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US-China Market Watch: Trade Talks, Hollywood and China

By Angela Bao

June 4, 2018
U.S.-China trade negotiations
(Photo credit): Gettyimages.com/Blend Images - Dave and Les Jacobs

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

Trump says to move forward with China tariffs

Despite signals that the United States and China were moving to resolve trade disputes, Trump announced that the U.S. is moving forward with tariffs on $50 billion worth of Chinese goods. The White House is expected to release a full product list on June 15 and will impose a 25 percent tariff on “industrially significant technology,” as well as announce investment restrictions by June 30 aimed at curbing Chinese acquisition of American technology.

The surprise announcement came less than two weeks after both sides declared a truce and could potentially disrupt the negotiations. It also prompted China to reiterate that it is ready to fight back if the U.S. continues to threaten a trade war. United States Commerce Secretary Wilbur Ross arrived in Beijing on June 2 to continue trade discussions. Ross was trying to push the Chinese government to purchase more American goods, but both sides were unable to reach a deal.

Despite the uncertainty over U.S.-China trade, China announced that it would cut tariffs on automobiles and several consumer items, including apparel, cosmetics and home appliances. China promised to cut auto tariffs from 25 percent to 15 percent, and consumer items will receive cuts of up to 60 percent, which will vary depending on the goods.

Hollywood-China film distribution negotiations on hold

Although talks to renegotiate film distribution terms have dragged for over a year, Trump’s trade war with China has stalled momentum for Hollywood.

In previous talks, studio executives wanted to bump their share of Chinese box office ticket sales from 25 percent to at least 28 percent (in most foreign markets, studios receive 40 percent). China also has a quota on how many foreign films can be released each year, although that was not a contentious point for studios, since most major Hollywood films are allowed in. Executives say they were still waiting to hear back from the Chinese side when the U.S.-China trade talks sidelined any potential progress.

China has become an indispensable revenue source for Hollywood: It overtook the United States’ box office in the first quarter of 2018. This success was largely thanks to strong Lunar New Year sales, and recent Hollywood films such as “Ready Player One” and “Avengers: Infinity War” have grossed hundreds of millions of dollars in China.

Wanda Group and Tencent form “smart retail” JV

Chinese real estate conglomerate Dalian Wanda Group has formed a joint venture (JV) with Tencent Holdings and Gaopeng, Groupon Inc. and Tencent’s joint venture in China, to integrate online and offline businesses.

Wanda will hold a 51 percent stake in the JV, with Tencent holding just over 42 percent and Gaopeng taking the remainder. The partnership is aimed at turning Wanda’s extensive portfolio of retail centers into smart malls, with Tencent driving online traffic through its platforms, such as WeChat, and Gaopeng integrating its digital invoicing services.

Alibaba invests $1.38 billion in express delivery company

Alibaba, along with its logistics affiliate Cainiao, led an investment round to acquire a 10 percent stake in Shanghai-based courier company, ZTO Express, which claims to be one of China’s largest logistics firms. The investment is part of Alibaba’s “new retail” vision, which wants to merge e-commerce and traditional brick-and-mortar retail. New retail aims to combine the convenience of e-commerce with the physical experience of retail stores, and demands much more efficient delivery and logistics services.

Alibaba’s new retail strategy envisions seamless integration between online, offline, and logistics by using tech and big data to create an omnichannel consumer experience. Alibaba’s Tmall, its business-to-consumer e-commerce platform, recently partnered with sportswear retailer Intersport to open up a new megastore designed around Alibaba’s new retail concept. The megastore offers “Smart Shelf” technology that can immediately inform consumers about the item and can also deliver goods from the store to the customer’s address in as little as two hours.

China’s potential $47 billion semiconductor fund

China is putting together an investment fund for semiconductor research and chip startup development, as part of its plan to wean itself from its dependence on imported technology—China imports 90 percent of its chips. However, details still need to be finalized, including the exact amount of the fund. The Chinese government has also added three domestic chipmakers to its procurement plan as a way to boost the industry.

The need for a domestic semiconductor and chip industry is apparent. Chinese telecom company ZTE has been struggling ever since the U.S. banned American companies from selling products to it (ZTE imports 25-30 percent of its components from the U.S.), as punishment for ZTE’s sanctions violations.

Such a large fund could potentially cause an excess chip supply in global markets and cause prices to drop, says the Wall Street Journal. However, China still has many obstacles to overcome before it can compete on the global level.

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