per cent of the economy, has run at or slightly above the rate of headline GDP growth since 2011, and is generally less volatile than investment spending.

“But the ability of consumers to help keep the economy on track has begun to look shaky,” she said, arguing that household spending is not keeping up with income growth, even as income prospects have dimmed due to slowing industrial profits and decelerating employment growth.

Private schools

Emma Li deleted two e-commerce apps from her mobile phone recently. The former employee of a US investment bank in Beijing used to regularly buy fashionable dresses, shoes and cosmetics, but that was before her son started at a private primary school this month. The tuition fee is around 300,000 yuan a year, excluding elective courses.

“There is no public primary school within a 5km radius of our home,” said Li, who lives in a suburban Beijing housing project with 150,000 people. “Besides, I want my boy to have some international exposure before sending him to study overseas, which is not an advantage offered by public schools.”

Middle-class and affluent families sharing Li’s mindset have been rushing to send their children to one of around 125 private schools in Beijing, or 200 in Shanghai. Although Chinese partners are required to preside over their operations to ensure that Chinese values and the Communist Party’s ideology are embodied in their courses, private schools have boomed in recent years.

Meanwhile, China has vowed to ban university textbooks that promote “Western values” and has de-emphasised the importance of studying English in public primary and middle schools. In 2015, then education minister Yuan Guiren told media: “Never let textbooks promoting Western values appear in our classes.”

For Li, that is a backwards step. “How can you compete with the world’s elite if you have no way to understand their values?” Li said, explaining why she chose a private school for her son that offers classes in English taught by foreign teachers.

“But the tuition fee is higher than our current family income,” she said. “I’ve been looking for a job for months but with no luck yet. All I can do now is save, save, save.”



China wants its middle class to solidify economy as trade war hits

October 13, 2018

Government wants more spending by China’s middle class but many consumers are tightening their belts as they worry about what the future holds

Uncertainties and pessimism build…

South China Morning Post

Related image

PUBLISHED : Saturday, 13 October, 2018, 1:36pm
UPDATED : Saturday, 13 October, 2018, 2:01pm

China’s middle class is something of a mythical entity, with wide-ranging estimates of its size and economic power. Optimists believe a large and growing middle class has the ability to lift China and even the world to a more prosperous level, while pessimists foresee an increasingly burdened group that could cause the economy to stagnate and even lead to political chaos. In this, the second of a four-part series, The South China Morning Post continues to examine the myth to reveal the economic and political implications of its evolution.

Beijing wants the middle class to come to the rescue of China’s economy. But rising costs, mounting household debt, worries about their future income as the economy slows and doubts over whether the government can adequately provide for the ageing population have made consumers cautious.

In many cases, they are doing the opposite of what the government wants and pulling back from spending. Whether this so-called consumption downgrade is broad-based – and a threat to Beijing’s economic plans – or not is a matter of intense debate in Chinese policymaking circles. But it is clear that many in China’s middle class are struggling to make ends meet.

The experience of a young finance officer in Beijing, surnamed Deng, is a typical one. Deng admits she occasionally has to borrow money from her Jiebei account – also known as Ant Cash Now, a mobile-based consumer loan service of Ant Financial – not to buy cosmetics or clothes, just to pay her rent.

A film company employee, Deng makes 5,400 yuan (US$780) a month after taxes, just above the average monthly disposable income of 5,180 yuan in China’s capital in the first half, and close to last year’s average for the high-income group of 5,411 yuan, according to government data.

For many middle-class Chinese, most of their wages are spent on the essentials. Photo: Reuters

But half of Deng’s earnings are taken up by rent. She runs short of cash from time to time so has to borrow more. A recent transaction record of her Alipay mobile-based payment account shows spending for only two items: food delivery and ride-hailing. Not a single luxury purchase appears on the bill, but every month there is almost nothing left in her bank account.

“I would be rich if I didn’t have to pay the rent,” said the twenty-something woman. “I buy cosmetics infrequently, almost all of my spending is just on food.

“The so-called consumption downgrade doesn’t apply to me, since I have never had a chance to upgrade my lifestyle,” she quipped.

Ant Financial operates the Alipay service and is an affiliate of Alibaba Group, which owns the South China Morning Post.

Cautious and pessimistic

China is now betting that its middle class – the largest in the world with more than 400 million consumers, according to the authorities’ estimate – will increase their discretionary spending on products and services and help stabilise the economy amid the trade war with the United States.

The National Development and Reform Commission, the government’s powerful planning agency, last month announced that it had organised a special forum to study increasing salaries for lower-middle, middle- and upper-middle income groups, whose average annual individual disposable earnings range from 13,843 yuan to 34,547 yuan.

The Chinese Communist Party is trying to take the country through the “middle income trap” – a term used by the World Bank to refer to nations that get stuck at a middle level of economic development as they attempt to grow rich.

The perception there is a large middle class also helps China to retain its appeal to traders and investors. The government will hold the country’s first-ever “import expo” in Shanghai next month,as it seeks to use its domestic consumer power to woo the rest of the world.

At the same time, while China’s per capita income is now approaching US$10,000, the distribution of national wealth is not in favour of the people as the state takes away a growing share of income, and the spending power of China’s middle classes are restricted by rising costs for housing, education, health care and childcare – among other things.

During the week-long National Day holiday that finished on October 7, spending by mainland domestic travellers grew 9.5 per cent – the slowest growth pace since the “golden week” break was introduced 18 years ago. While still a healthy growth rate, last week’s gain would have to be at least as fast as the previous year to maintain overall growth at the same pace.

In addition, there are growing worries about the outlook for the economy and wages, and the retirement costs of a rapidly ageing population – at the end of last year the number of over-60s, the usual retirement age, stood at 240 million.

This tends to make consumers want to save more for the future and spend less now.

A survey conducted by the Bank of Communications in July also showed that Chinese households have become more cautious about the economy and their future income. Sentiment indexes on the economic outlook and household income growth based on the survey both declined by 1 point in July from the previous reading in May.

The escalating trade war between China and the United States is only adding to consumers’ anxiety.

China’s Consumer Confidence Index, compiled by data analytics firm Nielsen, decreased by 2 points in the second quarter compared to the first three months of the year, the first quarterly drop in more than three years, reflecting the start of the trade war.

Deeper into debt

Like Deng, many Chinese consumers are going deeper into debt, not by choice but by necessity. At the end of August, lenders’ outstanding consumption loans to households jumped 29.1 per cent year on year, faster than the 18.5 per cent growth in overall outstanding household debt, which includes mortgage lending, according to People’s Bank of China data.

Much of the consumption loan total does not flow into purchases of goods and services. Just like Deng, many in China’s middle class use consumer loans to help pay their rent or mortgage, even to come up with the down payment on a home.

Government data reflect a slowdown in spending growth. China’s overall retail sales growth rate rebounded slightly to 9 per cent in August, but still close to the weakest point since 2003, which was 8.5 per cent in May, National Bureau of Statistics data showed.

Urban consumer spending grew 4.7 per cent in the first half compared to a year earlier, a rebound from the 3.4 per cent in the first quarter that was the lowest growth rate since the data series began in 2014, the bureau’s data showed. Spending growth has decelerated every quarter from the first three months of last year to the first quarter this year, continuing a broad trend over recent years. It stood at 7.3 per cent in the first quarter of 2014.

Many middle-class Chinese use consumer loans to help pay their rent or mortgage, or even to come up with a down payment on a home. Photo: Reuters

The uncertainties facing the middle class are leading some to become disillusioned with their economic status. In Beijing, a computer programmer surnamed Wei makes 15,000 yuan a month after taxes, a salary level that puts him solidly in the middle of the Chinese middle class.

But the 29-year-old, who bought a flat for his family two years ago, does not see himself as part of that group. “I am carrying a mortgage and a person who doesn’t have financial independence should not be treated as middle class,” Wei said.

Mortgage payments cost him 8,000 yuan every month, and another 2,000 yuan from his earnings goes to his and his wife’s parents to pay for their living expenses.

The young man, who works at a board and card game company, pinches every penny of his remaining 5,000 yuan for daily costs. Despite needing it for work, he has not updated his laptop in five years and says he will not buy new clothes until the old ones are worn out.

His wife makes 20,000 yuan per month, but the couple has chosen to save that money rather than spend more. “We plan to have a baby, so we have to make sure we have enough savings,” Wei said.

His concerns are echoed by a full-time mother in the southeastern city of Xiamen surnamed Fang. Her experience shows how the rapidly mounting cost of raising children has changed the spending habits of Chinese middle-class families, limiting their options for discretionary purchases.

Before giving birth to her son three and a half years ago, Fang said she would binge on beauty products during frequent shopping trips. But now she cannot remember the last time she bought a new lipstick.

She sends her son to a bilingual kindergarten and has reserved a spot for him in an English-language school. The tuition for the English school is 13,267 yuan a year – nearly three times the average monthly disposable income of an urban resident in Xiamen during the first half of this year.

“I have already used up most of my money on the tuition fees for the kindergarten and the English school, as well as on textbooks – another problem is that the price of textbooks is still rising,” she said. “Every month I am able to save only a little.”

Rising costs are making it harder for many people to save money. Photo: Reuters

Many members of a WeChat group for housewives that Fang joined have the same complaints: that with prices continuing to climb, it has become harder to save money, not to mention spending more.

“It was already hard to save any money before we had our child, but now we use up all our earnings every month,” a young mother in the group said.

“My husband wants to buy a new car, but I have to keep stopping him from doing it,” she added.

Other Chinese families are making the same choice. Vehicle sales in the world’s second largest economy dropped for a third straight month in August, with a year-on-year decline of 7.4 per cent, accelerating from the 5.5 per cent drop in July, according to China Passenger Car Association data.

Even though Chinese have a reputation for being prolific savers, the growth rate of deposits at the country’s financial institutions slumped to a record low of 8.3 per cent in August, according to central bank figures.

In addition, income from investments has been cut back sharply. The average personal income earned from financial assets, property and other assets was 532 yuan in the second quarter, falling from 643 yuan in the first quarter – a 17.2 per cent quarterly decline. High-return investment channels through the country’s shadow banking system have been curbed by the government’s campaign to rein in excess debt, taking away extra earnings that could be used for increased purchases. And the stock market, one of the few investment channels still open to the Chinese middle class, has dropped by 17.7 per cent from the start of the year to the first week of October, further depressing incomes.

Many young mothers in Fang’s WeChat group said they spend tens of thousands of yuan every year buying health and education insurance to hedge against future uncertainties.

No relief in sight

Deng, Wei and Fang are all cautious about the outlook for their incomes.

Deng said she did not expect any large increase in her after-tax income, since the entire Chinese film industry was going through a tough time in the wake of the tax evasion scandal of actress Fan Bingbing. The State Administration of Taxation has tightened its collection methods for the television and film business, slowing down new productions.

Wei was also not optimistic that he would see a dramatic rise in his earnings, because regulators have been cracking down on gambling-related video games. Chinese tech giant Tencent Holdings shut down its popular Texas Hold ’Em video poker game last month in response to Beijing exerting more control over the market.

Fang, meanwhile, thinks her education costs will continue to rise as financial support from her husband’s family dries up. Her parents-in-law operate a mining blasting company in Guizhou province and used to offer them support, but in the past two years business has slumped and at times the firm has been unable to pay its workers.

The country’s median individual disposable income grew 8.4 per cent year-on-year in the first six months, continuing a consistent slowing pattern seen in recent years. Median disposable income grew 7 per cent in the first half of 2017, 8.7 per cent in the first six months of 2016, 10.5 per cent in the first half of 2015, and 13.7 per cent in the first two quarters of 2014, according to the NBS data.

In Shenzhen, a foreign trading company employee said her industry was feeling the pain of tariffs imposed by the US, and she could not see her finances improving. “I am afraid of a wave of unemployment or a terrible [round of] inflation if an economic crisis were to happen,” said the woman, surnamed Liu. “I am very pessimistic about my future income.”

It Started as a Tax Cut. Now It Could Change American Life

November 30, 2017

Image may contain: 7 people, people smiling, people standing

Joshua Lott | The Washington Post | Getty Images
Students walk through the hallway after classes were dismissed at Senn High School on Wednesday, May 10, 2017 in Chicago, Illinois.

The tax plan has been marketed by President Trump and Republican leaders as a straightforward if enormous rebate for the masses, a $1.5 trillion package of cuts to spur hiring and economic growth. But as the bill has been rushed through Congress with scant debate, its far broader ramifications have come into focus, revealing a catchall legislative creation that could reshape major areas of American life, from education to health care.

Some of this re-engineering is straight out of the traditional Republican playbook. Corporate taxes, along with those on wealthy Americans, would be slashed on the presumption that when people in penthouses get relief, the benefits flow down to basement tenements.

Some measures are barely connected to the realm of taxation, such as the lifting of a 1954 ban on political activism by churches and the conferring of a new legal right for fetuses in the House bill — both on the wish list of the evangelical right.

With a potentially far-reaching dimension, elements in both the House and Senate bills could constrain the ability of states and local governments to levy their own taxes, pressuring them to limit spending on health care, education, public transportation and social services. In their longstanding battle to shrink government, Republicans have found in the tax bill a vehicle to broaden the fight beyond Washington.

The result is a behemoth piece of legislation that could widen American economic inequality while diminishing the power of local communities to marshal relief for vulnerable people — especially in high-tax states like California and New York, which, not coincidentally, tend to vote Democratic.

All of this is taking shape at such extraordinary velocity, absent the usual analyses and hearings, that even the most savvy Washington lobbyist cannot be fully certain of the implications.

Mr. Trump and the Republican leadership in Congress — stymied in their efforts to repeal Obamacare, and short of legislative achievements — have signaled absolute resolve to get a tax bill passed by the end of the year. As the sense has taken hold that Washington is now a trading floor where any deal is worth entertaining so long as it brings votes, interest groups have fixed on the tax bill as a unique opportunity to further their agendas.

“There’s a Christmas-tree aspect to the bill,” said C. Eugene Steuerle, a Treasury official during the Reagan administration and now a senior fellow at the Urban Institute. As an example, he cited the provisions in the House bill designed to appeal to the religious right.

“People want to add certain things, and if they don’t cost a lot, it’s a way to buy in agreement,” Mr. Steuerle said.

Economists and tax experts are overwhelmingly skeptical that the bills in the House and Senate can generate meaningful job growth and economic expansion. Many view the legislation not as a product of genuine deliberation, but as a transfer of wealth to corporations and affluent individuals — both generous purveyors of campaign contributions. By 2027, people making $40,000 to $50,000 would pay a combined $5.3 billion more in taxes, while the group earning $1 million or more would get a $5.8 billion cut, according to the Joint Committee and the Congressional Budget Office.

“When you put all these pieces together, what you’re left with is we are squandering a giant sum of money,” said Edward D. Kleinbard, a former chief of staff at the Congressional Joint Committee on Taxation who teaches law at the University of Southern California. “It’s not aimed at growth. It is not aimed at the middle class. It is at every turn carefully engineered to deliver a kiss to the donor class.”

In a recent University of Chicago survey of 38 prominent economists across the ideological spectrum, only one said the proposed tax cuts would yield substantial economic growth. Unanimously, the economists said the tax cuts would add to the long-term federal debt burden, now estimated at more than $20 trillion.

If the package does have a guiding philosophy, it is a return to trickle-down economics, an enduring story line in which the wealthy are supposed to spend and invest their tax breaks, creating jobs and commercial opportunities for everyone else.

As President Ronald Reagan slashed taxes in the 1980s, he argued that citizens, not bureaucrats, should decide how to spend their money. President George W. Bush bestowed enormous tax cuts on the affluent.

But the trickle-down story has yet to achieve its promised happy ending. Only the beginning reliably transpires, the part where wealthy people get relief. The spoils of resulting economic growth have largely been monopolized by those with the highest incomes. Pay for most American workers has been stagnant since the mid-1970s, after the rising costs of housing, health care and other basics are factored in.

Nonetheless, Republicans are staging a trickle-down revival.

“Either it’s a religious belief, a belief where no amount of evidence would change that, or they are using the argument cynically and they just want more money for themselves,” the economist Joseph E. Stiglitz, a Nobel laureate, said.

Mr. Stiglitz has long warned of the perils of growing inequality while deriding tax-cutting inclinations. Yet even those who have favored lighter tax burdens are critical of the current proposals.

In the late 1970s, Bruce Bartlett developed what would become the locus of the Reagan tax cuts while working for Representative Jack Kemp, a conservative Republican from New York. Those cuts helped cushion the pain from sharp increases in interest rates by the Federal Reserve, Mr. Bartlett maintains. But Reagan was lowering the highest tax rate on individuals from 70 percent down to 28 percent by 1986.

“What they have here is a big tax cut for the rich paid for with random increases in taxes for various constituencies,” Mr. Bartlett said. “It’s ridiculous. And it’s telling that they are ramming this through without any debate. All of the empirical evidence goes against the tax cut.”

The meat of the package is a permanent lowering of the corporate tax rate, to 20 percent from 35 percent, which business leaders have long wanted. Proponents assert that this would prompt multinational companies to expand operations in the United States.

“We’ve been bleeding corporate headquarters and production for a long time,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and now president of the American Action Forum, a nonprofit that promotes smaller government.

But recent history suggests that when corporations get tax relief, they find abundant uses for money that do not involve paying higher wages. They give dividends to shareholders and stock options to executives. They stash earnings in tax havens.

In 2004, Congress invited American corporations to bring home overseas earnings at a sharply reduced rate, pitching it as a means of bolstering investment. But the corporations spent as much as 90 percent of their windfall buying back their shares, according to Bureau of Economic Analysis research.

If Congress bestows fresh relief on major businesses, signs suggest a similar result. Many companies are enjoying record profits. Those in the Fortune 500 had $2.6 trillion salted away overseas as of last year.

“In our boardroom, the number-one thing we’re talking about is not taxes,” said Jeremy Stoppelman, chief executive of Yelp, the online review platform. “Having a strong middle class out there spending money is what’s most important for our business.”

If the tax bill widens inequality, local communities will likely find themselves with fewer resources to aim at helping struggling people.

Senate Budget Committee members Sen. Lindsey Graham, R-S.C., left, and Sen. Bob Corker, R-Tenn., talk during a Senate Budget Committee hearing to consider fiscal year 2018 reconciliation legislation on Capitol Hill in Washington, Tuesday, Nov. 28, 2017. Tax bill fight brewing over ‘fiscal trigger’ among Republicans
18 Hours Ago | 02:08
A key feature of the Senate bill is the elimination of a federal deduction for state and local taxes. Conservative groups like the Heritage Foundation and American Legislative Exchange Council have sought to end the deduction as a means of reining in government spending.

In high-tax states like California, New York, New Jersey and Connecticut — where electorates have historically shown a willingness to finance ample safety-net programs — the measure could change the political calculus. It would magnify the costs to taxpayers, pressuring states to stay lean or risk the wrath of voters.

Some see in this tilt a reworking of basic principles that have prevailed in American life for generations.

Since the 1930s, when President Franklin D. Roosevelt created Social Security, unemployment benefits and other pillars of the safety net to combat the Great Depression, crises have been tempered by some measure of government support. Recent decades have brought cuts to social services, but the impact of the current bill could be especially consequential.

“This is a repudiation of the social contract that Franklin Roosevelt announced at the New Deal,” Joseph J. Ellis, a Pulitzer Prize-winning American historian, said of trimming benefits for lower- and middle-income families to finance bigger rewards for the wealthy. Health coverage would shrink under the Republican plan while multimillion-dollar estates would not have to pay a penny in taxes.

The tax cut package, for instance, could trigger rules mandating cuts to Medicare, the government health care program for seniors, the Congressional Budget Office warned. Some 13 million people could lose health care via the elimination of a key plank of Obamacare. Insurance premiums are also expected to rise by 10 percent.

“This tax bill is a grand deception,” said Arnold Hiatt, the former chief executive of Stride Rite, which makes children’s shoes. “It hurts the most vulnerable, and hurts health care and education, which are essential for a healthy economy.”

The proposals break from seven decades’ worth of federal efforts to broaden access to higher education.

Since World War II, the guiding sense has been that “it is government’s responsibility to provide higher education for all those who can benefit from it,” said David Nasaw, a historian at the Graduate Center of the City University of New York. That idea was behind the G.I. Bill, which helped generations of veterans pay for college and training.

The House or Senate bill includes provisions ending the deductibility of tuition waivers for graduate students, repealing the deduction for interest paid on student loans and taxing university endowments.

The endowment tax, in particular, threatens the ability of low-income students to pursue college and graduate studies, said Ron Haskins, a senior fellow at the Brookings Institution. Proceeds from endowments subsidize students from lower-income families, while allowing students across the board to graduate with less debt.

“When the time of reckoning comes to fix huge deficits, social safety-net programs will be first on the chopping block,” Julian E. Zelizer, a professor of history and public affairs at Princeton University, said.

“It’s very far-reaching,” he added, “but there hasn’t been much of a debate.”

Europe turns on Facebook, Google for digital tax revamp

November 19, 2017


BRUSSELS – They have revolutionised the way we live, but are US tech giants the new robber barons of the 21st century, banking billions in profit while short-changing the public by paying only a pittance in tax?

With public coffers still strained years after the worst of the debt crisis, EU leaders have agreed to tackle the question, spurred on by French President Emmanuel Macron who has slammed the likes of Google, Facebook and Apple as the “freeloaders of the modern world”.

As recently as March, five of the world’s top 10 valued companies were Silicon Valley behemoths: Apple, Google’s Alphabet, Microsoft, Amazon and Facebook. (Germany’s SAP was Europe’s biggest and 56th on the global list).

But tax rules today are designed for yesterday’s economy when US multinationals — such as General Motors, IBM or McDonald’s– entered countries loudly, with new factories, jobs and more taxes for the taking.

These firms had what tax specialists call “permanent establishment”when companies showed a clear physical presence measured and taxed through tangible, real-world assets.

But today in most EU nations, the US tech titans exist almost exclusively in the virtual world, their services piped through apps to smart phones and tablets from designers and data servers oceans away.

Ghost-like, Silicon Valley has turned Europe’s economies upside down, but often with just a skeleton staff and some office space in markets with millions of users or customers.

– Nation-less –

According to EU law, to operate across Europe, multinationals have almost total liberty to choose a home country of their choosing. Not surprisingly, they choose small, low tax nations such as Ireland, the Netherlands or Luxembourg.

Thus, it is through Ireland that Facebook draws its wealth from millions of accounts across Europe. There are 33 million accounts in France and 31 million in Germany, according to recent data.

While users enjoy the platform, Facebook tracks likes, comments and page views and sells the data to companies who then target consumers.

But unlike the economy of old, Facebook sells its data to French companies not from France but from a great, nation-less elsewhere, with no phone number, address or physical “presence” for a customer who probably cares little.

It is in states like Ireland, whose official tax rate of 12.5 percent is the lowest in Europe, that the giants have parked their EU headquarters and book profits from revenues made across the bloc.

Indeed, actual revenues from advertising are minimal in France and Germany, but at Facebook HQ Ireland they grew to 7.9 billion euros, even though the vast majority does not come from the tiny EU island-nation of a mere 2.5 million users.

Google follows the same pattern: in Germany in 2015, it had a little over 71 million users, in France just over 55 million. But in both nations, revenues are minimal.

Yet, in Ireland, where the number of search engine users is less than five million, revenues for Google-parent Alphabet reached 22.6 billion euros in 2015.

According to an analysis by Paul Tang, a specialist on tax issues at the European Parliament, France lost 741 million euros in tax revenue and Germany 889 million euros between 2013 and 2015 due to so-called “tax planning” by Google and Facebook.

– ‘No transparency’ –

The Organisation for Economic Cooperation and Development believes that such tax schemes cost governments around the world as much as $240 billion a year in lost revenue, according to a 2015 estimate.

“The actual activity of each company, including US tech giants, is not known,” said Manon Aubry, spokeswoman for the NGO Oxfam.

“Beyond the number of accounts or users in each country, it would be necessary to know in the case of Google for example, the amount of advertising sales in each country. We do not have it.”

For car-ride smartphone service Uber, “we need to know the number of rides, but we don’t have it,” she said.

“One of the first issues, therefore, is that of transparency: to rule that large companies publish data on activities and taxes paid in all the countries where they are present.”

To the European Commission, the digital shortfall on tax is clear. The effective tax rate on the profit of digital giants in the EU averages only nine percent, while that of traditional companies exceeds 20 percent, it said.

– Global, not EU, solution –

Member states now agree that the problem would be best addressed at the international level, in the G20 or by the OECD, in order to prevent a high-tech exodus from the EU.

Caught by surprise by the French initiative, the European Commission announced at the end of September that it will also propose solutions in 2018.

Ideally, Brussels agrees that there needs to be a major reform of international tax rules, which would establish a closer link between the way value is created and the place where it is taxed.

Without rejecting the French proposal, the commission wants to dust off an old project from 2011 — for a long time deadlocked because of the differences among the 28.

Relaunched in October 2016, the idea has one of the most cumbersome acronyms ever to come out of Brussels: the Common Consolidated Corporate Tax Base or CCCTB — an ambitious bid to consolidate a company’s tax base across the EU.

This draft legislation is currently being examined by the 28 EU member states and taxation of the digital economy could easily be included in the scope of the rules that may be adopted.

Under the plan, all multinationals operating in the EU with total sales of more than 750 million euros would be fixed at only one place of taxation, with one tax administration.

However, this tax would be distributed in all the countries where the company operates, and not according to the level of booked profit in each of these states, but according to the level of activity.

This level of activity in each member state would be measured using a combination of factors, including the number of employees, the importance of tangible assets (buildings, machinery, etc.) and sales.

French MEP Alain Lamassoure, co-rapporteur of the project, proposes to add a fourth idea: the volume of personal data collected and used by a digital platform wherever its services are used.

But in Europe, all is made infinitely more complicated since the adoption of new European legislation on tax matters requiring unanimity of the EU’s current 28 members.

In addition to these European proposals, the OECD is working on a global solution, which it must present to the G20 finance ministers at their next meeting in April in Washington.

This initiative would have the merit of including Europe as well as the United States, Japan and emerging countries.

Until last October, the United States had dragged its feet in efforts to better tax its national champions, but changed attitude. Specifically, it agreed to set up a working group with France in the OECD.

“The Americans are in the same situation as us: their own tax system is not adapted to the current economy and they too are experiencing very substantial revenue losses that must be compensated,” EU economics commissioner Pierre Moscovici said.

“Taxation of the US tech giants is a global problem and the answer should be as well.”


Is The Republican Party Committing Suicide?

August 27, 2017

By Brent Bozell — For Breitbart

The Grand Old Party is about to commit suicide.

All this talk about Trump this, and Trump that, masks a far bigger political controversy. The Republican Party leadership in Washington, D.C., has fundamentally betrayed its constituents and they are about to learn that they’ve been double-crossed — for years.

Every Republican candidate’s stock speech sounds the same, the thunderous roar about a government out of control, federal spending out of control (insert charts and graphs and why, if you stack hundred dollar bills, they will reach the edge of the universe), federal taxes out of control (insert comparisons to socialist countries), the federal bureaucracy out of control (insert metaphors about chains, yokes, and the like), the family shattered with federal funding of abortion a crime against humanity (watch for it — there! The heart-wrenching sob), and our military is emasculated.

Two more items were added to the menu, courtesy of Obama. Obamacare Will Be Repealed! and Illegal Immigration Will Not Stand!

In 2009, the Democrats controlled everything, partly due to the Republicans’ cowardice on Capitol Hill, and in part because of some of the most inept candidates and campaigns America has seen in years. The Obama folks could have played it safe but went for socialist gold, using the power of the legislative and the executive branches (and later the judiciary, thank you Justice Roberts) to advance their agenda.

That included federal spending on a level unmatched in human history resulting ultimately in a $19 trillion in debt we simply cannot pay, and with so many tens of trillions of dollars in unfunded liabilities that “infinity” is not far behind. One seventh of the economy was confiscated by the federal government with the passage of Obamacare. Our national borders were declared open and discussions over our national sovereignty closed. And to top it off, the Democrats all but declared themselves above the law.

The GOP harrumphed that this would not stand, by God! If only… if only America would vote them into the majority.

In 2009, the Tea Party was born. The Grand Old Party was rejuvenated. Happy days were here again.

Just one year later, the Republicans captured the House, and with that, the power of the purse. They now had the authority to stop the insane spending on so many obnoxious and wholly unnecessary ventures. They could end Obamacare simply by not funding it.

Instead, under the “leadership” of John Boehner, it did absolutely nothing. Why, if only we had the Senate! Then we could take on the President!

So in 2014, after spending hundreds of millions of campaign dollars running hundreds of thousands of television and radio ads pledging to end illegal immigration while repealing Obamacare “root and branch” (author: Mitch McConnell), they were given control of the Senate.

And within a month McConnell re-authorized both, along with every single other thing Harry Reid and Obama wanted for yet another year.

But that’s because we can’t do what we promised until we have the Presidency! The excuse was as predictable as summer heat in the Sahara.

In 2016, they were given that too.

They were given everything.

In January of this year, they formally controlled both houses of Congress and the executive branch. Every single thing they’d ever promised was now possible.

They now had the power to enact every single spending cut they’d ever solemnly pledged. All those wasteful programs designed to fill the liberal sandbox — PBS, NPR, Planned Parenthood, NEH and the rest of the alphabet soup; all the hundreds of billions of dollars in corporate welfare to multi-billion-dollar corporations; all of the hundreds of billions of dollars directed toward leftist social engineering — poof! All of it could come to an end with a stroke of a pen.

They now had the power to restore fiscal tax sanity too. Remember the flat tax? The fair tax? Slashing the highest corporate taxes in the world? Giving you a tax break? All of it could be done with a snap of the fingers.

Repeal Obamacare? Check. End illegal immigration? Check. Build the wall? Check.

Crush the Deep State? Done, by God, done!

There was not a damn thing the Democrats could do to stop them from draining the swamp.

Except the Republican leadership didn’t mean it. With the exception of the Freedom Caucus in the House, and literally a handful in the Senate, the rank-and-file didn’t either. Not one word of it.

The opportunity arose for the vote to repeal Obamacare, and after huffing and puffing, and huffing and puffing some more, the dust settled and socialized health care remains the law of the land, perhaps permanently.

The opportunity arose for tax reform, to enact the cuts America desperately needs. It was never a matter of if, it was a matter of how much. It is now mid-August and nothing, absolutely nothing has been accomplished — even attempted!

And now we face the final test: the debt ceiling. Will we or won’t we stop the spending madness? Will the Republicans enact the cuts they’ve promised, or will they now be the ones to kick the can, piling evermore trillions of dollars of debt on their own grandchildren?

By every indication that’s precisely what they plan to do. The signal has come from President Trump, from Speaker Ryan, and from Majority Leader McConnell. The debt ceiling will be raised and no fiscal sanity will be restored.

There is no difference between Republicans and Democrats. Put them together. They are the swamp.

Just as Republicans have the power to enact the agenda they’ve pledged in toto, so too do they now own the federal government, in toto. It’s no longer Obamacare. It’s GOPcare. It’s no longer crazy liberal Democratic spending. It’s crazy liberal Republican spending. It’s no longer socialist Democratic Party taxation, it’s socialist Republican Party taxation. All the legislation authorizing all these programs, all the graft, all the waste, all the obscenity, all the immorality, and where Planned Parenthood is concerned, all the killing — all of it is now formally authored by the Republican Party.

Come the Congressional elections next year, and the presidential election in 2020, the Grand Old Party will once again bellow its hallowed promises. But this time it won’t work. This time there will be no straw men to blame. This time their voters will know those hallowed promises are not even hollow promises. They are lies.

These voters are tasting betrayal. They will not vote to swallow more vomit.

We are watching the GOP systematically committing suicide.

Brent Bozell is the Chairman of ForAmerica, a national grassroots organization whose mission is to use social media to reinvigorate the public with the principles of American exceptionalism: freedom, prosperity, and virtue. ForAmerica has over 9 million members and is a non-profit 501(c)4.

Dimon Says Being an American Abroad Is ‘Almost an Embarrassment’ — “The United States of America has to start to focus on policy which is good for all Americans, and that is infrastructure, regulation, taxation, education.”

July 14, 2017
July 14, 2017, 9:41 AM EDT July 14, 2017, 10:23 AM EDT
  • JPMorgan CEO says media should focus more on major issues
  • He comments after biggest U.S. bank posts trading-revenue drop
Jamie Dimon Photographer: Marlene Awaad/Bloomberg

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, fresh from a work trip overseas, unloaded on everything that’s holding back U.S. businesses.

“It’s almost an embarrassment being an American traveling around the world,” Dimon, 61, said on a conference call with analysts. He doesn’t like listening to the “stupid shit” Americans have to deal with, expressing frustration over the nation’s inability to invest in infrastructure and overhaul the tax code. “There would be much stronger growth if there were more intelligent decisions and less gridlock.”

Dimon heaped his ire on the U.S. media during an earlier call with reporters to discuss JPMorgan’s second-quarter results. Reporters should focus on the major issues the nation faces rather than the vagaries of the firm’s trading businesses, he said. The biggest U.S. bank reported record profit despite a 19 percent revenue drop for its bond-trading franchise.

“The United States of America has to start to focus on policy which is good for all Americans, and that is infrastructureregulationtaxationeducation,” Dimon said. “Why you guys don’t write about it every day is completely beyond me. And, like, who cares about fixed-income trading in the last two weeks of June? I mean, seriously.”

Drug Epidemic

Dimon, his voice rising, reeled off statistics to highlight the nation’s failures: Half of the kids in “inner-city schools” don’t graduate; the opioid epidemic claims 35,000 lives a year; and the U.S. hasn’t built a major airport in 20 years, he said.

Dimon had just returned from visiting Israel, Ireland and France, where governments “deeply recognize” the importance of a competitive corporate tax scheme, he said.

While bemoaning policies that have restrained economic growth, Dimon, who’s a member of President Donald Trump’s advisory council of business leaders, stopped short of blaming the administration. Gridlock in Washington isn’t likely to further harm U.S. growth rates because they’re already muted by bad policies, Dimon said.

A reporter, in a follow-up question, asked the CEO if he’s frustrated with the Trump administration.

“No,” Dimon said. “That was frustration with you.”

See also: JPMorgan proves Wall Street profits don’t depend on traders


Islamic State has lost 60% of territory, 80% of revenue: analysts

June 29, 2017


© AFP/File | Iraqi government forces flash victory signs on June 9, 2017 while holding an Islamic State group flag in an area of western Mosul retaken from the jihadists

BEIRUT (AFP) – The Islamic State group has lost more than 60 percent of its territory and 80 percent of its revenue, an analysis firm said Thursday, as the jihadist “caliphate” turns three.The group declared its self-styled “caliphate” across swathes of Iraq and Syria on June 29, 2014, prompting the formation of a US-led coalition in a bid to halt its advance.

In January 2015, IS jihadists controlled about 90,800 square kilometres, but by June 2017, that number dropped to 36,200, said IHS Markit.

The biggest fall was in the first six months of 2017, when IS lost around 24,000 square kilometres of territory.

“The Islamic State’s rise and fall has been characterised by rapid inflation, followed by steady decline,” said Columb Strack, senior Middle East analyst at IHS Markit.

“Three years after the ‘caliphate’ was declared, it is evident that the group’s governance project has failed,” Strack said.

IS is facing swelling pressure from coalition-backed assaults on its twin capitals: Raqa in Syria and Mosul in neighbouring Iraq.

On Thursday, Iraqi forces said they had retaken control of the iconic mosque in Mosul where IS chief Abu Bakr al-Baghdadi made his only public appearance.

With forces also bearing down on Raqa in Syria, the remaining parts of IS’s so-called “caliphate” are unlikely to survive the end of the year, IHS said.

The sharp decline in territory has also damaged IS’s ability to collect revenue from oil production and smuggling, taxation, confiscation, and other similar activities.

IHS Markit said IS’s average monthly revenue has plummeted by 80 percent, from $81 million in the second quarter of 2015 to just $16 million in the second quarter of 2017.

“Losing control of the heavily populated Iraqi city of Mosul, and oil rich areas in the Syrian provinces of Raqa and Homs, has had a particularly significant impact on the group’s ability to generate revenue,” said senior analyst Ludovico Carlino.

As a result, IS was likely to shift its funding structure towards “a future insurgency through a real-war economy”.

Caliphate lavishes money on loyal members while squeezing others — Jihadis fund war machine but squeeze ‘citizens’

December 15, 2015

An Islamic State militant on the streets of Raqqa

In its polished online propaganda, Isis sometimes calls its health sector the Islamic State Health Service — the ISHS. The logo and typography are taken from the NHS, the UK’s free-of-charge state healthcare provider. The glossy pictures of doctors in their scrubs and sparkling well-equipped wards — featured in ISHS posters — could be too.

It is an illusion. True to its ambitions of statehood, Isis rakes in tens of millions of dollars each month from the resources in the territories it controls across half of Syria and a third of neighbouring Iraq. But while it holds more territory than some countries, and imposes taxes and provides some services for its “citizens”, the budget of the self-proclaimed caliphate shows that its priorities are still those of a militant organisation. Isis has built an efficient war machine that lavishes money on loyal members while squeezing others.

When Abu Qitada, a 16-year-old from eastern Syria, joined Isis as a fighter, he was assured he would receive medical care, whether that meant treatment at a frontline clinic or smuggling him to Turkey with cash. “They pay for everything,” he told the FT a few weeks after defecting. Like all those from Isis territory, he asked not to be identified with his real name.

In contrast, civilians like Um Eyyad, from Mosul, the Iraqi city that Isis seized in June, are treated like second-class citizens. She stopped going to public hospitals, even though she could barely afford private treatment for her sickly son. “When I entered the hospital, I’d feel scared,” says the housewife who fled to Kurdish-controlled Erbil in northern Iraq in June. “Everyone inside was Isis. Other patients have to bring their own medicine.”

An investigation based on interviews with dozens of Iraqis and Syrians trapped under Isis rule, as well as with senior diplomats and intelligence officials in the international coalition against Isis, undermines the group’s claims of governance. “They are a very rich terrorist organisation,” says one senior diplomat in the US-led anti-Isis coalition. “But they are a very poor state.”

The Ledger

The war effort dominates Isis’ accounts.

Over the past year, as the jihadis have expanded the territory they control in Syria and Iraq, they have netted at least $900m from oil, taxation and confiscations, the FT investigation has found. But this revenue is a moving target: the international coalition has significantly ramped up its air campaign against Isis oil wells in recent weeks in an effort to staunch the flow of crude — and cash — into the group’s war chest.

Constructing a holistic picture of Isis’ outlays is fiendishly complex. While Isis’ top leaders exercise careful control over what flows into their coffers from key resources like oil, the group’s decentralised structure means they have a looser grip on how locally raised revenues are spent.

The group operates a centralised budget, run from Mosul, and dozens of regional budgets managed by its walis, or governors. Taxes and fines are collected and circulated within each wilaya (province), and former members say that the funds are distributed to several branches of local government, such as fighting units or education authorities. Income and expenditure varies depending on provinces’ resources and fighting forces.

The FT gathered payment details for fighters, civilians and projects, first hand and from documents, which were then cross-checked across Isis’ disparate territories, to produce spending bands for the biggest items of expenditure in Isis’ budget.

The FT’s analysis shows that approximately two-thirds of the group’s annual revenues — about $600m — are ploughed into its fighting forces.

About $20m is spent every month to pay for the group’s core fighting force, which is mostly comprised of foreign militants (muhajireen). A further $15m-$20m is spent on local fighters and auxiliaries. Estimates from coalition intelligence officials on the exact size of Isis’ armies vary, but most agree that the core force is at least 30,000-strong, with 50,000-70,000 more split between local members and auxiliary and part-time forces.

Tens of millions of dollars more are spent on small munitions and explosives. A single one-week offensive can cost at least $1m in munitions alone, according to FT estimates. Millions of dollars also are spent acquiring other military assets. Because Isis extracts tens of thousands of barrels of oil daily, fuel is free.

Isis’ security apparatus costs $10m-$15m each month, according to one coalition official who monitors the group’s finances. This encompasses the police, the hisba, or “morality” police, intelligence forces known as amniyat, and auxiliaries to collect taxes and levy fines. Isis’ broad security spending has ramped up in recent months as the jihadis have become increasingly concerned about internal security.Amniyat agents now operate well beyond the caliphate, including in Turkey and Jordan, and the group is spending money to build a domestic wiretapping system, says the official.

Meanwhile, hospitals, healthcare and schooling across Isis territory appear to receive less than $10m a month. Deir Ezzor is one of Isis’ largest and most carefully administered provinces. Yet the jihadis run just nine hospitals there, each with no more than 50 doctors and nurses paid a maximum of $300 a month — for a province-wide total of just $135,000 a month.

Isis’ spending for municipal work is also limited, totalling roughly $10m-$15m a month, less than a fifth of its overall income — even taking into account prominent building projects — one coalition intelligence official estimates. The estimate is supported by the documentary record.

“They are trying to put substance to the concept of a caliphate. They want to control what happens in schools, control the hospitals, control the mosques; what people wear; how people behave; the judicial system . . . But that doesn’t mean they have achieved the concept of statehood,” says Sir John Sawers, the former head of Britain’s Secret Intelligence Service, MI6.


Across Isis territory, the organisation’s largesse is focused largely on its fighters. Although documents or testimony from one region do not necessarily provide a template for the caliphate as a whole, a picture emerges of a well-organised system to keep the group’s fighting machine working.

The FT obtained the payslip of one fighter that shows the graded scale of fighters’ salaries. The authenticity of the payslip was confirmed by eight Isis defectors.

Regular Isis fighters fall into two categories: local and foreign. All fighters are paid a base salary of about $50-$150 a month. This is supplemented by stipends and bonuses, depending on position. Local fighters tend to average about $200-$300 a month while foreign fighters make an average of $600 a month, which includes a $200 migration allowance. Commanders are also given a petty cash account.

The receipt obtained by the FT also showed that in addition to base pay, a fighter is paid an extra $50 for each wife and “sabaya”, or enslaved woman. Fighters also receive an extra $35 per child, whether it belongs to a wife or a “sabaya”.

According to Isis defectors, every commander receives petty cash — starting at $50 a month and going up to about $1,000, depending on his level. Fighters say leaders use the money to receive guests, buy meals or rent cars. Their spending is rarely questioned.

Despite the organised structure, the system has inefficiencies. There is no electronic accounting system and accountability is patchy.

Former Isis fighters describe months-long periods when salaries were paid late, sometimes with dozens of fighters’ wages forgotten or unpaid.

One Syrian rebel commander, who fought with Isis for more than a year, recalled times when his local financial overseer would arrive at the wali’s office only to find the money for wages was not available. Instead he would be directed to take funds from the zakat or agricultural offices.

“They have this great halo from the outside that makes you think they have rank and order,” he said. “Inside, they don’t have proper planning . . . This isn’t a state. It’s a mockery.”

Financial resilience

In the early days of the international campaign against Isis, which began in September 2014, the coalition optimistically gave Isis about a year until it reached a financial “pinch point” — when the costs of its project would overwhelm the group, and those battling the jihadis would finally gain the upper hand.

“Isis cannot possibly meet the most basic needs of the people it seeks to rule,” said David Cohen, the then US Treasury under secretary for terrorism and financial intelligence, in October 2014.

Yet Isis remains firmly embedded in these communities. One reason is that they were grossly neglected well before the jihadis took over.

Using state budget figures from before the conflict, Syrian researcher Aziz Hallaj, who studies Syria’s war economy, estimates regime spending per resident in eastern Deir Ezzor city was a quarter of what it was in the capital, Damascus. In rural areas of eastern Syria it was only about an eighth.

Moreover, some of the services Isis provides cost the group very little. Some electricity, for example, is produced through bartering arrangements with the regime in Damascus. In northern Iraq the US-led the coalition has allowed workers at the Mosul Dam to keep channelling power to Isis areas.

By mid-2015, with reports of fighters being paid late or not at all, and charity services like soup kitchens being cut, there appeared to be small signs of financial trouble for the jihadis in the intelligence reporting back to Washington and Europe.

But as more becomes known about the workings of Isis-controlled areas, western officials fighting Isis say the group’s spending reveals both cynicism and flexibility: it uses money as a tool of oppression and social engineering, they say, rather than government, which limits the possibility of eroding the group’s “state”.

“Things like salaries being stopped — originally we saw that as an indication they were under financial pressure, but now we see it as a means of them just holding on to what they can,” says one European intelligence official. “They know that people who try and run away they can just shoot in the back of the head, if they need to, so why pay?”

The conclusion is bleak: officials say there is enough elasticity in Isis’ finances for the group to weather a serious drop in income. “They could probably go on for three years,” says Benjamin Bahney, who studies Isis sustainability at the Rand Corporation, the US-based think-tank.

Rather than indicating financial weakness, the cutbacks, say coalition officials, could suggest Isis is hunkering down into a more mercenary, and war-oriented posture.

“Will they divert funding to the civilian operation? I doubt it,” says one coalition official. “I suspect that they will be [more] brutal in their oppression.”


Greece: Scepticism all around — Government trying to put in place third bailout from international lenders

July 15, 2015

Greece: Leftwingers in ruling party set to defy Tsipras as polls suggest weary public want measures to pass to avoid Grexit

Reuters in Athens

Prime Minister Alexis Tsipras battled to win lawmakers’ approval on Wednesday for a bailout deal to keep Greece in the euro and avoid bankruptcy, as the IMF pressured Greece’s creditors to provide massive debt relief for its crippled economy.

Having reluctantly agreed terms for negotiations on a third bailout from international lenders, Tsipras must face down a rebellion in his anti-austerity Syriza party to push sweeping pro-market reforms and spending cuts through parliament.

Dozens of MPs, including senior Syriza figures and the government’s junior coalition partner, could reject or partially reject the bailout, forcing Tsipras to rely on pro-European opposition lawmakers to carry the vote, which is expected after midnight. A snap election could follow if the prime minister’s majority collapses.

Adding to the uncertainty, a newly released study by the International Monetary Fund called for much more debt relief than European countries, particularly Germany, have been prepared to countenance so far.

Tsipras has described the deal as a “one-way street” imposed on Greece and the rest of his government shared his scepticism.

“It’s a difficult deal, a deal for which only time will show if it is economically viable,” Finance Minister Euclid Tsakalotos told lawmakers ahead of a crucial vote on the package later on Wednesday.

One of Greece’s two deputy finance ministers resigned from the leftwing government on Wednesday, ahead of a crucial vote on reforms demanded by the country’s creditors in exchange for a third bailout.

In a letter to Prime Minister Alexis Tsipras made public by the finance ministry, Deputy Finance Minister Nadia Valavani, in charge of taxation and overseeing privatisations, said she could no longer be a member of his cabinet.

“It is impossible to continue being a member of the government,” Valavani said in the letter, explaining that austerity measures demanded for a third aid programme would set the country on a moribund path.

That may cause a dilemma in Germany, which has poured more money than any other country into rescuing Greece and where, after months of bad-tempered negotiations with Athens, there is increasingly vocal opposition to yet another bailout.

Greek Prime Minister Tsipras arrives at his office in Maximos Mansion in Athens. Photo: Reuters

Berlin may wince at providing huge debt relief to a country it scarcely trusts to honour its promises, but insists on having the IMF in the negotiations to help keep Greece in line.

Washington has also stepped up pressure on both sides to secure a deal with Nato member Greece. US Treasury Secretary Jack Lew is making a short-notice trip to Frankfurt, Berlin and Paris this week to press for a quick agreement.

Pointing to Washington’s importance in the talks, Deputy Prime Minister Yannis Dragasakis said the deal Tsipras struck with creditors might never have happened without US pressure.

Although the bailout package is much tougher than the Greek people could have imagined when they resoundingly rejected a previous offer from the creditors in a referendum on July 5, most want to keep the euro.

“It has become even more clear that the government reached a deal under conditions of unbelievable pressure, blackmailed but also having realised that it had no choice to avert a new humanitarian crisis, a new humanitarian tragedy,” Labour Minister Panos Skourletis said.

“Bearing these circumstances in mind, we come to parliament today and we ask for the bill to be voted for… and we are trying to temper the harsh consequences of this deal.”

With banks shut and the threat of a calamitous exit from the currency bloc hovering over the country if it cannot conclude a deal, many Greeks see the package as the lesser of two evils.

“We are Europe’s bankrupt child and as a child, Europe has been supporting us for five years and told us what we needed to do to get out of this situation,” Yannis Theodosia, a 35-year-old civil engineer. “We did nothing and now we are paying the consequences.”

French Finance Minister Michel Sapin on Wednesday played down the significance of the IMF’s call for more debt relief, saying that was already France’s view.

“The IMF is saying the same thing as we are … we cannot help Greece if we maintain the same debt reimbursement burden on the Greek economy,” he told BFM TV. As he understood it, Sapin said the IMF was not calling for an outright haircut.

Finance Minister Euclid Tsakalotos attends a parliamentary session in Athens. Photo: AFP


Tsipras will put the bailout package to parliament while grappling with noisy opposition from within his own ranks. Protests on the streets have so far been relatively muted although civil servants and pharmacists – who are a target in the reforms package – hold a strike on Wednesday and protest marches by leftwing anti-bailout groups are also planned.

The latest deal was a major capitulation from Syriza, which stormed to power promising an end to austerity. Among the rebels are the fiery parliamentary speaker and the party’s parliamentary spokesman, who both announced on Wednesday they would vote against reforms. Such outbursts had one right-wing newspaper crowing over the “civil war” engulfing the party.

Syriza’s junior coalition partner announced it would vote only for certain clauses in the bill, rejecting those reforms that went beyond a previous vote in parliament that had given Tsipras a mandate to negotiate in Brussels.

In recent weeks, negotiations between Athens and its creditors became increasingly fractious, with each side accusing the other of blackmail. Greece painted European countries, particularly Germany, as bullies, while the creditors said their trust in the Greek negotiators had all but evaporated.

“We have improved. In the beginning we thought that by sending a minister and a few consultants we were negotiating, that was very insufficient,” Deputy Prime Minister Dragasakis said in an interview with Sto Kokkino radio.

“The crisis was ours, the crisis existed before the bailout memorandum, it was a crisis of the Greek capitalist system. The memorandums were the medicine to this crisis that proved to be worse than the illness it was supposed to cure.”