Tag Archives: US

Markets boosted by US-China hope

Investors pushed up stock markets worldwide over the past 24 hours on renewed hopesfor a high-level breakthrough in US-China relations. This followed news that Presidents Trump and Xi had a phone call yesterday, initiated by the White House, and that they plan to meet at the G20 meeting in Japan at the end of the month.

Smart people who obviously don’t invest very well, such as ourselves and other China analysts we know, are unlikely to be moved by the news. The US-China relationship is deteriorating inexorably due to a wide range of factors and influences, many of which are undoubtedly “civilizational” – to use the word the way the late Samuel P. Huntington would have wanted it used – and which are highly unlikely to be resolved by the two leaders when they meet in Japan. 

Nevertheless, the markets may be right to assume that Trump will call off the attack dogs on Huawei, or ease some of the tariffs that are hurting both countries, regardless of what Xi says to him at the G20. We will just have to wait and see. 

What is becoming clearer, however, from where we sit, is that it is starting to matter less to China whether Trump announces a deal or doesn’t, because China is far better placed to handle the fallout of the trade war than vice versa. It is not just due to Ren Zhengfei’s confidence. It can be seen by the rapidly expanding line of companies outside the Oval Office’s door, asking for relief from the tariffs; the volatility and the relative importance to the economy of the US stock market versus China’s; and research showing that American consumers will likely have to scrape together another US$2,000 each annually as prices start to rise at Walmart and Amazon – in a country where 40% of citizens say they cannot afford a US$400 medical emergency bill. 

By contrast, Chinese consumers are showing no signs of lagging, a year after the trade war began, while a new investment splurge is well under way – especially in 5G and high-speed trains – that will stimulate the economy well enough for the next decade to manage the shock loss of foreign demand for China’s traditional export-oriented manufacturers. China’s debt worries? Being dealt with, and something to worry about later, in any case, not right now, which is where we are focused.

This is not about picking sides in a fight; it is about seeing how the fight is shaping up. To us, it seems to be shaping up relatively well for China, and it seems like there is real cause for optimism about the country as an investment destination, as it continues to open its markets further to foreign participation. We still haven’t seen the worst impact of the most recent US tariffs show up in China’s trade statistics, for sure. But if we were betting people, we would be betting now that getting a deal done in Japan is far less important to President Xi than it is to his comrade in the White House.

Ren Zhengfei’s black swans prove prescient

The newswires are full of analysis today of President Xi Jinping’s visit to a Rare Earths plant and his extolling of “Long March spirit”. We won’t add to it. Better to focus on Ren Zhengfei, enigmatic leader of Huawei, who gave another interview this week at the company’s Shenzhen HQ that demonstrates what the president is talking about. 

This is a man who had black swans placed in the artificial lake outside his windows years ago. If US President Donald Trump’s team thought they were going to catch Ren unawares by putting Huawei on a blacklist last Friday, they clearly haven’t been reading Nassim Nicholas Taleb like he obviously has.

Ren listed a number of measures the company had taken in recent years to prepare for what happened last Friday and which was acted upon yesterday by various US firms such as Google, Intel, Qualcomm and others. If Ren is concerned about Huawei’s ability to survive the depths of the China-US trade war, he isn’t showing it. He had the gumption not only to hit back at the Trump administration, but also to not-so-subtly hint to Chinese policymakers – at least, those that might have been entertaining the thought of intervening – to stand back and let him manage this crisis with his team.

We don’t yet know how much any of this will mean, given the uncertain reaction of consumers to product changes, as well as the extent to which Huawei is exposed to the US ban. That will take time to ascertain. We do admire Ren’s coolness, however, and believe it will come as reassuring not only to Huawei staff, but to many others in the company’s supply chain, and many others who call the Greater Bay Area home.

As we have written previously, Huawei is not any company. It is a symbol of China’s emergence as a tech power every bit as much as it is a tech innovator. If Huawei is able to make good on Ren’s promises in the coming weeks and months, many participants in the GBA economy will have less to worry about, not just all those gazing out at the black swans.

Where the China-US trade war goes next is anyone’s guess. We are still on the side of the cautious optimists who believe that reason will prevail, in time, and the worst-case scenarios being reflected in recent waves of stock-market selling will not be realized. In the meantime, it’s best to stay tuned to SupChina, Sinocism and Trivium for detailed daily analysis at the national level, and stay tuned to GBA Today at the regional level.

Zhuhai firm on energy platform with US center

China Hainan Dayang International Energy Group and Zhuhai Dayang International Exchange Group have signed an agreement with the US National Center for Sustainable Development (NCSD) to form a new platform and facilitate the development of the energy sector.

The NCSD CEO Mitchell Stanley said the platform allows US small businesses to sell their products in the global market.

Gong Jialong, CEO of Guangdong-Hong Kong-Macao Greater Bay Area International Energy Exchange Co. Ltd., said China-US cooperation in energy has great potential.

“China is the world’s largest energy consumer and US is one of the largest producers,” he said. “Around 60 to 70 percent of energy producers in the US are small businesses. We aim to connect the American small business with the Chinese market.”

Read more.

Huawei, Day 2: Braced for impact

The US government’s decision to target Huawei is likely weighing on the minds of thinkers and doers alike in the Greater Bay today. SupchinaSinocism and Trivium have good wraps on the latest developments. We can focus on how important Shenzhen Huawei Technologies is to the Greater Bay Area.

First off, apologies for calling the company “Dongguan-based” previously. Although Huawei does most of its manufacturing in Dongguan, it is still called Shenzhen Huawei Technologies for a reason. Its new campus in Dongguan is impressive, with a people-moving train, but the Shenzhen campus is where the boss sits when he is not globetrotting. Where Ren Zhengfei sits is also where 60,000 of the company’s 180,000 global workforce sit. Around 25,000 staff will be based in Dongguan, but the new campus has been built mostly for future growth.

Huawei has four main business lines. Three are easy to understand: telecom network technology, smart devices, and cloud services. The fourth, Information Technology, covers everything else: AI, robotics, etc. You name it, Huawei does it. But without the cashflow from the first two, the second two don’t yet matter. This is the concern, as the US action would cut off the supply of key components for the world’s No.1 telecom equipment firm and No.2 smartphone manufacturer.

Huawei does most of its work in the Greater Bay Area. It would not be too much of an exaggeration to say that the company is an integral part of the GBA masterplan released in February. Without Huawei’s manufacturing scale, tens of thousands of jobs would not have been created here in the past decade. Without Huawei’s innovative capabilities, tens of thousands more will not likely be created here in the coming decade. As we reported earlier this week, Huawei is the top destination for graduates from eight of the country’s elite universities. The privately owned company is the GBA’s top all-round tech gun, with revenues of US$105b last year generating nearly US$10b of profits. Its R&D budget alone gives confidence in the GBA masterplan’s designs for industrial upgrading.

The repercussions for the region will be serious if the US goes ahead with its ban. Which is why we have reason to believe two things:

1) The central government will likely step in to support Huawei – it is too big to stumble, let alone fail. This support will likely trickle down immediately to the local governments in Shenzhen and Dongguan.

2) Non-tariff retaliatory action will likely follow. Anyone with a US-owned business in the GBA that is dependent on local supplies of components, or local access to sensitive data, can expect government scrutiny to be ramped up.

It is still early days in this new chapter of China-US relations. The leadership team in Beijing is not known for short-term reflexive policymaking on major issues, so we may have some time to figure out what comes next. And the GBA does have a lot of other positives, including a large private-sector economy focused on a vast domestic market. But there is no use whistling in the graveyard on an issue as important as this. Investors had best strap in: the ride is going to be bumpy.

US seeks to cripple Huawei

The US government has not only banned Huawei from being a supplier to any US telecom operators wanting to build a 5G network. It has placed the Dongguan-based tech conglomerate on a special blacklist that will effectively kill large parts of its business if implemented the way it seems intended.

This is a whole new level of the China-US standoff, in our view. As the Reuters report points out:

U.S. officials told Reuters the decision would also make it difficult if not impossible for Huawei, the largest telecommunications equipment producer in the world, to sell some products because of its reliance on U.S. suppliers.

Under the order that will take effect in the coming days, Huawei will need a U.S. government license to buy American technology. Huawei did not immediately comment.

A quick recap: When the US government did this to Shenzhen-based ZTE last year, it nearly bankrupted the company, which lost more than US$1bn as a result. That damage was quickly undone by the Trump administration in a series of measures after the initial order had been signed, once it became apparent how serious a move it was. This time around, given the state of play in China-US relations, it seems unlikely that any backsliding will happen.

Huawei is a different beast than ZTE. It has a robust smartphone business and other product lines that may withstand this attack. But this will be a very serious blow. We cannot imagine how the Chinese government will not retaliate, and so a very messy situation lies ahead. China-US relations are entering uncharted territory.

BYD rolls out 300th E-bus in California

Shenzhen-based BYD has rolled out the 300th electric bus at its Lancaster manufacturing plant in California, reports Xinhua Net.

In a celebration with its customer, the Antelope Valley Transit Authority, BYD said that AVTA is closing in on a landmark of its own as it expected to realize 1 million miles of zero-emission bus operations in early May.

BYD called AVTA a model for transit agencies seeking affordable green technology – especially those in California that need to comply with state regulations requiring zero-emission fleets by 2040.

Lancaster Mayor R. Rex Parris termed the 300th bus as “the tip of the iceberg.” He credited BYD for creating hundreds of American jobs with more on the horizon as the company expands its product lines of battery-powered buses, trucks and forklifts.

Gay dating app Grindr hits snag with U.S. regulators

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It may not be well known that Shenzhen-listed Kunlun Tech is the Chinese owner of U.S. gay dating app Grindr. The Beijing-based company is talking with the US agency that overseas cross-border acquisitions for national security risks, after an earlier report said the agency could be aiming to force a divestiture, reports Caixin Global.

Kunlun Tech made headlines when it purchased the popular Grindr in two stages in 2016 and 2017 for a combined total of about US$250 million. It said at the time the move was aimed at diversifying beyond its roots as a game operator into social media.

A forced sale of Grindr would mark one of the first such cases for CFIUS involving an internet asset. It would also mark one of the first times an increasingly security-conscious White House used CFIUS to undo a deal that was already consummated.