US-China Market Watch: Trade War, China EVs, Tencent Video Games

By Angela Bao

Sep. 3, 2018
Boy playing videogames on computer at home
(Photo credit): Gettyimages.com/Eduardo Toro/EyeEm

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

U.S. and China trade talks stagnate

The United States plans to impose another round of tariffs on $200 billion of Chinese goods, set to go into effect on September 24. The tariffs will start around 10 percent but could go up to the initially suggested 25 percent if Trump doesn’t think that China is capitulating enough to American demands. In retaliation, China has said it will implement tariffs on $60 billion of U.S. goods; in response to Beijing, Trump said that he was willing to impose tariffs on another $257 billion of Chinese exports—virtually covering all $505 billion of Chinese imports—if China’s tariffs negatively impacted American farmers and industrial workers.

A government source believes that the trade escalations could lead to Beijing cancelling the planned high-level trade talks between Chinese Vice Premier Liu He and U.S. Treasury Secretary Steve Mnuchin. In August, there were mid-level trade talks between the U.S. and China that didn’t result in much. The intention was to discuss a “roadmap” for how to proceed, which would then determine the course of Xi and Trump’s planned meeting in November.

Trump also signed a defense bill that would impose stricter regulations on foreign investments in the United States. The bill gives the Committee of Foreign Investment in the U.S. (CFIUS) the authority to review a “broader range of mergers and acquisitions by foreign buyers,” such as venture capital and private equity deals. Although the bill doesn’t single out China in particular, national security worries over Chinese acquisitions of American technology were a primary concern.

In the face of trade pressures, China has also ramped up government spending on infrastructure to help stimulate economic growth after a year-long debt crackdown, which drastically slowed down investments. However, the Chinese state planner claims that investment growth may weaken even further if government authorities don’t step up fiscal and financial measures. China also issued its first income tax cut in seven years as part of its attempts to increase consumer spending power. However, some say that the tax cut is too minimal to make a big impact.

Chinese electric vehicle startups are ramping up competition

NIO, a Chinese electric vehicle (EV) startup backed by Chinese tech giants Tencent and Baidu, among others, has filed for a $1.3 billion initial public offering on the New York Stock Exchange, which would value the company at up to $8.5 billion. The company currently has one car in production in China—the ES8 SUV that retails for half as much as a Tesla Model X in China—and another more affordable SUV model called the ES6 will start selling later this year or in 2019. Currently, NIO doesn’t have any vehicles available for sale in the United States. CNET believes that the company plans to use the funding primarily to expand its domestic presence, but that the company likely also has global expansion plans, as they already have offices in California. An article by The Verge positions NIO as Tesla’s most direct competition in China.

Xiaopeng Motors (also known as Xpeng) raised $580 million from Alibaba, valuing the company at $3.6 billion, even though they have yet to deliver a mass-produced vehicle. However, the company plans to deliver at least 1,000 of its G3 SUVs by the end of this year. Both Xpeng and NIO have contracts with other auto manufacturers to produce their EVs, which is a main reason why they have been able to produce vehicles when others haven’t, although both companies are also building their own factories.

Byton, a Chinese EV company founded just last September and that recently raised $500 million in Series B funding, doesn’t currently have any cars in production but plans to start selling in China in 2019 and, hopefully, the States in 2020. Byton differentiates themselves by building “premium intelligent electric vehicles” that will feature a host of high-tech attributes, like biometric recognition and a dashboard that can sync with Byton’s cloud-sharing platform. Byton was also the first Chinese brand to show its concept car at the Pebble Beach Concours d’Elegance, a prestigious automobile show held in Northern California.

Tencent struggles with Chinese regulations

Tencent was dealt another blow after Chinese regulators announced that they would be limiting video game releases and setting time restrictions for children playing them. The government cites content concerns and worries over the amount of time Chinese children spend playing video games as reasons behind the new restrictions. After that announcement, Tencent’s shares fell 5 percent. Since January of this year, Tencent’s stock has plunged nearly 30 percent and wiped out more than $160 billion in market value.

Prior to the announcement, Chinese regulators had blocked all sales of what was to be Tencent’s latest PC video game, “Monster Hunter: World” just days after it was released. Although neither side gave specifics, the game was pulled due to concerns over the game’s content. The game, sold through Tencent’s online platform WeGame, received more than 1 million preorders and was expected to be a big hit for the company. The Wall Street Journal reports that Tencent had already been struggling with stagnant PC game sales and that this serves as a major setback to the company’s expansion plans for WeGame.

Walmart and JD.com invest $500 million in logistics company

Dada-JD Daojia, a Chinese logistics service, received $500 million in funding from its existing backers, JD.com and Walmart Inc., to expedite its development of its delivery network. Dada-JD said it plans to use the funds to invest in supply-chain technology and to serve merchants on its platform. Walmart’s China-based supermarkets are one of Dada-JD’s main merchants.

The company was formed as a merger between JD Daojia, an online platform for ordering from supermarkets, and Dada, a crowdsourced delivery service. The company serves as direct competition to Alibaba’s own supermarket-food delivery strategy.

Alibaba revamping its food sector

Alibaba announced plans to “freshen” up the food sector with its high-tech grocery chain, Hema Fresh. Alibaba wants to work with Hema Fresh merchants on product development to provide its consumers with even fresher foods and use their customer data to help these producers predict what goods to supply. The company wants to make half of its overall sales to come from these “tailor-made goods,” and the program would be a part of Hema’s “Daily Fresh” program. The revamp would effectively eliminate the middle man because Hema Fresh would sign procurement contracts directly with suppliers, therefore lowering the prices for consumers.

Alibaba also signed a deal with American supermarket chain Kroger Co. to sell its products on Alibaba’s Tmall Global site. Initial products would include dietary supplements and private-label products, many of which will be natural and organic. The Wall Street Journal likens the partnership to that of Walmart and JD.com’s, and says that it could give Alibaba a boost in the increasingly competitive online grocery market.

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