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US-Asia Business

US-China Market Watch: China Growth, Alibaba R&D, Tesla

November 06, 2017
Car plant workers on production line
(Photo credit): Rakusen

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

China reports 6.8 percent GDP growth in 3Q

China reported that its third-quarter economic growth met expectations, but economists polled by Reuters expect that number to drop slightly to 6.7 percent in the fourth quarter and slow even further to 6.4 percent in 2018.

China’s economy was largely expected to slow down in 2017. However, thanks to increasing global demand for Chinese products, state infrastructure spending, and rising factory prices that boosted corporate earnings, China has staved off a further slide.

China’s President Xi Jinping, who was recently confirmed for a second five-year term, has said that part of the country’s planned economic and financial reforms include opening up more to foreign firms to foster “high-quality” growth. However, Reuters reports that there are still concerns over China’s heavy debt load. Analysts and foreign investors also believe that fostering foreign business relations will take a backseat to strengthening the state, especially after reports that the government was pushing for stakes in some of China’s biggest tech companies.

Tesla to build first overseas factory in Shanghai

Tesla Inc. has announced that it has struck a deal to build a wholly owned car manufacturing facility in the Shanghai free-trade zone, the first of its kind for a foreign automobile maker. Previously, foreign carmakers had to have a local partner in order to build cars in China, which saved cost on import tariffs but forced them to split profits and potentially share technology.

According to the Wall Street Journal, this deal could allow Tesla to capitalize on China’s push towards a wholly electric vehicle market; currently, foreign imports incur a 25 percent tariff, and a Tesla costs about 50 percent more in China than in the United States. Having a China-based factory could help lower the cost of a Tesla vehicle and make it more accessible to a wider consumer base, although reports say that cars built in the free-trade zone will most likely be subjected to the tariff.

However, some skeptics say that there may not be enough demand in China for the “mass-market” Model 3, since the 25 percent tariff will almost certainly still be in place and the competition from Chinese companies producing affordable EVs continues to grow.

China ramps up electric vehicle plans

Tesla’s Shanghai factory deal is part of a larger movement by China to phase out fossil fuel vehicles. Chairman of carmaker BAIC Group, Xu Heyi, says that Chinese production of electric vehicles is likely to exceed government targets and reach one million units by 2018 and three million by 2020.

Volvo and its Chinese parent company, Zhejiang Geely Holding, has unveiled its first high-performance EV under the Polestar brand in China. The car, dubbed the Polestar 1, will compete with other high-end EVs produced by Tesla and Mercedes-Benz, which has created a joint venture with BAIC called Beijing Benz Automotive Co. Ltd.

Alibaba’s $15 billion initiative to build overseas R&D

Alibaba announced that it will spend $15 billion to launch overseas research and development, part of which comprises the Alibaba DAMO (“Discovery, Adventure, Momentum, Outlook”) Academy, a program that will set up seven R&D labs around the world. The labs will be in China, the United States, Russia, Singapore and Israel.

The labs will research on “disruptive technologies” such as artificial intelligence (AI), machine learning, financial technology and quantum computing, as well as others. Alibaba’s aim with these research hubs is to promote its own businesses and foray into realms beyond e-commerce.

Alibaba is not the only Chinese tech giant that’s expanded its R&D overseas. Baidu opened its AI lab in Silicon Valley in 2013. In May, Tencent and Chinese ride-hailing company Didi Chuxing announced plans to launch AI labs in Seattle, Wash., and Mountain View, Calif., respectively.

China pushing forward green reforms

China is pushing forward reforms to boost green finance. Part of the plans include the Ministry of Finance setting up a green development fund and the central bank setting up regional pilot programs for green finance reform. China is also encouraging local authorities to speed up the development of environmental equipment manufacturing industries and encourage high-polluting manufacturers to use more environmentally friendly equipment, in efforts to bring down pollution levels.

Likely as a marker of China’s energy reforms, China Investment Corporation (CIC), a state-owned investment fund that manages the country’s foreign exchange reserves, is one of several firms to purchase Equis Energy, Asia’s largest independent renewable energy firm, for $3.7 billion. The purchase was led by U.S.-based Global Infrastructure Partners (GIP), which is purported to have bought a 50 percent stake in Equis Energy, with CIC rumored to be taking between 10-20 percent.

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