Did get Oracle the Tiktok deal because it cozied up to the US president more than any of the other US companies, wonders international trade expert Harry Broadman at CNBC. Many questions remain after Microsoft was replaced by Oracle.
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China and the US might have their first evaluation of their 6-month old trade agreement soon, but the cross-currents between both countries are here to stay, says Berkeley Research Group managing director Harry Broadman to Bloomberg Markets. China kept largely its promises, while the US cannot afford to take on China in a more aggressive way, he says.
Harry Broadman is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers' request form.
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The tug of war between China and the US on how the possible US ban of Tiktok makes China’s entrepreneurs – especially those in tech – to rethink its involvement in the American market, says business analyst Ben Cavender to Jing Travel.
Jing Travel:
If it happens, the TikTok ban would likely cool the ambitions of Chinese companies looking to launch or expand operations in the U.S.
“This is one more sign the U.S. is a hostile business environment, especially in the tech space,” says Ben Cavender, Managing Director at China Market Research Group. “There’s a feeling amongst Chinese executives that the U.S. isn’t worth the bother. Better to focus on growth at home and winning high potential markets lacking strong domestic players. In Southeast Asia, for example.”
Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.
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Coinspeaker:
ByteDance will be the overall decision-maker on who to sell its product to. Preferably, one that will offer the best cash deal, which both Oracle and Microsoft are capable of anyway, or one that will not pose a direct competition threat in future for its venture, where Oracle highly wins.
“The perfect company for Bytedance to sell to is one with deep enough pockets to pay a good price,” said Matthew Brennan, a social media analyst in Beijing.
Brennan added that the buyer should be “good enough at tech to actually run all the advanced AI (artificial intelligence that TikTok has)” but weak enough at consumer mobile that they would avoid arming a future competitor. “By these measures, Oracle sounds like a good fit,” said Brennan.
Oracle is actively providing the CIA with its database software solution, and the acquisition of China’s huge tech company might be a gateway to spying the Chinese market.
In addition, Oracle’s acquisition of TikTok will be a plus for the struggling company to venture into new markets and presumably the social media industry.
Matthew Brennan is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers' request form.
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| William Bao Bean |
Startups and investors in China are more sympathetic toward ByteDance. Many agree that if the Microsoft deal goes through, it could be the least bad outcome for TikTok.
“They are stuck between a rock and a hard place,” said William Bao Bean, general partner at Chinaccelerator, a cross-border accelerator backed by SOSV. “We are in a fast-changing regulatory environment. I think the consumers would probably want to continue using the service, and this is one potential way to make that happen. Obviously, I don’t think it’s what ByteDance really wants.”...
The tech community is well aware that TikTok is a rarity. Although the backlash will have a chilling effect on Chinese companies expanding to the US, and potentially other Western markets, there simply aren’t many internet companies going from China to the West in the first place.
“Most solutions that are built for China don’t solve problems that people have in the West,” observed Bao Bean.More at Techcrunch.
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| Kaiser Kuo |
Kaiser Kuo, a Chinese American tech journalist and podcaster, and former spokesperson for the Chinese search engine Baidu, agrees that TikTok’s data collection has been aggressive but feels surveillance fears are overblown. “We have not seen any evidence so far that they’ve done anything nefarious. This is about our deeply emotional response to China. It’s straight-up Sinophobia,” he said in an interview prior to Trump’s ban threat. “If TikTok, which is just pure greasy kids’ stuff, is drawing so much fire, it’s hard to believe that anything wouldn’t.”
It’s also not clear that China really wants to develop globally successful consumer tech products. Kuo notes that TikTok’s success is something of an anomaly, since “the really successful apps in China, the very things that made them successful would hinder them from success in other markets.” Baidu, for instance, may be an excellent search engine but its compliance with Chinese censorship laws makes it difficult to export.
The messaging service WeChat is an all-in-one swiss army knife app for its Chinese users, facilitating everything from payment to ridesharing to food ordering. Given its ubiquity, it’s also a powerful tool for surveillance and censorship, which is why the international edition is so pared down that it’s essentially a WhatsApp knock-off.
TikTok’s domestic Chinese counterpart, Douyin, also boasts some micropayment and search features—in addition to censorship compliance—that are absent from the global version.
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| Harry Broadman |
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| Shaun Rein |
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| Shaun Rein |
According to Pew Research Center, almost half of immigrants live in just three states - New York, Texas and California, home of Silicon Valley, where tech giants such as Google, Facebook and Cisco are based.
"Trump's immigration ban will hurt US tech companies' ability to recruit the talent necessary to remain competitive and focus on innovation," said Shaun Rein, managing director of the China Market Research Group.
"Instead of staying in America and building America's tech prowess, top talent will return to their home countries and build the next round of innovation powerhouses." US companies are battling it out with Chinese internet giants such as Alibaba and ByteDance in the field of innovation.
"Now, with the immigration ban, more top Chinese, Indian and other foreign talent will seek jobs in tech hubs globally like Shenzhen, Seoul and Bangalore rather than Silicon Valley. They will push invention and innovation in software, hardware and in semi-conductors," Mr Rein added.More on the BBC.
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| Victor Shih |
“Fundamentally the big problem on both sides is that you now have leadership which no longer considers having good bilateral relationships as a highest priority,” said Victor Shih, a professor of politics at the University of California, San Diego’s School of Global Policy and Strategy.
He said the lack of willingness to improve those ties has been behind more intensive U.S. investigations into alleged Chinese espionage, sanctions on the Chinese technology giant Huawei and the extensive trade tariffs.
More at NBC News.“Previous administrations should have pursued these issues,” he said. “But didn’t because of a strong desire to maintain cooperation.”
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| William Bao Bean |
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| Arthur Kroeber |
When Trump first imagined “uncoupling”—or “decoupling,” as it became known—the term evoked a divorce. But a complete decoupling is implausible. “Total revenue of U.S. companies and affiliates in China in 2017, for one year, is five hundred and forty-four billion dollars,” Kroeber told me. “What’s the chance these numbers can go down eighty or ninety per cent? Almost no chance. We can remove a few of those tangles, but the cost to the U.S. economy of removing them all would be unacceptably high."
Some companies—Nintendo, GoPro, Hasbro—have accelerated plans to build factories in places such as India, Vietnam, and Mexico. But most American C.E.O.s want more access to China, not less...
The truce did not resolve the core disputes, such as technology transfer, and, outside the White House, it was mostly seen as the end of a wasteful stunt. “Trump was looking for any possible excuse not to put on the tariffs that he had threatened,” Kroeber said, “so he got a promise from the Chinese to buy soybeans and some other stuff, and he packaged this.”
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| Arthur Kroeber |
“My baseline scenario is that both leaders still need a deal for political reasons, so we are likely to get one in the next few weeks, but it won‘t be this week,” said Arthur Kroeber of Gavekal Dragonomics, a financial research firm headquartered in Hong Kong. “The maneuvering right now is mainly end-of-negotiation stuff. But both sides are playing brinkmanship pretty hard so there is material risk (say 20 to 25%) that we don‘t get a deal.”
More in the Stock Daily Dish. Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.But the prolonged trade war — and Friday‘s tariff hike — serves as ammunition for hawks on both sides, who see a more confrontational struggle for global dominance unfolding...In Washington, the lack of a deal would result in “increased tensions between the national security wing of the U.S. administration, who will be happy with this result, and the business-tech community, who are anxious to expand their participation in China and will be pretty mad,” said Kroeber, of the Hong Kong financial research firm.
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| Mark Schaub |
For many years, MOFCOM or its local divisions have been the approval authority for green field investment and merger and acquisition projects, and the State Administration of Industry and Commerce (now the State Administration of Market Regulation (SAMR) ) or its local divisions have been the registration authority for the FIEs.
Starting from the pilot scheme in 2013 at the Shanghai Free Trade Zone, the Chinese government has been implementing a different approach towards foreign investors. Namely moving from a catalogue which sets out comprehensively how foreign investment is treated in specific sectors to a “pre-establishment national treatment with negative list”. Basically the negative list sets out only sectors that are restricted or off limits.
The negative list approach was introduced nationally by the publication of Provisional Measures on Administration of Filing for Establishment and Change of Foreign Investment Enterprises[4] (the “Provisional Measures”) by the MOFCOM on October 8, 2016. According to the Provisional Measures foreign investment not falling within the scope of the negative list would only require a filing and not an approval.
It seems the Draft Regulations provides that the SAMR will take over all “approval” and “filing” roles for foreign investment including the incorporation or changes in registration (whether included on the negative list or not). This approach seems to have been confirmed in the draft Guidelines on Better Handling Foreign Investment Enterprises Registration that was issued by SAMR on 6 November 2019. [5]
VIE remain largely safe – One of the breakthroughs under the Draft Regulations is that a VIE structure may not be needed for Chinese investors’ round-trip investment arrangement in the circumstance where a Chinese investor (i.e. a Chinese individual, company or other organization) uses its wholly-owned enterprise established outside China to facilitate round-trip investments into China and approval is obtained from the State Council for the exemption of application of negative list. In other words, the Draft Regulations treat such round-trip investment (not all round-trip investment) as domestic investment and therefore restrictions or prohibitions set out in the negative list for foreign investment will not apply.
Notably, and consistent with the terms of the FIL, the Draft Regulations do not question the legality of VIE structures established in China by foreign investors which wish to circumvent restrictions on their investments. More details with regard to the necessity and application of VIE arrangement can be referred to our previous article at China: VIEs Alive and Well.
More at the weblog of his law firm, including investment protection, Sino-foreign JV with Chinese natural persons, investment management, and many unresolved issues.More at the weblog.
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| Harry Broadman |
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| Shaun Rein |
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| Harry Broadman |
Harry Broadman, former Assistant U.S. Trade Representative under the Bill Clinton administration and current partner at the Berkeley Research Group, told CNBC that any White House communications regarding the trade war should be seen through the lens of the president’s “singular focus” on his 2020 re-election campaign, adding that the deal touted by U.S. trade officials was “not much of a deal in any kind of meaningful way.”
“As everyone knows, it does not touch on the threshold issues that the administration has been talking about for two years, which is the structural reforms, the intellectual property protections, subsidies, the state-owned enterprises and the like,” Broadman told CNBC via telephone from Washington on Tuesday.
“It’s not even obvious to me how much of that was even discussed in the conversations and the reason for that, I believe, is the metric that Trump and his lieutenants, the Secretary of the Treasury and the U.S. Trade Representative, focus on is how to eliminate the merchandise bilateral trade deficit between the two countries.”
Broadman, who also served as chief of staff on George H.W. Bush’s Council of Economic Advisers, suggested that since the Trump campaign’s focus in both 2016 and 2020 is on eliminating the bilateral trade deficit on goods, the administration’s sole focus would be on demonstrating to Trump’s base that the promise been fulfilled. However, he dismissed the merchandise bilateral trade deficit as an “economically meaningless metric.”...
Broadman, who was part of the U.S. team that negotiated with the WTO, said a marked shift had occurred away from a focus on multilateral and plurilateral regional agreements and toward bilateral efforts between individual nations.
“The other issue within that context, particularly in the bilateral context with China, is that these ‘agreements’ with China and the U.S. under the Trump administration, frankly, are making the U.S. look more like China, in the sense that these state-to-state deals on agricultural purchases are not market-driven purchases,” Broadman said.
He added that the Trump administration was correct to criticize China for being a member of the WTO while maintaining a prominent state role in its economy, but suggested that Trump was now “centering his negotiations by employing the U.S. government on the transaction side.”More at CNBC.
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| Arthur Kroeber |
The latest developments amount to a “ceasefire” rather than a peace treaty, says Arthur Kroeber for Gavekal Research. Washington has agreed to cancel upcoming tariff hikes, with Beijing promising to more than double its purchases of US agricultural products in return. “Faced with mounting evidence of the impact his trade war has had on US manufacturing, agricultural incomes and business confidence,” Trump is worried that his re-election campaign could be in trouble. The White House seems to be trying to paint a climbdown as a victory.More in Money Week.
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| Harry Broadman |
There are two putative goals of the current US administration for proactive policy “decoupling” between the U.S. and China. The first is to reorient U.S. firms’ supply chains away from China to U.S. sources, which would have the effect of helping to achieve President Trump’s principal trade policy goal with China: elimination of the bilateral U.S.-China merchandise trade deficit. The second is to prevent China’s further progress in the global race for superiority in innovation and market dominance in advanced technology products and services.
It is not up for debate that China has both engaged in trade policies that are not WTO-compliant ever since its accession to the WTO in 2001 as well as in the piracy of intellectual property and technology decades before it joined the WTO and still does. Yet, not only will the U.S. goal of forced bilateral decoupling between the two largest economies fail in a marketplace whose structure is now inherently globalized, but the policy tools being waged by the U.S., combined with its go-it-alone approach to try to contain and isolate China both economically and technologically, will not induce the changes Washington seeks from Beijing.
Indeed, there is an appreciable risk that the outcomes produced by the U.S. strategy of proactive decoupling will serve to only make the U.S. worse off and jeopardize global economic growth. There are far more effective ways to deal with China's conduct and to generate outcomes that will more greatly benefit both the U.S. population and the world community...
What to do? Let's tell it like it is: China is knowingly in broad violation of the legal WTO commitments it signed in 2001.
The world community has a fundamental choice before it. If the globe’s second largest economy cannot live up to its WTO commitments, then let’s all be grownups and take collective action and agree that China shall either fundamentally renegotiate its WTO membership or be removed from that system. The result? Beijing will then not get preferential tariff and other favorable treatments that come with WTO accession.
This is not a pejorative view of China—by any means. Like every nation, the Chinese have the absolute full right to have whatever type of economy they wish. But no country can have its cake and eat it too. Fundamentally, this is a values statement: the goals of Xi Jinping and the Chinese Communist Party, which he leads, are not those shared by the U.S. and many other nations.
If on the other hand, we want to close our eyes about China staying in the WTO, then the only other choice is to terminate the WTO all together since it has zero credibility. However, here is where things become dismal. The Trump administration is itself operating outside the WTO. Indeed, the current occupant of the Oval Office seemingly would quite welcome the demise of the WTO.
Without question, that is an outcome the overwhelming number of the world of nations will deeply regret. As a result, one should be hopeful this would have little chance of occurring.
The question then is: Who will step up to the plate and spur the collective action the world so deeply needs now?Much more in Forbes. (here in pdf-format)
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| Sara Hsu |
Moving to another country may make sense for companies whose new grounds of operation have sufficient infrastructure to provide a proper manufacturing environment.
Firms reshoring to Japan and Taiwan find themselves back home with well-constructed roads and telecommunications systems, although such factors may yield higher costs of production. Those shifting to Vietnam and Thailand are faced with poorer conditions and potential added costs of production.
Vietnam has a lack of transport infrastructure, power supply networks, and urban infrastructure. Ho Chi Minh City and Hanoi face severe traffic congestion. Government funding and planning fall short of providing sufficient resources to improve the infrastructure environment. It has been estimated that the country needs to invest $400 billion in infrastructure over the next decade. However, corruption and lack of skills prevent this from occurring.
Thailand has better infrastructure than Vietnam, but it has experienced bottlenecks in pushing infrastructure development further. This is because it takes the central government a long time to approve projects, and state governments lack the capacity to build the infrastructure projects that are slated for construction. Thailand’s political elite view infrastructure projects as long term, while their tenure may be short term.
As companies move to developing Asian nations to take advantage of Asian supply chains, they are facing challenges. In Vietnam, companies have a harder time locating factories, and ports are struggling to coordinate container ship traffic. Costs of labor in Thailand are higher than in China, even after wage increases in China. Firms attempting to move to Indonesia, Malaysia, and Cambodia are facing similar problems. In Cambodia, for example, almost of half of all goods inspected in the last quarter did not satisfy inspection standards.
More at the ChinaUSFocus.This means that the trade war is forcing some companies to shift production to less attractive locations prematurely. It’s one thing to move abroad in order to increase profitability, but quite another to move out from an established location due to complications resulting from an anti-free trade stance taken by the center country. So far, companies that make Crocs, Roomba vacuums, and Yeti beer coolers are moving out of China due to increased tariffs.
