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US-China Market Watch: Trade War, China Tech Restrictions, Hollywood Ban

June 3, 2019
President Donald Trump and Vice Premier Liu He negotiating trade
(Photo credit): Chip Somodevilla/Getty Images

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

U.S.-China trade on the rocks

Although President Donald Trump says that a U.S.-China trade deal is happening “fast,” there have been no high-level trade meetings scheduled since the ones in early May, which resulted in both sides levying additional tariffs. The U.S. raised tariffs up to 25 percent on $200 billion of Chinese goods, and China’s retaliatory tariffs on $60 billion of U.S. goods went into effect on June 1. China also said it was creating a blacklist of foreign companies that “harm Chinese businesses,” in apparent retaliation against the United States’ ban on Huawei Technologies. CNBC says that China has also reportedly stopped buying U.S. soybeans, in another blow to American soybean farmers (soybean exports to China fell 74 percent in 2018, from $12.2 billion the year before to $3.7 billion). Trump did mention that he planned to meet with President Xi Jinping at the G20 summit in late June. However, despite Trump’s optimistic comments, the outlook on U.S.-China trade is dim.

In addition to China’s retaliatory actions against U.S. tariffs and technology bans, news outlets report that China is unwilling to capitulate to U.S. trade demands. The Wall Street Journal reports that China’s Commerce Ministry spokesperson Gao Feng said that “China definitely won’t accept any deal that harms sovereignty and dignity.” CNBC also wrote that the Chinese government has indicated that U.S. demands regarding the structure of its economy are non-negotiable. During the trade negotiations, one of the United States’ main concerns was the unfair advantage state-owned enterprises (SOE) had over foreign companies, since SOEs receive more favorable policies and government subsidies. However, a Chinese-language commentary piece published on state news agency Xinhua described the United States’ request for China to limit its state-owned enterprises as “arrogant” and damaging to China’s own economic interests. Previously, Chinese foreign ministry spokesperson Lu Kang had also indicated that the stalled trade talks were due to the United States’ actions during the negotiations and cited a need for “sincerity” in order for the talks to continue.

U.S. contemplating more Chinese tech restrictions

The Trump administration announced it was considering blacklisting five more Chinese technology companies. The list comprises of companies that produce surveillance-related technology, such as video surveillance companies Dahua Technology and Hangzhou Hikvision Digital Technology, digital forensics company Meiya Pico, voice recognition company iFlytek and facial recognition startup Megvii, which rivals SenseTime as the world’s most valuable artificial intelligence startup. The United States cited concerns over the Chinese government’s use of facial recognition software in the oppression of ethnic Uighurs, as well as their use of video surveillance technology for potential espionage.

Trump has already signed an executive order that effectively banned Huawei Technologies from the U.S. and limits foreign companies’ involvement in national carrier networks. Bloomberg posits that should Washington decide to add these additional companies to the blacklist, it could have global repercussions.

Unofficial Hollywood ban in China

The trade war is also spilling into the entertainment industry. Although “Avengers: Endgame” broke numerous Chinese box office records, South China Morning Post reports that there is an “unofficial ban” on hiring Americans in China’s domestic entertainment industry and that a number of U.S.-related productions have been suddenly pulled from air.

Chinese viewers were unable to watch the series finale of “Game of Thrones” due to what Tencent Video, the exclusive Chinese distributor of the show, called “media transmission issues”—however, days later, the episode still has not aired. An American actor was informed that he was suddenly dropped from three TV roles, and a heavily promoted Chinese show, “Over the Sea I Come to You,” that features a father traveling to the U.S. to take his son to school, was also pulled from air.

The repercussions could be far reaching, should the trade war drag on. China is on track to overtake the United States as the world’s number one box office. Hollywood increasingly relies on Chinese audiences to boost box office numbers, but Chinese studios are also reliant on Hollywood studios and distributors to promote their films and TV shows to a broader audience outside of mainland China.

China starts mass-producing driverless delivery vans

Chinese startup Neolix has started mass production of its self-driving delivery vans and is expected to deliver 1,000 vehicles within its first year. Neolix has already secured two major customers, e-commerce giant and telecommunications company Huawei Technologies. Yu Enyuan, the company’s founder, says that they plan to set up overseas factories once sales increase and are already talking to potential customers in countries such as Switzerland.

The impact could be huge—Alibaba founder Jack Ma stated that China could reach 1 billion deliveries per day within 10 years and that commercialization of such driverless delivery vehicles could help the adoption of autonomous passenger vehicles. However, there are still obstacles that driverless delivery vans need to overcome, such as how to get packages from the car to people’s doorsteps.

Chinese tourism to U.S. down for the first time in 15 years

For the first time since 2003, the number of Chinese tourists visiting the United States has declined. Travel from China to the U.S. fell 5.7 percent to 2.9 million visitors in 2018.

There could be multiple reasons for the decrease in Chinese travelers, including the tensions caused by the U.S.-China trade war. Both the United States and China have issued travel warnings about traveling to the other country; one traveler was quoted by South China Morning Post saying she did not want to contribute any more to the U.S. economy while the two countries were locked in a trade war.

China’s own slowing economy could also be deterring Chinese travelers from traveling overseas; instead, travelers in the “lower end” of the market are choosing to visit places nearer to China, such as Macau, Taiwan and Hong Kong (56 percent of all outbound Chinese travelers visited those locations in 2018, compared to 50 percent in 2017). Conversely, the travelers that do go further tend to opt for more far-flung and exotic destinations like Morocco and Croatia.

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