Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Business analyst Shaun Rein is interviewed by marketing guru Ashley Dudarenok on the most recent developments, as consumer confidence in China is slowly recovering at the end of 2023. But because of the ongoing trouble with the US, and because US firms fear more counterproductive measures by US President Biden, there are still many bears on the road to economic recovery. China focuses more on domestic companies, as US companies retreat, and the global south turns decisively to China for support, he says.
Former US president Trump tried to get US companies to return from China, but reshoring has been marginal compared to other logistic disruptions, says financial analyst Sara Hsu in an interview with the China Business Review. “The focus has shifted away from reshoring to rightshoring,” she adds.
The China Business Review:
CBR: Many have said that uncertainty is the new normal. How does a company go about de-risking its supply chain to account for the unknown?
Dr. Hsu: There are several actions companies can take to de-risk their Chinese supply chains. The first is to map their supply chains across tiers. This will help firms to understand the extent to which they are dependent on particular suppliers. More firms are doing this now in order to prevent bottlenecks. The second action that companies can take is digitizing the supply chain. This can improve data collection and end-to-end visibility by tracking raw materials to the finished product, as well as vehicles that transport the goods. Digitization can be used throughout a variety of processes, including inventory management, finance, logistics, operations, quality control, and sales. The third is to model risk assessment under different scenarios in order to identify vulnerabilities and potential risks. This can help firms to prepare for the worst-case scenario, which after COVID-19, seems more like a possibility than in the past. Addressing potential risks allows companies to remain agile even during external disruptions. Finally, US firms may attempt to diversify outside of China. Having the ability to move production to another location if needed can improve supply chain resilience.
CBR: Supply chain shifts away from China have been very a slow creep rather than a mass exodus, with most companies not planning to leave any time soon. Do you see reshoring initiatives accelerating, slowing down, or continuing gradually in the future?
Dr. Hsu: I don’t think full reshoring is a serious option for many US multinationals due to generally higher labor costs. However, I think companies will diversify outside of China to become more agile in their supply chain management and reduce the possibility of disruptions. Some firms have already diversified to Vietnam, Thailand, Malaysia, and Mexico. Vietnam is particularly popular as another supply chain destination due to its low labor costs, while Thailand has improved its ease of doing business, streamlining the process for obtaining construction permits and improving minority investor protection. Malaysia has a strong legal system and well-developed infrastructure. Mexico benefits from its close proximity to the United States and “trusted partner” status for customs. Generally, especially after the pandemic, the focus has shifted away from reshoring to rightshoring, which focuses on placing production in locations that provide better efficiency and lower costs. This means that some critical processes may remain in the United States while others are outsourced to other countries. Rightshoring is leading to lower inventory costs as well as, in some cases, better intellectual property protection. This trend also produces lower lead times, which can help firms address the increasing demand for rapid product fulfillment.
Just a week after Didi’s massive IPO at the US stock market, the company faces a crackdown by China’s authorities. Business analyst Ben Cavender sees a hit to other Chinese firms, contemplating a US IPO: go to one of China’s stock markets to avoid problems, he tells at RTHK.
RTHK:
Regulators have ordered the country’s biggest ride-hailing firm, Didi, to be removed from app stores and accused it of violating rules on the use of personal data.
It comes a week after Didi raised billions of dollars when its shares were listed on the New York stock exchange for the first time.
“I think there’s potentially some subtext here which is basically saying ‘if you’re going to be a big tech company’ and you want to (do an) IPO, you’d better be doing it on the mainland'”, Ben Cavender, the principal at China Market Research Group, told RTHK’s MoneyTalk programme.
Cavender said he believed the government wanted “to tighten up its access to data that’s being collected while at the same time sort of trying to codify a little bit better what kind of data practices are actually OK in China”.
He added that the government is sending a message that it wanted more control over money flows.
He said the days of China initial public offerings (IPOs) being a sure thing were over for investors, and described the development as worrisome.
Cavender also said there was increased pressure “about this idea of consumer rights and what data actually is being collected.
“So I think you’re going to see companies like this that really do peddle in data come under a lot more scrutiny going forward,” he said.
China’s tech giants have in recent months been swept up in a regulatory crackdown — hitting companies ranging from Alibaba to Meituan — by government authorities fearful of their supersized influence on consumers.
US President Biden is trying to beat China, just like his predecessor Trump with a strong focus on technology. But Shanghai-based business analyst Shaun Rein does not see how the US can overtake China in innovation, he tells at state-owned Global Times. And more about the tense relationship between both economic powers.
The Global Times:
GT: You are very optimistic about China’s technological innovation. According to mainstream US media analysis, President Biden is putting tech at the center of his China strategy. And some say the US is shifting from Trump’s “decoupling” to Biden’s “small yard, high fence” tactic. How do you view this more targeted approach? What could it result in?
Rein: What Trump did to China was awful. What Biden is doing is just as bad. It’s clear that the US wants to destabilize and destroy China’s high-tech industry. They want to control tech standards. It’s not because Huawei or Douyin (Tiktok), or Chinese firms have done anything bad. I’ve seen no evidence yet from the US that these Chinese firms are doing anything overly bad that is not normal in other countries. It’s clear that the US feels that future war is not conventional war, but over controlling tech standards, and whoever dominates the tech world will be the major global superpower.
Over the last five years, China has become the most innovative nation in mobile APPs. Whenever I go back to the US, I feel like I’m back in the dark ages.
China has Alipay and Wechat pay, which I think is one of the reasons why China is able to stop COVID-19. In the US, people are still using cash and physical credit cards. But because of what Trump and Biden have done to China – such as crippling Huawei – Chinese firms have to focus on semiconductor development. Four years ago they didn’t need to, now they have to. This is a do-or-die situation. So you’re going to see the government and business will all have to work together, in order to shed the yoke of American imperialism in technology, it’s a very dangerous situation.
I work with a lot of American software and technology companies. They are my clients. They’re angry, because they sell to Chinese companies. They were generating billions of dollars a year in profits in China. All of a sudden, they are no longer allowed to sell to Huawei. They can’t sell to these companies.
China is the biggest market in the world for Intel, Qualcomm and Texas Instruments. Those businesses will be gone in five years, because Chinese companies will have to sell what Intel used to sell. So Biden is destroying the American tech sector.
When it comes to semiconductors, China is five to 10 years behind the US. So basically hysteria has captured the US, in DC. You bring up anything about China, automatically Americans go crazy. They think that it’s a new red scare. It’s absurd that people aren’t thinking logically right now.
The US has a rotation between the government and the war machine. Take the new Defense Secretary Lloyd Austin. After he left the US military in Iraq, he worked for Raytheon, a weapons maker, as a board member. Now he becomes the secretary of defense. It’s rotating between government and weapons, which is very dangerous.
Former White House official Harry Broadman discusses the future of relations between China and its trade partners. He hopes and expects that after Joe Biden takes over from current US President Donald Trump collective action between trade partners will be higher on the agenda, he tells Bloomberg. With a strong focus on Canada.
The newly elected US president Joe Biden will reset some of Trump’s policies, like on the climate, but economist Arthur Kroeber says Biden will follow his predecessor on China, he tells in Bloomberg.
Bloomberg:
Anyone hoping for a full reset of Trump’s tariffs or technology restrictions will likely be disappointed as Biden will recalibrate rather than rip up those policies, according to Arthur Kroeber, a veteran watcher of China’s economy and a founding partner at research firm Gavekal Dragonomics.
“President-elect Joe Biden has pledged to ‘restore’ the U.S., implicitly to its pre-Trump state,” Kroeber wrote in a note. “This will not be possible for China policy.”
Despite the trade tensions between China and the US, many tech companies from China still turn to American stock markets for their need for capital. Shanghai-based VC William Bao Bean explains why China’s markets can still not match the capital requirements of domestic companies, he tells at Emerge 2020.
The new US president Biden will be treating China in a multi-lateral fashion, not bilateral, like Donald Trump who saw trade basically as a real-estate transaction, says former White House trade negotiator Harry Broadman to BNN Bloomberg. China has ignored its trade obligations since admission into the World Trade Organization in 2001, he says, and Broadman does not expect another line now Trump has shaken that international boat.
Trump’s trade war against China has already been put in a backseat during the Covid-19 crisis, and also when US president Trump wins the upcoming elections, the state of the economy might not allow him to uphold the current tariffs, says business analyst Ben Cavenderto the Jing Daily.
Jing Daily:
According to Ben Cavender, the managing director at China Market Research Group, the trade war has taken a backseat to COVID-19 and the economy over the last couple of months. “If Trump wins, there will be a lot of discussion about the general economy, so there might not be the bandwidth to keep the tariffs up. The focus will be more on how to stabilize things in the US economy.”…
“I think also we are probably looking at a scenario where he tries to de-escalate on the tariffs front,” Cavender said, adding, “calling things “a win,” even if nothing really changes.
“It’s unlikely we’ll see more aggressive tariffs — particularly as the dollar is weakening right now. So this should, in theory, make US exports more appealing to overseas buyers more — so this adds to his story of resetting the trade balance.’”
Should Trump be re-elected, a continuation of taxes on foreign luxury goods could have a positive impact on fashion companies in the US — although those benefits are more likely to be felt by bigger over small to medium-sized businesses. Smaller companies should also be further hampered by the recent announcement that Trump is delaying additional Coronavirus stimulus packages.
As Cavender explained, Trump has always favored big corporations, and this is unlikely to change. “With Trump, you’re likely to see large amounts of interest directed to corporations, and if you have the connections, you’ll have more access to unrestricted cash to use any way you want,” Cavender explained…
The fashion industry is now undergoing a Darwinian-style overhaul, and not all labels will survive, regardless of the election outcome. But luxury and China are intrinsically intertwined, and China’s consumers have been pivotal in this recovery. As far back as March, they turned to revenge spending in China’s stores. On International Women’s Day (March 8), brands on Tmall experienced double-digit sales growth, as compared to last year.
Cavender confirmed that labels are reliant on favorable relations with China now more than ever, and the sales numbers bear that out. He added: “the brands doing well are the ones that have been able to connect with Chinese consumers digitally during the crisis.” And, if the US continues its tariffs on European luxury, local brands are unlikely to ever replace those sales among domestic consumers.
Perhaps jewelry might benefit, as consumers could swap in a national brand, said Ortelli. But in reality, that is unlikely, he added: “Due to the unique attachment consumers have to their preferred labels. Honestly, in luxury, the consumer usually has brand loyalty and is not looking for an alternative.”
Devaluation of the Renminbi, limiting export or more straining of capital flight are some options China’s government has to deal with its financial dilemma caused by the trade war, but – warns financial expert Victor Shih – all might also cause setbacks, he tells Reuters.
Reuters:
Meanwhile, the famed trade surplus the export powerhouse ran with the rest of the world has been shrinking.
Victor Shih, an associate professor of political economy at the University of California, San Diego, says currency devaluation could be an attractive option for China to offset the impact of the trade war.
But he warned the tactic had limits, as it “could create a panic on the renminbi which becomes difficult to control”…
Shih estimates that even a modest 20 percent reduction in exports to the United States could cause the monthly trade surplus to drop by $8 billion to $10 billion, nearly a third of the average. In addition, a reduction in foreign direct investment, which brought $136 billion into China last year, would also reduce forex inflows substantially, he added…
Shih said existing capital controls were very stringent.
“Even the billionaire class faces tight restrictions in terms of where they can invest money,” he said. “However, there are still ways, and it is likely that corruption is returning, which will undermine Chinese capital control measures.”
Harry Broadman might have earned his stripes in working in the US administration, the handling of the Tiktok deal filled him with “utter amazement”, he tells at Marketwatch. “Why issue the executive order if you are going to negotiate that way?” Broadman asks.
Marketwatch:
Harry Broadman, a managing director at global consulting firm Berkeley Research Group and a senior fellow of the School of Advanced International Studies at Johns Hopkins University, has a long history in Washington that includes serving as a member of the government board tasked with figuring out these issues, the Committee on Foreign Investment in the U.S., or CFIUS, in the 1990s. He told MarketWatch he was in “utter amazement” as to how the TikTok deal was being handled.
“I follow this minute-by-minute, literally, [and] speak to clients and reporters call all the time,” he said. “This is the challenge of assessing things — we really don’t know anything with certainty, other than the principals involved. I don’t know anyone on CFIUS who knows the full contours of what has been discussed.”
My wife and I returned to the States in 2016. We were very happy in Beijing. It was simply so our kids could get an American education. But it’s been sheer agony to watch helplessly as
I actually feel ripped apart, and not out of attraction to both sides but out of profound disappointment with both countries. Dialogue is still possible, and understanding one another’s perspectives is more urgent than ever. So as dark as things are, I’m still fighting the good fight, and platforms like SupChina and Sinica are more important than ever.
A large number of officially organized exchanges between the US and China underlined in the past the relations between both countries. But since US president Trump came in charge in 2017, about one hundred have been abandoned, says long-term China analyst Arthur Kroeberto Bloomberg.
Bloomberg:
President Donald Trump’s revelation last month that he hadn’t spoken with his Chinese counterpart in “a long time” and isn’t interested in doing so is just the tip of a much broader breakdown in communications that’s stoking concerns among former officials from both sides.
When the Trump administration took office in 2017, there were about 100 officially organized exchange forums—touching on everything from pharmaceuticals to technology policy—between the two countries, according to Arthur Kroeber, a China analyst for almost three decades. Gao Zhikai, a former Chinese diplomat who served as translator to Deng Xiaoping, cites the same tally.
Almost all of these dialogues have now died, meaning that senior and mid-level officials on both sides are increasingly operating in the dark about their opposite numbers’ activities and intentions. That raises the risk of misunderstandings festering or escalating into crises, and inhibits cooperation that otherwise could contain emerging disasters, such as Covid-19…
“You need some tracks that are basically talking shops,” said Kroeber, managing director of GaveKal Dragonomics, an independent global economic research firm. Having those forums fosters “relationships that can come into play at times of stress and crisis,” he added.
One key framework for U.S.-China dialog was the 16 or so working groups under the Joint Commission on Commerce and Trade, or JCCT, which was established during the Reagan administration in 1983 as a forum for high-level talks. It linked a wide variety of U.S. and Chinese agencies, from those dealing with commerce to energy, the environment and agriculture.
The Trump administration terminated the JCCT in 2017, along with the Strategic and Economic Dialogue program that was led by the Treasury and State departments. They were replaced with the more narrowly, results-driven Comprehensive Economic Dialogue.
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.
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.”
