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US-China Market Watch: Coronavirus, Tariff Exemptions, PepsiCo

March 02, 2020
(Photo credit): Kevin Frayer/Stringer/Getty Images

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

Coronavirus hits U.S. businesses

Businesses and economies around the world are starting to feel the pinch after China shut down significant portions of its business activity, due to the novel coronavirus (officially known as COVID-19) outbreak that started in December 2019. In February, the U.S. composite output index, which measures services and manufacturing activity, fell from 53.3 in January to 49.6 (below 50 indicates a contraction). The drop, which is the lowest level since October 2013, was driven largely by a decline in the services sector, such as in the tourism industry. The Chinese government’s mandatory lockdown has also disrupted businesses’ supply chains, with millions of rural migrant workers barred from returning to work at factories.

Large and small businesses alike are feeling the effects of the coronavirus restrictions. With manufacturing in China stalled, many small businesses are worried about their limited product inventory and when they’ll be able to import more goods from China. The Wall Street Journal reports that nearly half of U.S. companies operating in China said they expected their 2020 revenue to decline if business doesn’t return to normal by April; some even said their revenue could decrease by as much as half if the coronavirus continues through summer. Despite these concerns, economists predict that COVID-19’s overall impact on global economic growth will be minimal, with Moody’s changing their forecast for 2020 from 2.6 percent to 2.4 percent.

China exempts 700 U.S. goods from tariffs

Partly because of the COVID-19 outbreak that has stalled domestic manufacturing and production, China announced that it will allow importers to apply for tariff exemptions on nearly 700 U.S. products, ranging from agriculture products like soybeans and pork, to medical equipment like thermometers. Starting March 2, importers can apply for these exemptions, which are valid for only one year.

In January, the U.S. and China signed a phase one trade agreement. China halved tariffs on $75 billion worth of U.S. goods to 5 percent and 2.5 percent, and the U.S. likewise agreed to cut tariffs on $120 billion worth of Chinese goods in half to 7.5 percent.

Coronavirus disrupts Hollywood productions

After a disappointing Lunar New Year box office that took in a paltry $3.9 million, compared to more than $1.5 billion during the same period last year, the fate of Hollywood productions in China is in limbo. Several Hollywood films have had to cancel or postpone their Chinese releases due to the uncertainty surrounding the COVID-19 outbreak, including the upcoming James Bond film “No Time to Die,”“Dolittle” and “Sonic the Hedgehog,” as well as Oscar fare like “Little Women” and “Jojo Rabbit.” Disney’s live-action remake of its 1998 animated film “Mulan” was expected to be a big hit in China, but its fate is now also up in the air.

The novel coronavirus has also suspended production of domestic movies. Chinese theaters, production companies and distributors are all feeling the pinch of the shutdown. Filming has been suspended in China, which means there could be a dearth of local films. China was originally on track to overtake the U.S. this year as the world’s number one box office, but the coronavirus has made that unlikely.

PepsiCo buys Chinese online snack brand

As part of its goal to become “China’s leading consumer-centric food and beverage company,” PepsiCo recently announced that it was buying Be & Cheery, a Chinese snack company that sells snacks mainly online, in a deal valued at $705 million. Be & Cheery, which is currently owned by Haoxiangni Health Food and one of the largest online snack companies in China, sells products like dried fruits, nuts and other snacks.

According to CNN, China’s snack market has grown more than 400 percent between 2006 and 2016 and is expected to be worth nearly $427 billion this year. In 2019, Pepsi said it had “double-digit” growth in China, although the company reported a 2020 earnings forecast that fell short of expectations.

Mastercard receives approval to enter China’s payments market

Mastercard has finally received approval from the People’s Bank of China to enter China’s payments market. They received approval to begin the process of setting up a bank card clearing institution in China with their joint venture partner NetsUnion Clearing Corp., an online payments clearing house.

Previously, foreign firms trying to enter China experienced long delays in the approval process. However, China agreed to accept and review financial firms’ applications in a timelier manner as part of the U.S.-China phase one deal. Mastercard will not only have to contend with competitors like American Express, which has also started operations in China, but China’s own domestic payments companies, like UnionPay, Alipay and WeChat Pay.

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