The U.S.-China luvfest continues!
You have to love this notion of President Obama helping China and France come to a deal at the G-20. As this Bloomberg story said Obama pulled Hu and Sarkozy to a corner of the room during the G-20 meeting in London's Excel Center.
The issue was Sarkozy's jeremiad against tax havens. The French president wanted the G-20 to publish a list of tax havens from the Organization for Economic Cooperation and Development, Bloomberg reported. The Chinese were against it. (I'll explain why later.)
Obama hammered out a deal, Bloomberg reported, whereby the G-20 "would promise action against tax havens, note the OECD list and go no further," Bloomberg said.
It's a shame the media in the United States is not jumping all over this emerging partnership between the United States and China. Maybe it's because it's a lot easier to report on conflict than it is to chronicle the emergence of a deepening relationship. An example? Papers went hog wild over the U.S.-Russia stuff between Obama and Medvedev. But on the re-read, that was so Cold War. Few have focused on the increasingly fascinating dance happening between Washington and Beijing. Watch that axis, I say.
Why is China against cracking down on tax havens? Simple: a significant percentage of foreign investment in China comes from places like these -- the Cayman Islands, Macao and other offshore locations.
Western investment banks use offshore locations to funnel into China for tax advantages or to more easily bypass Beijing's strict controls on investing in Chinese companies listed overseas. (David Barboza of the NYTimes has a good piece on Western banks in China's real estate market here.)
For their part, the Chinese use such locales because if they take money outside of China and then send it back home as "foreign investment," they get tax breaks and other benefits that they wouldn't normally receive. (In the early 1990s when this fad was just beginning, the Chinese called these businessmen jia yangguizi or fake foreign devils. But now everybody is doing it.)