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Chinese investment and a state of emergency: Ethiopia’s latest

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Ethiopian Prime Minister Hailemariam Desalegn resigned on February 15 following mass protests. A six-month long state of emergency was imposed by the government the next day, with the intention of quelling civil unrest.

The state of emergency prohibits, among other things, the distribution of potentially sensitive material and unauthorized demonstrations or meetings.

Hailemariam remains in office until a new prime minister is appointed.

Ethiopia is, in essence, a one party state led by the Ethiopian People’s Revolutionary Democratic Front, a coalition comprising of parties representing different regions of the country.

Tension has been bristling between the powerful Tigray People’s Liberation front, which represents just 6 percent of Ethiopians, and its counterparts representing the Amhara and Oromo ethnic groups. Meanwhile, Hailemariam’s party, the Southern Ethiopian People’s Democratic Movement, is the weakest in the coalition.

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U.S.-China relations are ‘still deteriorating,’ says Max Baucus

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U.S.-China relations are getting worse and have not “reset” under President Joe Biden in the way that many had previously expected, said Max Baucus, a former American ambassador to China.

“The situation unfortunately is generally still deteriorating,” Baucus told CNBC’s “Squawk Box Asia” on Friday.

“I think a lot of people thought with the election of Joe Biden, that might end the free fall, that might be the bottom and things would slowly come back to normal — but that has not really happened,” he added.

Tensions between the U.S. and China grew rapidly under former U.S. President Donald Trump, who slapped higher tariffs on Chinese goods and placed some Chinese companies on a blacklist that limit their business dealings in the U.S.  

I don’t think Xi Jinping wants war, he knows that if he tries to militarily invade Taiwan there’s a big risk the United States will retaliate.

Max Baucus

former U.S. ambassador to China

U.S.-China clash over Taiwan

One area where U.S.-China tensions are playing out is Taiwan, a democratic and self-ruled island in North Asia.

The Chinese Communist Party government in Beijing claims Taiwan as a runaway province that must one day be reunited with the mainland — using force if necessary. The CCP has never ruled Taiwan.

Read more about China from CNBC Pro

Trump broke with decades of American foreign policy by moving the U.S. closer to Taiwan during his term. The Biden administration has continued on that trajectory, with the State Department issuing new guidelines in April to enable U.S. officials to meet more freely with their Taiwanese counterparts.

Such moves anger Beijing because the CCP views Taiwan as having no rights to conduct diplomacy of its own.

Baucus said the risk of a U.S.-China military clash over Taiwan is increasing but he doesn’t think the two sides would go to war.

“I don’t think Xi Jinping wants war, he knows that if he tries to militarily invade Taiwan there’s a big risk the United States will retaliate,” said the former ambassador, referring to China’s president.

“I think frankly, the risk, the likelihood is higher that the U.S. will retaliate now than it might have been a couple or three years ago because tensions between the two countries, the U.S. and China, (are) just so great,” Baucus added.

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Ride-hailing giant Didi wants to be more than just the Uber of China

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A user opens the Didi Chuxing ride-hailing smartphone app in Shanghai, China, on Sept. 18, 2020.

Qilai Shen | Bloomberg | Getty Images

BEIJING — China’s version of Uber, Didi Chuxing, is trying to use car travel as a way into multiple aspects of daily life from grocery shopping to finance.

Didi filed Thursday to list in New York in what many expect could be the largest initial public offering in the world this year. Founded in 2012, the company ranks among the five largest privately held start-ups in the world and counts SoftBank, Uber and Tencent as major investors.

Smartphone-based ride hailing in China remains Didi’s primary business, generating $20.4 billion in revenue last year amid overall net losses of $1.62 billion, according to the prospectus. But as Didi swung to a profit in the first quarter of this year, the revenue share of “other initiatives” rose to 5%, from 4% for all of 2020. That’s up from 1.2% in 2018.

A quick look at Didi’s smartphone app reveals a slew of other products tied to bike sharing, movers, personal finance and gas stations. The array of icons resembles that of Alibaba-affiliated Alipay, whose app is not only a mobile pay platform but one that allows users to book airplane tickets and pay for utilities. Similarly, Southeast Asia’s prevailing ride-hailing app Grab delivers food and wants to become a regional leader in mobile payments.

Eight kinds of car services

Didi is the primary app for ride hailing in China, even with the entry of several other players, including ones that focus on the high-end (Shouqi) or new energy vehicles (Cao Cao).

Users can choose from eight options on Didi, ranging from carpooling to luxury car service. Didi also lets users hail taxis through its app, and runs a chauffer business that assigns drivers to car owners who may have had too much alcohol or cannot drive their own vehicle for other reasons. These temporary drivers can travel between assignments on fold-up bicycles.

The company said it had 377 million annual active users and 13 million annual active drivers in China for the 12 months ended March 31. Didi said it made 133.64 billion yuan ($20.88 billion) in the “China mobility” category last year.

Including Didi’s other services like e-bikes and freight, customer costs for different kinds of products can run from 15 cents to more than $100, the prospectus said.

Building up a finance arm

Didi has also partnered with China Merchants Bank for supporting credit card applications through the ride-hailing app and offering installment purchase plans for cars. A Didi subsidiary works with Ping An Insurance to sell financing and lease-related products, as well as insurance.

The start-up leases vehicles to drivers at prices it claims are about 20% lower than outside Didi’s platform. While more than 600,000 vehicles are available for lease, about half of these are owned by roughly 3,000 vehicle leasing partners, reducing the amount of assets Didi is responsible for, the prospectus said.

Anecdotally, Didi was recently promoting its own mobile payment system to some users in Beijing by setting it as the default payment option — with a discount. Users had to manually select other options such as WeChat pay, after which the discount was removed.

Didi’s ride-hailing app also works with international credit cards. The company operates in 15 countries, including Brazil, Mexico and Japan.

Bets on electric

Many analysts expect that self-driving, shared vehicles will become a major mode of transportation in the future, rather than individual car ownership.

Didi has invested in its own autonomous driving unit, which launched “robotaxis” in part of Shanghai in June 2020. The ride-hailing company announced in November it co-developed an electric car with BYD called the D1, which would roll out to major Chinese cities in subsequent months.

In May, the autonomous driving unit and state-backed GAC Aion New Energy Automobile agreed to work toward mass production of fully self-driving new energy cars.

Didi claims it has the largest electric vehicle charging network in China, based on self-commissioned research.

Data privacy and other risks

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Biden and G-7 leaders will endorse a global minimum corporate tax

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U.S. President Joe Biden speaks about his administration’s pledge to donate 500 million doses of the Pfizer (PFE.N) coronavirus vaccine to the world’s poorest countries, during a visit to St. Ives in Cornwall, Britain, June 10, 2021.

Kevin Lemarque | Reuters

WASHINGTON — President Joe Biden and leaders of the G-7 group of nations will publicly endorse a global minimum corporate tax of at least 15% on Friday, one piece of a broader agreement to update international tax laws for a globalized, digital economy.

The leaders will also announce a plan to replace Digital Services Taxes, which targeted the biggest American tech companies, with a new tax plan linked to the places where multinationals are actually doing business, rather than where they are headquartered.

For the Biden administration, the Global Minimum Tax plan represents a concrete step towards its goal of creating what it calls a “foreign policy for the middle class.”

This strategy aims to ensure that globalization and trade are harnessed for the benefit of working Americans, and not merely for billionaires and multinational corporations.

For the rest of the world, the GMT is intended to end the tax cutting arms race that has led some countries to cut their corporate taxes much lower than others, in order to attract multinational companies.

If widely enacted, the GMT would effectively end the practice of global corporations seeking out low-tax jurisdictions like Ireland and the British Virgin Islands to move their headquarters to, even though their customers, operations and executives are located elsewhere.

The second major initiative Biden and G-7 leaders will announce Friday is a plan they are “actively considering” to expand the International Monetary Fund’s supply of Special Drawing Rights, an internal IMF currency, that are available to low-income countries. 

This plan is aimed at expanding international development financing to poor countries and helping them to purchase Covid vaccines and recover more quickly from the pandemic’s effects, according to a White House fact sheet.

The White House also said G-7 leaders will agree to “continue providing policy support to the global economy for as long as necessary to create a strong, balanced, and inclusive economic recovery.”

But it is the GMT plan that has the greatest potential to impact corporate bottom lines and influence investor decisions.

The G-7 tax agreement “will serve as a springboard to getting broader agreement at the G-20,” said a senior administration official, who spoke to reporters on background in order to discuss ongoing talks.

A joint statement issued Thursday by Biden and British Prime Minister Boris Johnson offers a preview of what to expect from the global tax agreement between the G-7 partner nations.

Britain’s Prime Minister Boris Johnson speaks with U.S. President Joe Biden during their meeting, ahead of the G7 summit, at Carbis Bay, Cornwall, Britain June 10, 2021.

Toby Melville | Reuters

“We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises,” the statement says.

“We also commit to a global minimum tax of at least 15% on a country by country basis.”

As part of this agreement, “we will provide for … the removal of all Digital Services Taxes, and other relevant similar measures, on all companies.”

The removal of Digital Services Taxes, a patchwork of country-by-country taxes that specifically target the biggest American tech companies, represents a real victory for the United States. 

Analysts say the removal of these taxes — and an end to the looming threat of new DSTs — would add a level of certainty to the international tax system that would ultimately benefit Big Tech companies in the long term, even if a new Global Minimum Tax raised costs in the near term.

Once the G-7 leaders adopt the GMT proposal, the next step will be to win support for it among the G-20 nations, a diverse group of economies that includes China, India, Brazil and Russia. 

G-20 finance ministers and central bank governors are scheduled to meet in Venice, Italy, in July. The IMF funding proposal and the international tax plan are both expected to be high on the agenda. 

It’s unclear at this point whether the GMT plan will win the support of the 19 member nations and the European Union.

Details of the plan have yet to be hammered out, and some of the G-20 countries keep corporate tax rates relatively low in an effort to lure businesses.

Much of the groundwork for adopting a GMT has already been laid by the Organization for Economic Cooperation and Development, or OECD, which released a blueprint last fall outlining the two-pillar approach to international taxation.

The OECD Inclusive Framework on Base Erosion and Profit Shifting, known as BEPS, is the product of negotiations with 137 member countries and jurisdictions.

One pillar is the plan for countries to collect taxes from multinational corporations based on the share of that company’s profits derived from a particular country’s consumers.

The second pillar is the global minimum corporate tax, a set rate of at least 15% that would apply even when tax rates in a particular country are lower than that.

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