All posts by anthony@greaterbayinsight.com

Guangdong pumps up transport spending

Guangdong speeded up fixed-asset investment in transportation in Q1, completing projects worth RMB57.02 billion, 47.5% of the annual target, up 35.7% YoY.

Roads took the bulk of this spending, at RMB51.91 billion, an increase of 35% YOY. Of this, expressways accounted for RMB39.51 billion, up 43.6% year-on-year, while city and rural roads took the rest. Port projects saw RMB2.63 billion spent, an increase of 87.4% YoY.

Freight and cargo volumes seemed to be holding steady despite the deteriorating external environment. Waterway freight volume was up 5.6% and highway cargo turnover up 0.1%. At the ports, cargo throughput rose 7.4%, even though foreign trade cargo throughput was down 2.1%.

AmCham members decry tariffs

The American Chamber of Commerce in China has released its Second Joint Survey on the Impact of Tariffs. The survey received nearly 250 responses, with 61.6% manufacturing-related, 25.5% services, 3.8% retail and distribution, and 9.6% from other industries.

Findings include:

The negative impact of tariffs is clear and hurting the competitiveness of American companies in China. The vast majority (74.9%) of respondents said the increases in US and Chinese tariffs are having a negative impact on their businesses.

To cope with the impact of the tariffs, companies are increasingly adopting an “In China, for China” strategy (35.3 percent), or delaying and canceling investment decisions (33.2 percent). In China, for China is a strategy to localize manufacturing and sourcing within China to mainly serve the China market.

While over half of respondents (53.1%) have not seen any increase in non-tariff retaliatory measures by the Chinese government, roughly one in five have experienced increased inspections (20.1%) and slower customs clearance (19.7%).

Approximately 40.7% of respondents are considering or have relocated manufacturing facilities outside China. For those that are moving manufacturing out of China, Southeast Asia (24.7%) and Mexico (10.5%) are the top destinations.

Read the full report here.

Congress takes aim at China seas

The US-China Trade War has entered new territory with the decision by members of Congress to push legislation that would commit the US government to punish Chinese individuals and entities involved in “illegal and dangerous” activities in the South and East China seas.

If passed, the “South China Sea and East China Sea Sanctions Act” would require the government to seize US-based financial assets and revoke or deny US visas of anyone engaged in “actions or policies that threaten the peace, security or stability” of areas in the South China Sea that are contested by one or more members of the Association of Southeast Asian Nations (Asean).

Activities targeted by the bill include land reclamation, the making of islands, lighthouse construction and the building of mobile communication infrastructure.

Which type of Chinese individuals and entities would be involved in such activities? We can only think of one type, which has a three-letter acronym beginning with P and ending with A.

Meanwhile, even though no Shenzhen-based company has been added to the US blacklist today, it is worth noting that one of the Greater Bay’s tech darlings, Sensetime, is being looked at (pardon the pun). Founded in Hong Kong, Sensetime is a world-leading facial-recognition software developer worth nearly US$5 billion, with offices in nine cities, including Hong Kong and Shenzhen. Bloomberg reported yesterday that Sensetime could be a target after five Chinese surveillance companies were named as being under consideration for the blacklist. Its backers include Qualcomm, the chipmaker that recently cut off all business with Huawei. Sensetime declined to comment.

This is a fast-moving story. Keep an eye on newsletters from SupchinaSinocism, and Trivium for roundups and analysis.

Whither Huawei? 

Day 5 of the Huawei Technologies blacklist drama brings fresh speculation about what will happen to the company. While much focus has been on the loss of Google’s software, which includes its Android OS (not as serious as it sounds) and the Play Store (meaningless), pundits seem to still have no deeper insight into what comes next. Which is hardly surprising.

There is plenty of worrying news to counterbalance the Jedi-like aura emanating from the company’s Shenzhen HQ. It includes an interesting “exclusive” on SCMP today: Huawei is checking with its non-US suppliers to see if they will be affected by the blacklisting, too, as they may be using US products in the components that they, in turn, supply to Huawei.

Far more concerning is the piece published on SupChina, by the Eurasia Group’s Paul Triolo and Douglas Fuller of Hong Kong University, who write that things are worse for Huawei than it appears. Making their own microchips is one thing, they say. But the equipment to make the chips? In the duo’s own words:

“Focusing on the actual chips may be a mere sideshow. The tools needed to design chips, called electronic design automation (EDA) tools, are dominated by a small oligopoly of three firms: Cadence, Synopsys, and Siemens’ Mentor Graphics. Without these tools, it is basically impossible to design chips. Furthermore, given that these EDA tools draw upon repositories of decades of chemistry and material science knowledge, it is virtually impossible for new EDA entrants or existing small tool vendors to provide the quality of tools necessary for complex chip design. Cadence and Synopsys have already announced their plans to stop servicing Huawei and its affiliates. The U.S. government, in line with its laws on export controls, will likely argue that Mentor Graphics uses significant U.S. technology in its products so that it, too, falls under U.S. jurisdiction. Cutting off Huawei, its affiliates, and, potentially, others that attempt to supply Huawei with chips from access to these EDA tools would sound a death knell for the company.”

“We could be moving towards a worst-case scenario for Huawei,” Triolo and Douglas continue, listing the ways in which “the ripple effects of a complete ban on Huawei access to US tech will be huge.”

Gulp. Read more here.

Wanda to build major hospital project in Guangzhou 

China’s largest commercial property developer, Dalian Wanda, has won the auction of a 133,252 square meter land parcel in Guangzhou’s Huangpu district for RMB1.34 billion, on which it will build a major international-quality healthcare project.

The local government required the winning bidder to partner with a US News Top 20 medical group on the project.

Wanda’s acquisition of the site was part of its plan to venture into the healthcare sector. At the beginning of the year, the group’s chairman, Wang Jianlin, who was once China’s richest man before Beijing’s deleveraging campaign forced to Wanda to shed over US$9 billion worth of assets over the past year, said that Wanda would focus on building a “top hospital” . The project would combine medical and healthcare services as well as commercial facilities and medical training facilities.

Last September, Wanda signed an agreement with the University of Pittsburg Medical Center to build a general hospital and introduce its management and systems into China.

HK pet insurance startup raises $30m 

Hong Kong-based online pet insurance company OneDegree has extended its Series A round to US$30 million, up from the US$25.5 million it announced last September.

Its extension, which the company is calling its “A2” round, was led by Shanghai-based BitRock Capital. Hong Kong government-owned Cyberport Fund and Taiwan’s Cathay Venture and investors from its initial Series A also participated.

Set up in 2016 by former JP Morgan banker Alvin Kwock and another partner, OneDegree is one of the first batch of digital insurers that applied for funds under the Virtual General Insurance License, part of the Hong Kong’s initiatives to promote financial innovation.

The startup said the new funds would be used to improve OneDegree’s digital insurance platform and launch new products in Hong Kong, as well as explore opportunities in the Greater Bay Area.

For now, OneDegree’s medical and accident protection products were targeted to cover the more than 500,000 pet dogs and cats in Hong Kong, of which only 3% were insured, compared with 30% in Sweden and 10% in Japan, said Kwock.

Robots rising in Guangzhou  

Intelligent equipment is already a major industry in Guangzhou, reporting output last year of RMB56.7 billion, up 6.8%, according to Nanfang Daily. Within this segment, however, industrial robots are seen as particularly promising. Although still dwarfed by assembly-line systems (accounting for 90% of sales), sales of robots came in at RMB1.72 billion, up more than 50% over 2017.

In 2018, Guangzhou companies purchased a total of 5,117 robots, of which 3,721 were imported and 1,396 were domestically produced – with 835 coming from within Guangdong. The robots were mainly used in the automotive manufacturing, metal products and general equipment manufacturing industry.

China still has a long way to go in building its smart-manufacturing industry. Korea is currently the global leader, with a ratio of 700 robots to every industrial 10,000 workers.  In Japan and Germany, the number is 340. China is 90, below the global average of 97.

Read more (in Chinese).

P2P to get boost from GBA, says DBS 

China’s peer-to-peer (P2P) lending industry, which has shrunk dramatically under a government crackdown, should get a welcome boost from the development of the Greater Bay Area, according to DBS Bank.

By 2030, P2P lending will enjoy an annual growth rate of 17% in the region, making it the fourth-fastest growing sector, SCMP reported, citing the Singaporean bank’s estimate.

“We see that P2P lending across China could reach one trillion yuan by 2030, and the Greater Bay Area with its particular focus on innovation and entrepreneurship, would be more open to the P2P concept,” said Ken Shih, senior research director at DBS.

“A capital-intensive industry upgrade is inevitable, and P2P platforms can meet the financing needs of new business formats – small and micro companies in particular,” he added.

The bank ranks P2P lending fourth in a table of estimated growth rates for different sectors in the bay area by 2030. Smart appliances top the list with a forecast 30 per cent growth rate, while P2P is just behind online advertising in third place.

Read more.

DJI rejects US data fears over drones 

ZTE, Huawei, DJI: Shenzhen-based companies are coming into the US government’s sights, one by one. The world’s largest maker of consumer drones is the latest. The press release that was likely written months ago was released last night as DJI Technology attempted to refute claims by the US Department of Homeland Security that its products may be sharing data with Chinese authorities.

“At DJI, safety is at the core of everything we do, and the security of our technology has been independently verified by the US government and leading US businesses,” the company said.

Like ZTE and Huawei, DJI is a giant in its industry: it has almost three-quarters of the global market share for its consumer drones. Unlike ZTE and Huawei, however, it is dependent on the US market for revenues: 80 per cent of drones sold in North America are DJI’s.

On May 21, the US’ Homeland Security warned US companies to “be cautious” of Chinese-built drones “as they may contain components that can compromise your data and share your information on a server accessed beyond the company itself.” Although the alert didn’t represent a legal order and DJI was not named, it was obviously intended for no one else.

Established in 2006DJI has 14,000 employees in 18 offices worldwide. Revenues have been skyrocketing, up 80% in 2017 at RMB18 billion. More than 80% of its sales are overseas.

Read more (in Chinese).