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US-China Market Watch: Trade Tariffs, “The Last Jedi”

By Angela Bao

Feb. 5, 2018
Technicians talking near solar panels
(Photo credit): Gettyimages.com/John Fedele

Monthly roundup of the latest U.S.-China business and industry news.

U.S. imposes new tariffs on solar panels, washing machines

As part of his “America First” trade policy, Trump has put a 30 percent tariff on imported solar panels and up to 50 percent on washing machines, on the heels of China’s reports of its largest-ever annual trade surplus with the United States. The tariffs were made to help boost American manufacturers, who complained of cheap Asian imports for cutting into their profits (in 2016, only 6 percent of all solar panels in the world were manufactured in North America). The tariffs would mainly affect China (solar panels) and South Korea (washing machines), but would also affect trade partners from Mexico, Canada, and Europe. Both China and South Korea have criticized these practices.

However, although the tariffs are touted to improve American manufacturing in these industries, The Solar Energy Industries Association says that these curbs could cost as many as 23,000 U.S. jobs, including existing and future jobs that would have been created by foreign companies. Others believe that these tariffs could drive up costs for consumers, as well as potentially ignite a trade war. According to the Wall Street Journal, the White House is also considering adding “protections” to the steel and aluminum industries further down the line, as well as potential sanctions against China for their IP practices.

In China, Google edges ahead, Facebook takes a step backwards

Google’s parent company, Alphabet Inc., and Chinese tech giant Tencent have come to an agreement to license each other’s technology patents—an attempt by Google to gain more access to the Chinese market, according to the Wall Street Journal. Google has already announced plans to open an AI center in Beijing, as well as a new Chinese office in Shenzhen, known as the Silicon Valley of China.

Facebook announced that it had partnered with Chinese smartphone maker Xiaomi to create virtual reality (VR) headsets modeled after Facebook’s own Oculus Go, seen by some analysts as a move to also regain foothold in the country (Facebook was blocked by the government in 2009). However, those plans may have suffered a setback: it was announced in mid-January that Wang-Li Moser, the Facebook executive who had been leading negotiations with Chinese government officials, resigned in late 2017.

Chinese regulators further clamp down on cryptocurrencies

Despite the recent stock price surges in companies investing in blockchain, the Chinese government continues to tighten regulations on blockchain-based bitcoin. Chinese authorities already shuttered bitcoin exchanges in September 2017, and now it has ordered the closing of operations that also create or “mine” cryptocurrencies.

China accounted for nearly 80 percent of global computer power used to mine bitcoin over the past month. According to Philip Gradwell, chief economist at Chainanalysis, such a large loss of bitcoin mining power could mean it would take weeks, even months, for the bitcoin system to readjust.

China has also announced it will target websites and mobile apps that offer “cryptocurrency exchange-like services” and wants to block domestic access to these platforms that allow centralized trading. Along with the perceived fraud risks involved with cryptocurrencies, China also cites massive energy usage as another reason for shutting down these platforms (according to Forbes, China’s bitcoin mining uses about three nuclear reactors’ worth of energy).

“Star Wars: The Last Jedi” bombs in China

Despite bringing in over $600 million at the U.S. box office, “Star Wars: The Last Jedi” flopped in China. This latest Star Wars film opened with just $28 million in China, compared to “The Force Awakens’” record-breaking $53 million opening weekend, and plummeted to $2.4 million in just its second weekend—a 92 percent drop. The film was pulled from almost all Chinese movie theaters shortly after.

According to The Hollywood Reporter, “The Last Jedi” underperformed because the Star Wars franchise doesn’t have as much legacy in China as it does in the U.S., and that the newest ones (with the exception of the standalone “Rogue One”) relied too much on nostalgia. The latest Star Wars rendition also had the misfortune of debuting the same weekend as local Chinese production “The Ex-File 3: The Return of the Exes,” which became a surprise hit thanks to its appeal to China’s important female demographic.

Still, “The Last Jedi” can hardly be considered a total flop—despite its disappointing performance in China, it is currently on track to gross over $1.3 billion worldwide.

China luxury sales rebound, thanks to millennials

After several years of modest growth, sales of luxury goods have risen at the fastest rate since 2011, up 20 percent from the previous year to hit $22 billion. The strength of luxury sales, and retail sales overall, is one of the factors that boosted China’s economic growth to 6.9 percent in 2017—a break in China’s economic trend, which had been on a slowdown since 2011.

There was particularly strong growth in women’s clothing, jewelry, cosmetics, and handbags, driven by China’s tech-savvy millennial consumers, who have pushed sales in trendy ready-to-wear and sportswear. According to Xinhua, online luxury shopping “grew significantly” in 2017, as more and more luxury brands offer online shopping and increase spending on digital marketing. These brands are also utilizing WeChat, China’s biggest social media platform, to connect and engage with Chinese consumers, which may have contributed to the boost in luxury sales.

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