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US-China Market Watch: Tariffs, Facial Recognition, Hyperloop

By Angela Bao

Aug. 6, 2018
Facial recognition of a Caucasian businessman
(Photo credit): Gettyimages.com/John Lund

Your monthly roundup of the latest US-China business and industry news.

The U.S.-China trade war escalates

The White House released a list of additional tariffs on $200 billion worth of Chinese imports, just a few days after the first round of tariffs went into effect. Recently, the Trump administration threatened to more than double the proposed tariffs on $200 billion of Chinese goods from the initial 10 percent to 25 percent. The tariffs target products such as seafood, handbags, and minerals. In response to the escalation, the Chinese government has threatened to levy tariffs on $60 billion of U.S. goods, including meats, coffee, alcohol, and nuts. Such levies would bring the total amount of American goods subject to Chinese tariffs to $110 billion, which is 85 percent of all U.S. goods entering China in 2017. Trump’s $200 billion tariffs against China are currently undergoing a review process, with hearings set for August 20 to August 23.

The U.S. Senate passed legislation that would cut or eliminate tariffs on hundreds of Chinese goods. The items affected range from toasters to chemicals, along with about 1,660 other goods that are made outside of the U.S., almost half of which are made in China. The bill mainly targets tariffs on industries that no longer exist in the United States; however, some domestic manufacturers have complained that the bill would undercut their business by making it easier and cheaper to import foreign goods. The version of the bill that passed the House in January includes reducing tariffs on 145 goods that are manufactured domestically.

Following up on threats to curtail Chinese investment in American technology, the U.S. House of Representatives passed a defense bill that would curb Chinese investments in the States. The bill would also prohibit the U.S. government from using technology from major Chinese telecommunications firms. The bill doesn’t change the Committee on Foreign Investment in the United States’ decision-making criteria but expands the number of minority investments it can review.

The initial round of tariffs on $34 billion in Chinese goods went into effect on July 6, with a secondary round of duties on $16 billion more in Chinese products expected to come into effect later on. The Office of the U.S. Trade Representative held public hearings on its proposed list of goods for the secondary tariffs, but the office has yet to announce the results of those hearings.

Chinese AI companies rake in hundreds of millions in funding

Despite the trade tensions between the U.S. and China, Chinese artificial intelligence companies continue to rake in the funding. Megvii Inc., the Chinese developer of facial recognition system Face++, received $600 million in funding, including from Alibaba Group. Megvii plans to use the funding to expand its retail initiatives, such as applying its technology to “unmanned stores.”

SoftBank Group Corp’s Vision Fund is seeking to invest almost $1 billion into SenseTime, another Chinese facial recognition company that is currently the most valuable AI startup in the world. In April, SenseTime disclosed that it had raised $600 million from Alibaba to help finance investments in fields such as autonomous driving and augmented reality. Both companies also will continue to develop their facial recognition software, which the Chinese government is interested in for surveillance purposes.

Facebook hits another wall in China

China has pulled its approval for Facebook to set up an “innovation hub” in the country’s Zhejiang province a mere day after the company announced its plans. The decision to rescind the approval came after Zhejiang officials and the Cyberspace Administration of China reportedly got into a disagreement because the latter was angry it hadn’t been consulted more closely.

Facebook had previously wanted to use the innovation hub as an inroad into the Chinese market, since the government has banned the social network and its apps, like Instagram and WhatsApp. Facebook said they wanted to use the hub to support Chinese startups and learn “what it takes” to be in China.

Starbucks has a new challenger in China’s Luckin Coffee

China’s Luckin Coffee, which touts itself as a rival to Starbucks, raised $200 million from investors, valuing the company at $1 billion. The company started operations in January of this year and already has more than 660 outlets in 13 cities across China. The coffee startup plans to use the funds for “product research, technology innovation, and business development,” says Luckin CEO Qian Zhiya.

Luckin Coffee’s rapid expansion is attributed to its aggressive approach to winning customers by focusing on online orders, providing fast and cheap delivery, and keeping prices low. The company’s expansion also comes at a time when Starbucks, which already has 3,400 stores in China, plans to almost double that number by 2022. Likely in response to the increasing competition, Starbucks also announced that it is teaming up with e-commerce giant Alibaba to deliver drinks and snacks via Alibaba’s food delivery service, Ele.me, in order to boost sales.

China spending over $1 billion to develop hyperloop projects

Two Los Angeles-based hyperloop startups received funding from Chinese state-backed companies. Arrivo, which was founded by Brogan BamBrogan, a former senior engineer at Elon Musk’s SpaceX, said that Genertec America, a subsidiary of a Chinese state-owned enterprise, will extend a $1 billion line of credit to future projects using Arrivo’s technology. Genertec, an affiliate of the China National Import and Export Corp., has previously funded other high-speed rail and infrastructure projects around the world. Arrivo’s variation on the hyperloop system would use magnetic levitation sleds to carry cars in closed-off tunnels that are integrated into existing infrastructure; these so-called “guideways” will be able to move 10 times the number of vehicles that a regular highway can, claims BamBrogan.

Hyperloop Transportation Technologies (HTT) entered into a deal to build its first commercial system in China in Tongren, a city in the Guizhou province. The cost is estimated to be around $300 million. Half of it will be paid by Chinese state entity Tongren Transportation and Tourism Investment Group, and the other half will be funded by private investors. Tongren Transportation and HTT will set up a joint venture to build the hyperloop track and conduct technological research.

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Reach Further by East West Bank is our business news magazine connecting you to emerging opportunities in the United States and Greater China, helping you gain the edge to succeed.

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