Posts Tagged ‘U.S. companies’

Trump administration sees an advantage in Apple’s China woes, but economists aren’t so sure

January 4, 2019

Apple’s China woes are proof that President Trump’s trade policies are pressuring China to accede to a deal, the White House argued Thursday as the stock market dropped in reaction to the tech company downgrading its projected earnings. Economists told the Washington Examiner, though, that any additional leverage the administration has is counterbalanced or even outweighed by the increased economic damage incurred by the U.S.

“The woes of Apple and other U.S. companies in China contribute marginally to President Xi Jinping’s incentive to conclude a deal … ,” said Gary Hufbauer, nonresident senior fellow at the Petersen Institute for International Economics. “On the U.S. side of the equation, the falling stock market must be registering with President Trump as a good reason to conclude a deal.”

By Sean Higgins

China’s economy has suffered as the trade dispute has dragged on. The benchmark Shanghai Composite Index has plunged by more than a quarter over the past year.

Yet, as U.S. markets faltered again Thursday, Daniel Drezner, professor of international politics at Tufts University and a nonresident senior fellow at the Brookings Institution, said that the U.S. was under as much pressure as China. “One could certainly argue that China’s economic slowdown increases their incentive to cut a deal — but given how sensitive Trump is to market gyrations, the trade war’s negative effects on the U.S. stock market will increase Trump’s incentive to cut a deal as well,” he said.

Image result for china stock market decline, photos

On Wednesday Apple CEO Tim Cook surprised market watchers by announcing he was revising the company’s expected revenue for the first quarter of this year, citing the ongoing trade war to explain declines in sales in China. “We believe the economic environment in China has been further impacted by rising trade tensions with the United States,” he said. The company had previously projected that its first-quarter revenue for the new year would be between $89 billion and $93 billion. It is now downgrading that to $84 billion.

The Dow Jones Industrial Average subsequently fell more than 2 percent Thursday, and other indices also registered significant declines to add to recent losses.

Addressing the market turmoil Thursday, White House economic adviser Kevin Hassett argued that “a heck of a lot of U.S. companies” that do business in China, besides Apple, were going to see their earnings downgraded. Hassett argued that the difficulty for companies was good sign for the upcoming trade talks with Beijing because it “puts a lot of pressure on China to reach a deal.”

Image result for Kevin Hassett, photos

Kevin Hassett

“They have been misbehaving in the global trading community, and we’re making great progress to make sure they stop doing that,” Hassett said in an appearance on CNN. “One of the reasons is frankly their economy is looking, for them, to be in what might be called a recession.”

The Trump administration has set a March 1 deadline for China to agree to a deal before it increases tariffs on $200 billion worth of goods to 25 percent, up from 10 percent.

Trump has claimed that he is making progress toward getting the terms he wants. “Deal is moving along very well,” he tweeted after talking with Chinese President Xi Jinping Saturday. “If made, it will be very comprehensive, covering all subjects, areas and points of dispute.” A White House delegation is going to China next week to firm up details for the talks. No official date has been set.

Image result for donald trump, xi jinping photos

Yet some analysts are skeptical that Trump derives an advantage from pain inflicted on companies like Apple. “I don’t see how Apple’s troubles strengthen Trump’s hand,” said Simon Lester, trade policy studies director for the free market Cato Institute. “If the Chinese economy collapses, maybe that helps Trump. But without that, pain for U.S. companies seems worse for the U.S. position than the Chinese position.”

President Trump defended the tariffs in a tweet Thursday. “The United States Treasury has taken in MANY billions of dollars from the Tariffs we are charging China and other countries that have not treated us fairly. In the meantime we are doing well in various Trade Negotiations currently going on. At some point this had to be done!” he said.


Apple’s China Trouble Makes Trump’s Trade War Harder to Defend

January 3, 2019
Cook says Apple didn’t expect weakness in China, EM demand
U.S. officials are going to Beijing next week for trade talks
Customers look at products in an Apple store in Beijing.  Photographer: Greg Baker/AFP via Getty Images

President Donald Trump’s administration argues that the long-term gain from a trade war with China justifies short-term pain for consumers and investors. That case may be harder to defend now that the collateral damage includes one of America’s most recognizable brands.

Apple Inc. on Wednesday lowered its outlook for first-quarter revenue after a larger-than-expected slowdown in demand from China and fewer upgrades to models of the iPhone. In a letter to investors, Chief Executive Officer Tim Cook said the company didn’t expect growth in emerging markets to slow so sharply, especially in China.

Tim Cook   Photographer: David Paul Morris/Bloomberg

Apple shares dropped in extended trading, dragging down futures on the broader S&P 500 Index.

It’s the latest evidence of how tensions between the world’s two biggest economies are backfiring on the U.S., undercutting Trump’s assurances that America could continue to grow quickly despite the conflict. At the same time, Chinese growth is decelerating more rapidly than many observers expected, leaving few winners on either side.

“China’s economy is seeing a much sharper slowdown than public data are reporting, which suggests there is much more pressure on Beijing to come to a trade truce than is popularly understood,” said Leland Miller, CEO of China Beige Book, a data analytics firm that surveys thousands of companies across the Chinese economy. “On the other hand, the falling U.S. stock market seems to be playing a similar role for President Trump.”

Data this week showed a worsening picture for China’s manufacturing sector. The IHS Markit gauge signaled a contraction for the first time since mid-2017, confirming a trend in the official index on Monday that showed the weakest reading since early 2016.

In a report last month, retail sales posted the worst performance since May 2003, rising 8.1 percent in November from a year earlier.

China’s Slowdown Claims Biggest Corporate Scalp Yet

The timing of Apple’s announcement could appear to chip away at U.S.’s political leverage just days before trade talks resume with China. Mid-level officials from Washington are scheduled to travel to Beijing early next week for meetings aimed at averting an escalation on the dispute by March 1, when U.S. tariffs on Chinese imports are set to rise if an agreement isn’t reached.

Last year, Trump said “trade wars are good, and easy to win.” Commerce Secretary Wilbur Ross has likened the conflict with China to the “painful” start of a diet that eventually yields “happy” results.

China Key Things to Watch in 2019 — With or Without a Trade War

Trump on Thursday tried to downplay the trade war’s effect on the broader economy. When his trade deals are sorted out, there will be a rebound after “a little glitch in the stock market last month.” He was referring to an 8.7 percent drop in the Dow Jones Industrial Average, the worst monthly performance since February 2009.

With less than two months left before the trade truce expires and tariffs on $200 billion worth of Chinese goods are set to hike to 25 percent, there are major outstanding issues that may be difficult to resolve in the short time frame the two countries have set for themselves.

Global Trade Growth Can Not Escape 2019 Slowdown

U.S. Trade Representative Robert Lighthizer said last month that Trump was determined and not afraid of using “a strategy of tariffs, and taking hard lines” but at the same time wanted his advisers to reach a deal with China.

Robert Lighthizer

Photographer: Andrew Harrer/Bloomberg

“If that can be done, the president wants us to do it. If not, we’ll have tariffs,” Lighthizer told CBS’s Face the Nation on Dec. 9.

The market selloff and signs of economic weakness may force the U.S. and China to reach a deal sooner than expected, said Mohamed El-Erian, chief economic adviser at Allianz SE and a Bloomberg Opinion columnist.

“It actually helps the process along,” he said. “I’ve argued all along that this will not end up being a global war — this is going to be resolved.”

With its economic size and relatively low reliance on trade, the U.S. has the advantage in any trade war, El-Erian said. Once they realize America is willing to suffer economic pain to win the conflict, other countries will be under pressure to offer concessions, he said. Damage to major U.S. companies such as Apple may hasten the process.

U.S. Stays Mum on China Trade Concessions Ahead of Beijing Talks

“Apple is in a particularly dangerous position if the U.S.-China trade war escalates: it gets hit first on any U.S. tariffs, it then gets hit again on any China tariff response,” he said.

Apple’s worries aren’t confined to the economy. Cook also cited factors including supply constraints to newer models of the Apple Watch, iPad Pro and AirPods. Analysts said home-grown Chinese brands are taking market share from foreign rivals and noted a reluctance among consumers to upgrade ahead of an expected wave of new 5G technology.

“I’d suspect this is more to do with industry-specific issues than it being a sign of a major weakening in global GDP growth,” said David Mann, global chief economist at Standard Chartered Plc in Singapore.

Apple’s iPhone Warning Comes Years Too Late: Shira Ovide

Cook is just the latest top executive to cite U.S. policies for his company’s weaker-than-expected performance.

Last month, FedEx Corp. CEO Fred Smith blamed politicians including Trump for a gloomy forecast.

U.S. tariffs, China’s “mercantilism” and the U.K.’s negotiations to leave the European Union are all weighing on trade and economic growth, FedEx’s Smith said in a conference call Dec. 18. That prompted FedEx to slash its profit forecast for fiscal 2019, implement an employee buyout and cut international delivery capacity.

“Most of the issues that we’re dealing with today are induced by bad political choices,” said Smith, a longtime Republican supporter who on earnings calls rarely misses an opportunity to champion free trade.

— With assistance by Divya Balji, Enda Curran, and Chris Bourke


U.S. Companies Feel the Pinch as Tariff Costs Start to Mount

December 7, 2018

American companies that import products are paying record amounts in customs duties as more tariffs imposed by the Trump administration take effect.

Tariff collections topped $5 billion in October, according to data from the Treasury Department and from Census Bureau data analyzed and released by Tariffs Hurt the Heartland, a lobbying coalition of manufacturing, farming and technology groups.

President Trump campaigned on an aggressive trade agenda, and from early this year has imposed or considered tariffs on thousands of products from dishwashers to semiconductors. U.S. revenue from tariffs has begun to build rapidly only in the last few months, as more of the levies have taken effect.

The amount of tariffs being paid by U.S. importers has doubled since May, including an increase of more than 30% from August to October, according to the data. The sum has risen through the year as steel and aluminum tariffs were applied to imports from a growing group of countries, then surged in October, which was the first full month in which U.S. tariffs were in place on a full $250 billion of imports from China.

Trade, Tech and Tweets: Stock Markets May Get Even Bumpier in 2019
U.S. stock markets have gyrated this week with seemingly positive news on trade followed by President Trump tweeting he is still a “Tariff Man.” U.S.-China tensions, plus worries about economic growth and the tech sector, spell more volatility ahead for investors. Photo Composite: Crystal Tai

China and the U.S. struck a trade truce Dec. 1, agreeing not to add or increase tariffs for now. But the tariff rates in place in October will remain in effect, meaning collections are likely to remain high in November and December.

President Trump has touted the surge in revenue his tariffs have brought in thus far. “We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN,” he said in a tweet on Tuesday.

Tariffs are assessed to the U.S. importer of record, meaning U.S. companies that import items from China and the rest of the world directly are the initial parties responsible for paying. The Census Bureau data are based off customs filings, while the Treasury data are based off actual payments.

While some importers will bear the cost of the tariffs themselves, others may be able to persuade their foreign suppliers to cut prices enough to offset the cost and others may pass the higher costs on to their customers.

“We are now seeing the raw data behind the stories of tariff pain that are coming in from every corner of the country,” said Charles Boustany, a former Republican congressman who is the spokesman for Tariffs Hurt the Heartland. “American businesses, farmers, manufacturers and consumers are suffering under the weight of the current tariffs and are reeling from the continued uncertainty over whether they will be increased even further.”

Russell Tiejema, the chief financial officer of Masonite International Corp., a Tampa, Fla. manufacturer of doors, said at an investors’ conference this week that U.S. tariffs would hit about 10% of the $900 million worth of material his company acquires to build its products.

“About half of that, we would be the importer of record, which means that we would be the party liable for tariff remittance,” said Mr. Tiejema. “The other half we acquire from other suppliers who then acquire it upstream from China, but they stand as the importer of record. In both cases, we need to negotiate, wherever possible, price concessions.”

Many U.S. companies are also facing retaliatory tariffs from China—and from Canada, Mexico, the European Union and other countries hit by U.S. tariffs this year on steel and aluminum. Data from the research group the Trade Partnership, which works with Tariffs Hurt the Heartland to assess the impact of tariffs, estimate that more than $1 billion in tariffs were paid on U.S. exports in October, based on the volume of trade of affected goods.

John T.C. Lee, the president of Andover, Mass. MKS Instruments, which makes precision measuring instruments, said at a Nasdaq Investors Conference this week that his company was facing both U.S. tariffs and retaliatory tariffs from other countries. MKS faces $3 million in tariffs on its imports over a year, and $7 million in tariffs on its exports, he said.

“That is most likely going to be borne by the customers,” he said, noting that many had no other options for getting those products, a situation that gives his company more leverage to raise prices.

Even after the recent increase in revenue from tariffs, they account for a small share of government income. Tariffs were the primary source of federal revenue before World War I, but that share has dwindled with the introduction of the income tax and the liberalization of trade. In October, more than 2% of federal receipts came from tariffs, the most in at least two decades.

Write to Josh Zumbrun at

U.S. Market-Manipulation Cases Reach Record

October 31, 2018

CFTC and Justice Department target spoofing and other illegal tactics, helped by data-sharing deal with key exchange



Federal regulators have ramped up their pursuit of traders who use a bluffing tactic known as spoofing to manipulate market prices, enforcement officials said, leading to a record number of manipulation cases.

As part of the push, the Commodity Futures Trading Commission earlier this year quietly began receiving daily sets of market data from the world’s largest futures exchange, CME Group Inc. CME 1.72%

CME handles around 85% of total U.S. futures-markets trading by volume. Regulators for the first time now have access to daily trading data with a one-day delay, giving them a much broader window into trading activity—and possible manipulation. Previously, the CFTC largely relied on CME staff and whistleblowers to spot spoofing.

The data-sharing agreement, effective as of February, comes as the CFTC and Justice Department both pursue traders engaged in spoofing, a practice outlawed by the 2010 Dodd-Frank Act. When spoofing, traders place fake orders to create the illusion of supply or demand, causing prices to swing up or down. The traders then profit from the move back as the market reverts to normal levels.

The CFTC brought a record 26 cases related to manipulative conduct and spoofing in the fiscal year ended Sept. 30. Several of those civil cases were accompanied by criminal charges filed by the Justice Department. Between 2009 and 2016, the average number of such cases brought was just five a year.

While spoofing is a problem in stock, bond and futures markets, it has been a particular focus of futures regulators and exchanges since the 2010 stock-market flash crash. Navinder Sarao, a British trader whom U.S. authorities charged with fraud, used an automated trading program to manipulate the market for S&P 500 futures contracts.

Regulators say having broader access to trading data makes it easier to identify spoofing and other market manipulations.

“Our ability to evaluate that data has helped us identify misconduct,” said James McDonald, the CFTC’s enforcement director.

In one recent case, the Justice Department charged three traders with manipulating stock-futures contracts that resulted in more than $60 million in losses for the firm that traded with them.

The data-sharing deal with CME came after the CFTC in 2014 pressed CME-operated exchanges to “continue to develop strategies to detect spoofing.” The regulator had grown frustrated by CME’s work in spotting and flagging manipulation.

Regulators and exchanges typically use statistical analysis to determine if a trader’s strategy relies on spoofing. In addition, they examine emails and other communication for signs of intent to spoof.

CME also has implemented new automated surveillance programs to monitor trader-messaging activity. This can help determine whether traders intended to engage in manipulation. The exchange employs more than 50 investigators who have experience working on antispoofing programs.

“Policing the market for disruptive trading practices continues to be a huge part of our regulatory investment and effort,” Thomas LaSala, CME’s chief regulatory officer, said in an email.

Cooperation between federal agencies was boosted by the government’s conviction of Mr. Sarao, whose 2016 guilty plea to criminal charges set a precedent for future spoofing cases. It spurred the Justice Department’s antifraud division to take on more spoofing cases, according to Mr. McDonald and Aitan Goelman, who was CFTC enforcement chief during the Sarao case. Meanwhile, the lead CFTC trial attorney on the Sarao case, Jeff Le Riche, moved to the Justice Department last year to help bring spoofing cases.

Write to Gabriel T. Rubin at

China Will Lose The Trade War — Then Things Will Get Really Nasty

September 30, 2018

Beijing might be the biggest loser, but both the American and Chinese economies will take a hit – especially when this war goes beyond trade


South China Morning Post

Ever Since David Ricardo, mainstream economists have believed restricting trade reduces consumer welfare and impedes productivity growth as it dampens economic activity, pushes up consumer inflation, distorts prices and creates inefficiencies, raises uncertainty, and erodes demand and investment.

With Washington’s punitive tariffs on US$200 billion worth of Chinese imports and Beijing’s reciprocal tariffs on US$60 billion in American goods taking effect on Monday, on top of duties imposed on each other’s US$50 billion worth of imports, a full-blown trade war between the world’s largest and second-largest economies has begun, which will severely hit both countries and elsewhere, and thus slow global growth. However, China will suffer much more pain than the United States because of its over-reliance on trade and on core US technology in the supply chain, among other things.

A textile factory in Wuxi, Jiangsu province. Photo: EPA-EFE

First, China will not inflict as much pain on its rival as it is unable to match US tariffs on a dollar-for-dollar basis, because it exports far more to, than it imports from, the US. Last year, China exported more than US$500 billion worth of goods to the US. In contrast, the US sold just US$130 billion worth of goods to China.

Second, the Chinese economy relies more on mutual trade than America’s. China’s exports to the US accounted for 19 per cent of its total exports, while US exports to China represented 8 per cent of total US exports, according a White Paper released by China’s State Council, its cabinet, on Monday. Currently, trade represents nearly 20 per cent of China’s gross domestic product (GDP) while it makes up about 14 per cent of US economic output. And US value-added exports to China were equivalent to 0.7 per cent of its GDP, while such Chinese exports to the US were equivalent to roughly 3 per cent of its economic output. Economic theory suggests a trade war will hurt an exporter more than an importer.

Why Trump’s trade war is a blessing in disguise for Chinese leaders

Third, one consequence of the trade war will be the restructuring of the well-established global supply chain, which has served China’s best interests. China’s economic boom in the past four decades has been built on its role as the world’s manufacturing hub. A lasting trade war will force foreign companies to diversify or shift supply away from China and to relocate their production lines to safer countries like Vietnam, Malaysia, Indonesia and Mexico, in an effort to bypass increased costs.

Likewise, Chinese firms that buy American hi-tech industrial products will also seek to move to “safe” countries to avoid the punitive tariffs.

A container ship at a port in Qingdao in eastern China’s Shandong province. Photo: AP

The tariff war will certainly be felt in capital investment, as corporations are likely to hold off investment decisions amid rising uncertainty. Currently, foreign-owned firms contributed 2.5 trillion yuan (US$363.8 billion) of fixed asset investments, accounting for 3.1 per cent of nominal GDP. Exports, investments and consumption are the three engines of the Chinese economy. Consequently, in the medium-to-long term, if tensions continue, China’s growth is likely be hit much harder than that of the US, far beyond the scale indicated by these trade data.

China and Russia: New BFFs thanks to an insecure US

US President Donald Trump has hinted that the trade war with China will not end any time soon. Photo: Bloomberg

US President Donald Trump has signalled he is willing to disrupt not just bilateral trade but also investment and technology exchanges, as Washington aims to contain an increasingly assertive rival, which it says “is seeking to undermine the US economy, interests and values”.

A really nasty situation will arise when the trade war escalates into an all-out war, spilling into the spheres of economy, technology and geopolitics, between the world’s leading free democracy and the world’s last major Communist-ruled country. By then, one can imagine the worst, though different, consequences for both economies: an America without China’s consumer electronics, toys and furniture, and a China without some of the world’s best-known American brands – like Microsoft, Intel, Qualcomm, and Boeing, just to name a few. 

Cary Huang, a senior writer with the South China Morning Post, has been a China affairs columnist since the 1990s


Beware the Wrath of the Chinese Consumer

July 6, 2018

US tariffs on China kick in and China has retaliated….

Or risk a chorus of complaints from boycott-battered U.S. companies.

Remember what happened to South Korea?Photographer: Nikada/Getty Images

There’s a dog that hasn’t barked in the current round of trade tensions between the U.S. and China: Despite the first direct tariffs coming into force Friday, the Chinese consumer has been on her best behavior.

That’s somewhat unusual if you consider Beijing’s most recent diplomatic spats with its trading partners.

A Chinese demonstrator swings an iron bar to smash goods at a Japanese-funded shopping center during a protest in Qingdao, Shandong province, on September 15, 2012. Reuters photo

When relations with South Korea deteriorated last year over Seoul’s decision to deploy a missile shield, Chinese civil society went straight for the jugular.

Yang Bingyang, a former model who’s known online as Ayawawa, encouraged her 2.7 million Weibo followers to boycott Korean products. “Every penny we spend is a vote on our future world!” the state-owned Global Times quoted her as saying. Hyundai Motor Co.’s market share in China was cut almost in half within a month. Lotte Shopping Co.’s local sales tumbled 84 percent from the March to June quarters of 2017 after local authorities shut stores alleging fire safety violations, and the chain is now pulling out of China altogether.

It was a similar story in 2012, during one of the periodic flare-ups over islands in the East China Sea claimed by both Japan and China. Nationalist crowds ransacked a Toyota Motor Corp. dealership and set a Panasonic Corp. factory ablaze.

Carts are piled up in a damaged area of a Japanese JUSCO department store after a group of Chinese protesters ransacked it, in Qingdao, northeast China’s Shandong province, on September 15, 2012. STR/AFP/Getty Images


To date, there’s been little sign of that sort of thing in this dispute. Despite claims of reduced buying of U.S. soybeans and disruptive import checks on fruit and pork in recent months, the dreaded non-tariff barriers have been confined to regulatory measures, rather than consumer boycotts.

That’s particularly surprising given consumer goods could be Washington’s Achilles’ heel.

China in December overtook the U.S. as the world’s biggest retail market. It’s the largest market by volume for General Motors Co. and the second biggest for Starbucks Corp., which expects sales in the country to overtake those from North America within a decade. Apple Inc. has some $45 billion of revenue there, while Las Vegas Sands Corp. and Wynn Resorts Ltd. would collapse without the dollars flowing from their Macau casinos.

How to account for the relative silence? One explanation is that we’re simply too early in this dispute for the big guns to be brought out.

The expected tit-for-tat response to the $34 billion of U.S. tariffs Friday is an indication China’s government is still happy with the conventional trade weapons in its armory, and wary of reaching for anything more powerful.

There might be more to it, though. China has been careful to pose as the good guy in this fight. The spectacle of Beijing unleashing nationalist boycotts on Procter & Gamble Co., Coca-Cola Co. and Apple would make that facade harder to maintain, and give ammunition to the U.S. argument that China’s economy is ultimately a tool of the Party.

The lack of consumer boycotts is “a bit unusual, but consistent with the Chinese rhetoric that China would be a defender of the global trading order,” Victor Shih, an associate professor and expert on China at the University of California, San Diego, said. “The reality is that the status quo allows China to protect many of its industries, so China wants to maintain the status quo.”

Don’t count on that forbearance continuing if tensions escalate. In all, Chinese subsidiaries of U.S. companies had about $223 billion in revenue in 2015, according to Deutsche Bank AG. Reduce those sales by just 20 percent – a rather modest target, given what consumer boycotts did to Korean firms last year – and you’ve already done $45 billion in damage, more than equivalent to the 10 percent tariff the U.S. is threatening to levy on a further $400 billion of imports if Beijing doesn’t back down.

That’s reason enough for Washington to reduce the temperature of this fight before a chorus of complaints from boycott-battered U.S. companies force it to do so. The Chinese people – reading from a script, to be sure – haven’t spoken yet. Smile at them, pay them, pass them, but do not quite forget.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
David Fickling at

To contact the editor responsible for this story:
Katrina Nicholas at

China Is Leapfrogging Ahead in Race for Technology — And The Game May Get Dirty

July 2, 2018

Beijing knows it is too far behind to win the present-day intellectual property race; instead it is preparing to dominate in burgeoning fields such as artificial intelligence and aerospace


The editor of China’s Science and Technology Daily caused a stir last month when he described “the large gap in science and technology between China and developed countries in the West, including the US” and spoke of the obstacles China faces in catching up with more technologically advanced nations.

It goes against the narrative of technological achievement trumpeted by Beijing, but he was right about how far China lags behind the US.

Image may contain: 1 person, standing and outdoor

Paramilitary police patrol near the headquarters of the Bank of China in Beijing. U.S. cybersecurity researchers say they detect an uptick in Chinese hacking of corporations in the United States. Ng Han Guan AP

If you were to believe much of the media coverage, you would think that China was already a world-beater in technology. Endless news stories recount how China now turns out more graduate engineers each year than any Western country, publishes more scientific research papers and files more patent applications.

However, these statistics indicate little about technological prowess. According to business managers, many of those three million annual science and technology graduates lack crucial analytical and communication skills, and are barely employable. Similarly, a large proportion of those 430,000 research papers have little or no scientific value.

ZTE almost collapsed amid threats the US Commerce Department would not allow American firms to do business with the smartphone-maker. Photo: Reuters

And many of China’s 1.4 million yearly patent applications are destined to prove worthless. In fact, fewer than 20 per cent of China’s applications even claim to be for new inventions; the vast majority are for lower-tier design or utility model patents, which typically cover minor incremental changes to existing products.

Sceptics argue that few of these have any merit, pointing out that the explosion in China’s patent applications in recent years has not been driven by a surge of innovation, but rather by province-level promotion programmes that offer generous subsidies and tax refunds to companies holding local patents.

There’s an obstacle in China’s drive to take on the US in tech: Beijing

In short, quality is not quantity. A more telling measure of China’s relative technological standing is how it performs in the international marketplace. Yes, China exports a lot of hi-tech stuff, but two-thirds of it is produced by foreign companies that like China as a location for low-cost assembly. Many of the high-value components are still shipped in from abroad. China’s biggest single import line by value – exceeding even crude oil – is semiconductor chips.

This dependence on foreign components was brutally exposed in May, when the US Commerce Department briefly barred American companies from doing business with Chinese smartphone-maker ZTE as a punishment for its violation of the terms of an earlier penalty for breaching US sanctions on Iran.

A vehicle operating on Baidu’s Apollo autonomous driving system at the CES Asia 2018 show in Shanghai, China. Photo: Bloomberg

With US semiconductor manufacturers Intel, Broadcom and Qualcomm among ZTE’s top five suppliers, the Chinese company would have been forced to shut down its operations within days had the ban not been reversed.

That was just one incident involving a single Chinese company. China’s broader level of technological innovation can be better gauged by how much it makes from other countries each year in intellectual property rights earnings, compared with how much it pays out.

Artificial intelligence is on the rise in Southeast Asia, helping everyone from fashion designers to rice growers

Inventive economies generate handsome international income streams by licensing their technologies to foreign companies, which then pay them intellectual property royalties.

In 2016, China earned just US$1 billion from the rest of the world in intellectual property payments. In contrast it paid out US$24 billion (and according to many critics, it should have paid a great deal more).

Now compare those numbers with the equivalent figures for the US, which last year earned US$128 billion from licensing its intellectual property to other countries, while paying out US$48 billion. Meanwhile, Japan earned US$35 billion, and paid out US$18 billion.

Chinese visitors watch a robot at the 21st China Beijing International High-Tech Expo in Beijing. Photo: EPA

So while the US earned a net US$80 billion from its innovations, China paid a net US$23 billion for the privilege of using other people’s. This discrepancy gives an idea of the two countries’ relative technological sophistication. Given the sheer scale of the gap, it might seem that the editor of Science and Technology Dailywas right to speak about the difficulties China faces in catching up with the US in technology.

However, it would be wrong to think that China intends to catch up. It doesn’t. Instead, it plans to leapfrog the US and other Western economies to seize global dominance in a range of emerging technologies.

Over the past couple of years, Beijing has rolled out plans to drastically raise China’s game in around 20 hi-tech industries including semiconductors, robotics, aerospace, high-speed rail, electric vehicles, pharmaceuticals and new materials.

Artificial Intelligence: the doctors Chinese patients can’t beat up

Much of the international attention has focused on the old-fashioned import substitution elements of these plans, with Beijing typically aiming for Chinese companies to capture a three-quarter share of the domestic market over the next 10 or so years.

But Beijing’s plans go far beyond import substitution. In semiconductors for example, state planners want Chinese companies to command a third of the international market by 2030. And in artificial intelligence, they are aiming at nothing less than global dominance.

In the coming weeks, Abacus will examine in more detail how exactly China plans to go about pursuing its technological ambitions. At this point, however, it is safe to say that Beijing is prepared to go to great lengths to help it achieve its aims, including by playing dirty. And while such state-sponsored grand plans have a poor record both in China and other countries, this time there is a fair chance that Beijing might just succeed in its bid for global technological supremacy, even though it is starting from so far behind. 


Tom Holland is a former SCMP staffer who has been writing about Asian affairs for more than 20 years


China backed off from hacking U.S. companies. Now it is at it again.

U.S., China Tariffs Hit American-Made Products from Chips to Cars

June 16, 2018

Tit-for-tat tariffs can affect U.S. companies and farmers in unexpected ways

Workers assemble a car at the Volvo manufacturing plant in Daqing, Heilongjiang province, China, on June 8. The effect of tariffs on U.S.-bound autos made in China is likely to be muted.
Workers assemble a car at the Volvo manufacturing plant in Daqing, Heilongjiang province, China, on June 8. The effect of tariffs on U.S.-bound autos made in China is likely to be muted. PHOTO: REUTERS


Chip makers, auto makers and soybean farmers are among those facing the brunt of tit-for-tat tariffs imposed by the U.S. and China in unexpected ways.

President Donald Trump’s plan to impose tariffs on about $50 billion of Chinese goods will force American semiconductor companies to pay duties on their own products because of the complexities of global supply chains, according to the Semiconductor Industry Association.

Most chips American companies import from China are designed in the U.S., and some of their components are made domestically before they are shipped to the Asian country for assembly, testing and packaging. The group called the tariffs “counterproductive.”

Meanwhile, Beijing’s retaliatory move to include American-made vehicles on its list of goods subject to 25% tariffs means that the reprieve auto makers appeared to have received last month, when China said it would reduce import duties on cars, never got off the ground. In May, China said that beginning July 1, it would cut tariffs on vehicle imports to 15% from 25%, a longstanding rate, to quell the Trump administration’s complaints of a trade imbalance.

German auto makers such as BMW AG and Daimler AG’s Mercedes-Benz, as well as electric-car maker Tesla Inc. and Ford Motor Co. , would have benefited from the lowering of Chinese duties. Those companies collectively sold about 240,000 U.S.-built vehicles in China last year, according to research firm LMC Automotive.

The effect of tariffs on U.S.-bound autos made in China would be more muted. Two car companies— General Motors Co. and Zhejiang Geely Holding Group Co.’s Volvo brand—accounted for all of the roughly 54,000 vehicles imported to the U.S. last year out of 17.2 million sold, LMC said. GM dealers last year sold about 40,000 China-made Buick Envision sport-utility vehicles, as well as a few hundred Cadillac hybrid sedans, representing about 1% of GM’s U.S. sales.

Still, duties on Chinese imports would disrupt recent moves by Ford and GM to use their Chinese factories to supply limited numbers of cars to the U.S. Those arrangements allow the Detroit companies to add new, niche models to U.S. showrooms while avoiding capital outlays at their North American plants.

For American farmers, China’s plan to slap levies on U.S. soybeans is a problem many were hoping to avoid. With more than 90% of this year’s soybean crop already in the ground, farmers from Arkansas to Wisconsin face being shut out of the world’s biggest market for the oilseeds, used to make animal feed and vegetable oil.

Agribusiness firms that dominate crop exports, like Cargill Inc., Archer Daniels Midland Co. and Bunge Ltd. , which already have seen soybean sales to Chinese buyers slow, may have to find alternate markets for U.S.-grown oilseeds, if the duties prompt China to increase purchases of Brazilian soybeans. The U.S. is the second-largest soybean producer after Brazil, the U.S. Agriculture Department estimates.

“Retaliatory measures will not solve the concerns raised by these two governments,” a Cargill spokeswoman said. “The impact of trade conflict between the world’s two largest economies will lead to serious consequences for economic growth and job creation and hurt those that are most vulnerable across the globe.”

China’s massive demand for soybeans has become a cornerstone for the U.S. agricultural sector. Last year China imported about $14 billion worth of soybeans, nearly two-thirds of all U.S. soybean exports, but a protracted trade battle could change that. An April study by Purdue University estimated that a 25% tariff on U.S. soybeans could cut American exports of the oilseed to China by 48% or more and wind up shrinking U.S. production by 11% to 15%.

“The one thing we don’t want to lose is China,” said Davie Stephens, vice president of the American Soybean Association, speaking from the cab of his tractor as he planted soybeans near Clinton, Ky.

Some industries managed to mute the impact of the tariff by lobbying to have certain items excluded from the U.S.’s tariffs list. The National Council of Textile Organizations said it managed to get almost all textile machinery built in China excluded from the tariff after it was included in the original list. The machinery is used by U.S.-based fabric and yarn manufacturers and would “hinder the competitiveness of U.S. textile manufacturers” if it carried a tariff, said Auggie Tantillo, president of the textile group.

The medical devices industry too will see a minor impact, on about $836 million in medical devices and diagnostic-related products that are imported from China, according to a spokesman for AdvaMed, a U.S. trade group representing device-makers.

The administration’s initial tariff proposal in April would have affected $2.8 billion worth of medical-technology imports from China, AdvaMed said. The U.S. imports about $6 billion in Chinese medical devices annually, according to Glenn Novarro, an RBC Capital Markets LLC analyst.

AdvaMed urged the U.S. trade representative to remove medical technology from its list of targeted products, “due to concerns about the adverse effects on our competitiveness, as well as potential longer-term impact on patient access to medical technology,” the spokesman said in an email. In May, 40 U.S. lawmakers signed a letter urging the administration to spare the industry from the tariffs.

The efforts appeared to pay off, with the administration removing or nearly removing products including defibrillators, orthopedic implants and hearing aids, Mr. Novarro said in a note to clients on Friday.

Write to Jacob Bunge at and Mike Colias at

  (Wall Street Journal Editorial)

Senator Warren, in Beijing, says U.S. is waking up to Chinese abuses

April 1, 2018


BEIJING (Reuters) – U.S. policy toward China has been misdirected for decades and policymakers are now recalibrating ties, Senator Elizabeth Warren told reporters during a visit to Beijing amid heightened trade tensions between the world’s two largest economies.

 Image result for Senator Elizabeth Warren, photos

FILE – In this July 24, 2017 file photo, Sen. Elizabeth Warren, D-Mass., speaks in a park in Berryville, Va., where Congressional Democrats unveiled their new agenda. Warren is working to defuse an issue that has dogged her for years, her claims of Native American heritage, ahead of a possible run for president in 2020. (AP Photo/Cliff Owen, File)

Warren’s visit comes as U.S. President Donald Trump prepares to implement more than $50 billion in tariffs on Chinese goods meant to punish China over U.S. allegations that Beijing systematically misappropriated American intellectual property.

The Massachusetts Democrat and Trump foe, who has been touted as a potential 2020 presidential candidate despite rejecting such speculation, has said U.S. trade policy needs a rethink and that she is not afraid of tariffs.

After years of mistakenly assuming economic engagement would lead to a more open China, the U.S. government was waking up to Chinese demands for U.S. companies to give up their know-how in exchange for access to its market, Warren said.

“The whole policy was misdirected. We told ourselves a happy-face story that never fit with the facts,” Warren told reporters on Saturday, during a three-day visit to China that began on Friday.

“Now U.S. policymakers are starting to look more aggressively at pushing China to open up the markets without demanding a hostage price of access to U.S. technology,” she said.

Warren discussed trade issues and North Korea with senior Chinese officials, including Liu He, the vice premier for economic policy, Yang Jiechi, a top diplomat, and the Minister of Defence Wei Fenghe.

She said she told officials she met that Americans cannot support a more integrated economic system with China if it “fails to respect basic human rights”.

China’s ruling Communist Party has tightened controls on society since President Xi Jinping assumed power, from online censorship to a crackdown on activists and non-governmental organizations, though Chinese officials routinely deny accusations of rights abuses.

Warren also made stops in Japan and South Korea, and she said that U.S. allies in Asia were having trouble understanding Trump’s “chaotic” foreign policy.

North Korea’s Kim Jong Un and Trump had earlier exchanged insults and veiled threats of war over North Korea’s tests of nuclear weapons and ballistic missiles, but the U.S. leader made the surprising announcement last month that he was prepared to meet Kim.

Warren said success for that meeting would mean getting a commitment to discuss verifiable steps to reduce North Korea’s nuclear threat, which would require careful negotiations from a State Department whose role has been vastly diminished under Trump, with several high-profile posts unoccupied.

Trump’s efforts to “take the legs out from underneath our diplomatic corps” are a “terrible mistake”, she said.

Reporting by Michael Martina; Editing by Christian Schmollinger


  (Wall Street Journal)

 (The New York Times)

Trump Administration Seeks Freer Hand for U.S. Companies in China

March 26, 2018

U.S. auto makers, hesitant to criticize Beijing’s electric-vehicle requirements, among firms looking to Trump administration to help open market

Workers assemble a vehicle at a Changan Ford plant in Harbin, China. Ford Motor Co. joined with Changan Automobile to operate the plant in China, as Beijing requires foreign companies to form joint ventures with domestic firms within the country.
Workers assemble a vehicle at a Changan Ford plant in Harbin, China. Ford Motor Co. joined with Changan Automobile to operate the plant in China, as Beijing requires foreign companies to form joint ventures with domestic firms within the country. PHOTO: CHINA STRINGER NETWORK/REUTERS

SHANGHAI—China’s rules requiring foreign companies to form joint ventures with domestic partners are among the chief targets of the Trump administration’s looming tariffs against Chinese imports.

The administration contends these joint ventures—a longstanding complaint of many U.S. firms—force companies to divulge their trade secrets in several sectors, such as autos, where Beijing has a goal to dominate the building of electric vehicles.

“Technology transfer pressures have intensified as China has sought to develop expertise in the manufacture of new energy vehicles (NEVs), which includes plug-in hybrids, electric batteries and fuel cell vehicles,” U.S. trade representative Robert Lighthizer said in his report last week.

Most auto makers have grudgingly accepted joint ventures as the cost of doing business in the world’s largest auto market. Tesla Inc. is an exception, so far declining to build a factory that would require it to share its electric technology with a Chinese partner. That means Tesla buyers in China are only able to buy imports and must pay a 25% tariff over the sticker price.

Beijing sees electric vehicles as more than a way to ease pollution; it sees them as a strategic initiative to make its automotive industry a globally relevant force, and has mandated all manufacturers in China start building electric vehicles by 2019.

Matt Tsien, General Motors Co.’s chief of China operations, said at a recent roundtable interview that GM keeps its best technology in the U.S., though it does contribute some technology to its Chinese joint ventures.

But GM and other auto makers have been vocal in complaining about the mandates to build electric vehicles, on grounds there is tepid consumer demand.

Speaking in Shanghai in September, GM Chief Executive Mary Barra argued that manufacturers should be free to respond to market demand and roll out EVs in their own time.

Though broadly opposed to the restrictions which China places on foreign players, most auto makers have come to depend on China for sales.

U.S. trade representative Robert Lighthizer, front, spoke at a March 22 event at the White House to announce tariffs on China while accompanied by President Donald Trump, left, and Commerce Secretary Wilbur Ross.
U.S. trade representative Robert Lighthizer, front, spoke at a March 22 event at the White House to announce tariffs on China while accompanied by President Donald Trump, left, and Commerce Secretary Wilbur Ross. PHOTO: EVAN VUCCI/ASSOCIATED PRESS

GM sold 4 million cars in China last year, out of 10 million globally, and recently pulled out of other international markets, including Europe and India.

Ford Motor Co. sold 1.2 million vehicles in China last year, out of 6.6 million globally.

Both companies were restrained in their responses to the Trump trade measures. Ford said it encouraged “both governments to work together to resolve issues.” GM said it believed “both countries value a vibrant auto industry and understand the interdependence between the world’s two largest automotive markets.”

A senior U.S. official said foreign companies have little choice but to comply with China’s authoritarian government to retain access to a valuable market. “Very few companies are willing to call the Chinese out on this,” the person said, which makes it the job of the U.S. government to do so.

Both GM and Ford could see sales dented by the trade measures, analysts say. South Korean auto maker Hyundai Motor Corp. saw sales fall 34% in China last year amid heightened tensions between Beijing and Seoul.

“This will likely impact the American companies who sell millions of cars today in China,” said Bill Russo, chief executive of Shanghai consultancy Automobility and a former Chrysler executive.

Chinese officials have decried the Trump administration’s depiction of Chinese trade practices, saying the accusations are baseless.

Joint ventures are also required in an array of other areas, including cloud computing, a service which provides data storage, computing and networking resources over the internet.

Cloud operators such as Inc. and Microsoft Corp. must partner with Chinese companies, with their investments capped at 50%.

The partnerships effectively force U.S. companies to train the employees of their Chinese partner how to operate their complex technology, forcing them to “provide their proprietary cloud computing technology, brands and know-how to their Chinese partner, in exchange for a fee,” the U.S. trade representative’s report found.

Joint ventures aren’t the only means of technology transfer. Acquisitions of U.S. companies by players with Chinese interests is another way China can get its hands on American technology, Mr. Lighthizer’s report said.

[U.S. firms must] provide their proprietary cloud computing technology, brands and know-how to their Chinese partner, in exchange for a fee.

—U.S. trade representative report

Unlike the automotive sector, semiconductor companies aren’t required to form partnerships with Chinese companies to do business in the country. But China has become active in pursuing foreign semiconductor companies, a trend also viewed with concern by the U.S. trade representative.

In 2016, a Chinese consortium backed by state capital bought OmniVision Technologies, which manufactures CMOS image sensors, for $1.9 billion, the report said. In 2015, another Chinese consortium backed by government capital purchased Integrated Silicon Solution Inc. for around $765 million, the report said.

Such moves have triggered concerns in Washington and the government has blocked attempts by Chinese interests to buy makers of chip technology used in mobile phones, military equipment and other systems.

Write to Trefor Moss at