US-Asia Business

US-China Market Watch: Coronavirus, Phase 1 Deal, PayPal & UnionPay

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

Coronavirus could impact Chinese and global economy

Reports of the fast-spreading coronavirus in China has led to concerns about the impact of the virus on China and the global economy. The virus, which has killed at least 362 people and infected over 17,300 worldwide, could potentially lower China’s gross domestic product growth by 0.5 to 1 percent, due to the disruption to business and services. Any increased spending on health care services could also lower spending in other areas, such as infrastructure.

The outbreak occurred right before the Lunar New Year, which is China’s busiest travel season; the Chinese government even extended the Lunar New Year holiday so that people wouldn’t have to return to work and to help prevent the disease from spreading. Wuhan, the city in China with the highest number of coronavirus cases, stopped all transit in and out of the city, including by trains, planes and ferries.

Some industries are already feeling the pinch: China’s box office, which is usually the busiest during the New Year festivities, was “almost completely eliminated” after the government took measures to limit travel and exposure. On January 25, New Year’s Day, the top 10 movies took in an aggregate of just $1.12 million, compared to the $200 million taken in by the top eight movies last year on New Year’s Day.

According to CNN, several major American companies are also preparing for potential business disruptions. If the Chinese government decides to further extend the holiday, most operations will continue to remain closed, which could affect manufacturing and cause supply shortages. Production of Apple’s iPhone could be affected, since the virus spread to Hubei Province, where some of Apple’s manufacturing facilities are located. In particular, U.S. automaker GM could be hit hard, since it operates a manufacturing plant in Wuhan with its Chinese partner SAIC that has about 6,000 employees, which makes up 10 percent of GM-SAIC’s China workforce.

The U.S. and China sign Phase 1 deal

United States President Donald Trump and Chinese Vice Premier Liu He signed “phase one” of the trade deal on January 15. As part of the deal, the U.S. will cut some tariffs on Chinese goods—it will cut in half the tariffs imposed on $120 billion worth of Chinese goods on September 1 to 7.5 percent. In return, Beijing agreed to increase purchases of U.S. products and services by at least $200 billion over the next two years, although there are doubts about whether China will be able to ramp up certain agricultural purchases that quickly.

Broken down, the estimated purchases include a commitment from Beijing to buy over $77 billion in additional manufacturing purchases, over $52 billion in additional energy purchases, at least $32 billion in additional agricultural product purchases, and over $37 billion in services from U.S. firms, all over two years. China must also ensure stronger intellectual property protections and eliminate the pressuring of foreign firms to hand over their technology in exchange for market access, licenses or government approvals. China will also open up its financial services markets to foreign firms.

The deal also includes provisions where China pledges to refrain from currency manipulation, in particular devaluing the yuan to receive a trade advantage. Both sides have also created an enforcement protocol, where both sides will consult with the other should any disputes arise.

For “phase two” of the trade deal, U.S. Treasury Secretary Steven Mnuchin said that it could include rollbacks of some, but not all, tariffs.

PayPal announces partnership with UnionPay

Digital payments network PayPal announced a partnership with UnionPay International, a Chinese state-backed company that is the world’s largest credit card company by payment volume. The partnership will allow both payments companies to expand their networks globally. In a press release, PayPal said it will support UnionPay wherever PayPal is accepted, and UnionPay agreed to explore the possibility of supporting PayPal services in China and globally (UnionPay has issued over 130 million cards outside of China and is accepted by over 28 million merchants outside of the mainland).

PayPal has already allowed users in several countries, including Australia, Singapore and South Korea, the ability to add UnionPay to their PayPal wallets. The company plans on opening that capability to 30 markets in 2020. UnionPay users will then be able to shop at PayPal’s 24 million merchants around the world. Business Insider also reports that the two companies will collaborate on new cross-border payment products as part of the deal.

Tencent, TikTok look at U.S. expansion

According to TechCrunch, Tencent’s 11-year-old gaming studio, TiMi Studios, is looking to triple its headcount in the United States in 2020. TiMi, which produced one of the world’s most popular mobile games, “Honor of Kings,” currently has a team working in Los Angeles, but is hoping to “grow it into a full development studio” to help them better dive into Western and global markets. The studio has also recently launched the mobile version of Activision Blizzard’s immensely popular game “Call of Duty,” which received more downloads in one quarter than any other mobile game except “Pokémon Go.”

Short video app TikTok has also expanded its presence in Los Angeles, moving into a new office with more than 400 employees, as well as reportedly searching for a U.S.-based CEO. The company, which is owned by China’s ByteDance, also hopes to open a content creation studio this summer to better facilitate collaboration between TikTok creators and partners.

Tesla to open design and research center in China

Electric automaker Tesla has started recruiting for its planned design and research center in China, which will be opened at an undisclosed location. The company wants to make “Chinese-style” vehicles, and to shift from “Made in China” to “Designed in China,” per CEO Elon Musk.

Tesla recently opened its first Chinese gigafactory in Shanghai—its first outside of the U.S.—at the end of 2019 and started delivering its Shanghai-made Model 3 cars this month. Additionally, the company announced that the Shanghai Gigafactory will also build its upcoming Model Y electric sports utility vehicle.

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