Tag Archives: tariffs

Deal done?

Stock markets around the world are liking news of an apparent deal between the U.S. and China on their trade dispute ahead of the all-important Trump-Xi meeting at the G20 this weekend. As SCMP reports:

The US and China have tentatively agreed to another truce in their trade war in order to resume talks aimed at resolving the dispute, sources familiar with the situation said.

Details of the agreement are being laid out in press releases in advance of the meeting between Chinese President Xi Jinping and US President Donald Trump at the Group of 20 summit in Osaka, Japan, this weekend, according to three sources – one in Beijing and two in Washington. Such an agreement would avert the next round of tariffs on an additional US$300 billion of Chinese imports, which if applied would extend punitive tariffs to virtually all the country’s shipments to the United States.

However, as realists among the political-analyst community continue to point out, deals like this are patch-up jobs, and will continue to be so for the foreseeable future. The two sides remain far apart on fundamentals.

That doesn’t mean it is all bad news ahead. On the contrary, China in the meantime – and especially in the GBA – is shifting as fast as it can to getting US proprietary technology out of its supply chain, which is having a galvanizing effect on the economy. In particular, three priorities are being pursued AVAP (as vigorously as possible): 1) Like Gree, invest tens of billions in MYOC (make your own chips) and other key tech; 2) Offer every subsidy you can think of to attract talented people into your “innovation hubs”; and 3) Refocus your sales teams on a) domestic markets and b) Non-U.S. markets.

To be sure, GBA investors have much to be thankful for. Companies here look likely to get a bit of short-term breathing space, while the bigger picture of “industrial upgrading” continues apace. As Michael Enright, the GBA guru at Hong Kong University, likes to point out, think of the GBA within China, a market of 1.4b people, the way you would think of Germany within Europe at the early stages of the post-war period. It’s easy if you try.

Read more on the deal at SCMP. 

EU Chamber sees need to tackle ‘regulatory ambiguity’

The European Union Chamber of Commerce in China’s South China Chapter, in cooperation with the independent consultancy firm Roland Berger, has released the European Business in China Business Confidence Survey 2019 .  It shows that while European businesses operating in South China face challenges unique to the region, they also share the concerns of those in other parts of China regarding the Chinese economic slowdown and the US-China trade dispute.

Transparent and effective implementation of local policies is highlighted as the area where improvement is most required, as well the need for unclear regulations to be clarified. However, although South China members expect the number of regulatory obstacles in the region to increase over the next five years, they reported facing less market access restrictions compared to the national average.

Respondents in South China are less concerned about state-owned enterprises (SOEs), as the market share held by SOEs in many sectors in the region is comparatively smaller than in other parts of China. Cases of compelled technology transfers as a condition for market access are also least reported by European companies in South China. However, they are most affected by US tariffs on exports from China.

Although the cost of manufacturing in South China is increasing, the region remains the preferred location for European enterprises to expand business activities. Costs are being closely monitored, with some firms mitigating the impact by increasing automation. The upgrading of local manufacturing in general is considered to be progressing at the right pace by more than half of European members, but there is a need for the local government to communicate its expectations in this respect more clearly. Despite being in its early phase, 43 percent of respondents report having already benefitted in some way from the development of the Greater Bay Area.

“South China remains an attractive destination for European companies, despite the macroeconomic challenges,” said George Lau (pictured above), chair of the European Chamber’s South China Chapter. “If a fair, transparent and predictable business environment can be established, European businesses are prepared to commit even more to the region.”

Find more here.

Russia, Latin America boost trade

Guangdong’s recovering foreign trade numbers have been somewhat surprising since the start of this year. The downturn in US-China relations and the imposition of trade tariffs had been expected to hit China’s biggest exporting province the hardest. And yet trade was still up – barely, at 0.8% YoY in the first four months, but still not as bad as had been feared.

Two reasons for this have been revealed by sources within the Guangdong Customs Department recently: Russia and Latin America.

From January to April this year, trade with Russia jumped 26.5% to RMB19.74 billion. Most of that was exports, at RMB18.5 billion. This is only a fraction of the province’s overall exports, at RMB1.2 trillion, but it is enough to move the needle.

Latin American trade was much larger, and not all of it was exports. According to the Customs data, from January to April, Guangdong traded goods worth RMB92.18 billion yuan from Latin American countries, up 10.3% year-on-year. Exports were RMB64.51 billion, up 6.9%; imports were RMB27.67 billion yuan, up 19.2%. 

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.