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US-China Market Watch: Trade Talks, Foreign Investment Law, Huawei

By Angela Bao

Feb. 4, 2018
China's President Xi Jinping and US President Donald Trump during a meeting outside the Great Hall of the People in Beijing
(Photo credit): Qilai Shen/Bloomberg/Getty Images

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

U.S. and China meet to negotiate trade

China promised to buy “substantially” more goods from the United States after trade talks led by China’s Vice Premier Liu He and United States Trade Representative Robert Lighthizer in Washington D.C. These talks were a follow-up to trade talks held in Beijing in early January, and President Trump said Lighthizer and United States Treasury Secretary Steven Mnuchin will visit China in mid-February to continue the negotiations. Trump also expressed optimism that the trade war would be resolved before the March 1 deadline, although Trump stipulated he would have to meet with President Xi Jinping first. One possibility is that Trump could meet with President Xi Jinping at the end of February after Trump’s planned summit with North Korean leader Kim Jong Un.

Prior to this last trade meeting, outlook on the trade negotiations was mixed. At the World Economic Forum summit in Davos, Switzerland, U.S. Secretary of State Mike Pompeo expressed optimism that the second round of trade talks would have a positive outcome. Prior to the summit, President Trump had also said he was confident they could reach a deal. However, Lighthizer reportedly said that there had been no significant changes on key issues, such as intellectual property theft and forced technology transfers.

China recently approved five genetically modified agricultural crops for import, which was seen as a “goodwill gesture” to the U.S. during the trade negotiations. The approved crops include a type of corn, two types of soybeans, and two types of canola that have been waiting approval for six years. The United States is the world’s largest exporter of GMOs, and China is the world’s largest importer of genetically modified soybeans and canola.

China also began the legal process to challenge the United States’ tariffs on $234 billion worth of goods at the World Trade Organization. The Chinese representative called the tariffs a “blatant breach” of WTO agreements and a “systemic challenge to the multilateral trading system.” The U.S. has halted the appointment of judges to the WTO’s Appellate Body (two of the three current judges are expected to step down in December), which China has decried as “illegitimate.”

China pushing forward foreign investment reform

China is rushing a draft of a foreign investment law, originally drafted in 2015, that would offer more protection to overseas firms operating in China. Titled the Foreign Investment Law of the People’s Republic of China, the draft version reportedly covers many sought-after reforms in areas such as intellectual property, forced technology transfers and protecting foreign capital.

The draft law is seen as China’s attempt to diffuse tensions caused by the U.S.-China trade war and to encourage foreign companies to continue doing business in China. The response has been mixed, with some believing that it is a step in the right direction, and others wondering if the law will ever be enforced. The law is currently in the discussion period, when stakeholders such as local business chambers are invited to comment on it.

United States files criminal charges against Huawei and its CFO

The U.S. Justice Department has filed criminal charges against Chinese telecommunications company Huawei and its chief financial officer, Meng Wanzhou. In two separate cases, the United States accuses Huawei of violating sanctions against Iran, committing bank and wire fraud, and for attempting to steal trade secrets from T-Mobile. One indictment included formal charges against Meng, who the United States is seeking to extradite from Canada, where she is currently being detained on house arrest.

The first 13-count indictment alleges that Meng lied to a global bank and U.S. authorities about the nature of Huawei’s relationship with the company Skycom Tech and its operations in Iran. In the second case, Huawei is accused of obstruction of justice and trying to steal robotic technology from T-Mobile called “Tappy,” which was a robot used to test smartphone durability.

China approves more video games

China’s State Administration of Press and Publications published a list of 95 new and approved games, including titles from Tencent and NetEase, China’s two biggest game developers. Although China began approving game licenses more than a month ago after a nine-month freeze, Tencent and NetEase were absent from the first three rounds.

The gaming freeze caused Tencent’s quarterly profits to fall for the first time in almost 13 years, and the company lost more than $160 billion in market value from its peak in January 2018. The resumption of game approvals is likely to ease market concerns over the two companies.

WeChat looking to expand and update

WeChat, the ubiquitous app that is used by over 1 billion people daily, is adding a new feature to its roster: video streaming. Allen Zhang, founder of WeChat and senior executive vice president of parent company Tencent, sees the video streaming app as a more authentic way for people to share their lives. The new feature is also seen as a response to apps developed by rival ByteDance, a Chinese tech company and world’s most valuable startup that owns popular apps like TikTok (formerly known as Musical.ly).

Tencent is also looking to partner with third-party smart solutions and service providers as it expands its WeChat Pay function overseas. By the end of 2018, WeChat Pay was accepted by 49 countries and could settle payments in 16 currencies. The idea is to make the app work as smoothly as possible in foreign markets, which local firms will likely have more ease navigating. Additionally, foreign merchants can also use WeChat’s many other apps, such as mini programs, to their own benefit.

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Reach Further by East West Bank is our business news magazine connecting you to emerging opportunities in the United States and Greater China, helping you gain the edge to succeed.

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