Thread by @DoveyWan

There is a macro factor that may contribute to various assets bloom (including US real estate and crypto assets), which is underestimated by many westerners:

China’s tax system overhaul and implementation of CRS

thread 👇🏻

For the first time in 7 years, 🇨🇳 rolls out a new tax cut program primarily focus on middle class. It’s expected to reach ~ 1% of total GDP/$100b.

Tho it might fuel the slow-down economic growth, it will make the gov debt situation even worse at both central and local level

The ultra rich in China are now targeted in all aspects to be taxed. Among them was last year’s mysterious disappearance of FAN Bingbing, an A-lister celeb. She was back to the light after 3 months of disappearance with a public apology for tax evasion, and a ~$110 tax fine

FAN’s case was a clear warning to other high profile celebs in China, a commonly known tactic as “杀鸡儆猴”

The State Administration of Taxation had launched a campaign to recover all back taxes in the entertainment industry, started with self-report on any past tax evasion

The first stage for celebs to self report has come to a closure with over 10 billion RMB reported/revived ($1.4 billion). The second stage is deeper drill into more tax evasion.

With growing anxiety of heavy taxation and potential seizure, Chinese offshore asset has been doubled in last 5 years.

Also know first hand that many ultra rich/big fund managers who used to hold HK passport, many are in the process of acquiring passport of Singapore/Canada

Another major step of China Tax overhaul is the implementation of CRS en.wikipedia.org/wiki/Common_Re… CRS is a financial data sharing mechanism among over 90 countries, including BVI, Cayman, Singapore etc, makes overseas shell companies easier to be tracked

m.chinaknowledge.com/News/DetailNew…

Previously the rich could avoid paying taxes on overseas earnings by holding foreign passport or PR, while keeping Chinese citizenship secretly. But starting in January this won't work, the government will tax global income based on tax residency or China local identity "hukou"

The remaining tax effective items are non-financial assets like artwork, jewelry which can be hardly tracked by CRS. Also since Thailand and US are not in CRS, local property is quite popular among rich Chinese. Especially metropolitan property in SF, NYC, Bangkok and Phuket

Crypto assets is also quite tax-effective since there is no reporting standard at all. However transacting through OTC will expose your bank accounts, hence the rich in China are investing in mining operation or hashrate rental to acquire BTC instead of buying it up front

After 50 yrs of the “reform and opening-up", we have seen the the first generation ultra rich Chinese started to shape a class with emphasis on generational wealth managemenet. With domestic tax reform and uncertainty, offshore trust becomes quite popular

https://twitter.com/DoveyWan/status/1088199586944999425

Crypto asset seems to be the natural cryptographic trust for the rich, not sure any tax regime can tax it effectively. This might lead to a further inequality down the road as far as I concern. The rich will be the first to grasp the importance of unseizability that crypto offers

Chinese idiom time 🤗🤗🤗

**FAN‘s case was a clear warning to other high profile celebs in China, a commonly known tactic as “杀鸡儆猴” **

杀鸡儆猴 means killing the chicken to warn the monkies. Usually used in a context of punishing an individual as an example to others

$110 million tax fine*