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US-Asia Business

US-China Market Watch: Trade War, ZTE, Alibaba and SenseTime

May 3, 2018
Artificial intelligence and the city of Shanghai
(Photo credit): Wenjie

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

The ongoing prospect of a U.S.-China trade war

Trump has threatened an additional $100 billion in tariffs on Chinese products, from robotics, to aerospace technology, for a possible total of $150 billion in tariffs. In retaliation, China threatened an additional $50 billion in tariffs on U.S. goods, ranging from soybeans, to automobiles. China also has imposed preliminary anti-dumping tariffs of over 178 percent on sorghum, a grain used in biofuels and alcohol. CNBC reports that, although sorghum only comprises a small percentage of the U.S. exports caught in the crosshairs, the tariffs have already caused a lot of trouble: After China made the announcement, ships on their way to China had to change course midway through or pay a hefty deposit upon delivery.

However, Trump has said that there is a “very good chance” of negotiating a U.S.-China trade deal. Secretary of State Steve Mnuchin will travel to China soon to negotiate on trade, and President Xi Jinping announced at the Boao Forum for Asia that he plans to further open up China’s economy. In fact, China’s Ministry of Finance announced that starting on May 1, it will eliminate import tariffs on 28 important drugs, including all cancer drugs. Nonetheless, many do not believe that the U.S. and Chinese delegations will immediately reach a deal at the upcoming trade meeting in China.

ZTE banned in the U.S.

Chinese telecom chipmaker ZTE Corp pleaded guilty to illegally shipping U.S. goods to Iran and was charged in connection with shipments to North Korea, both in violation of U.S. sanctions. ZTE is to pay nearly $900 million for its violations and has agreed to a seven-year sales suspension, which could disrupt billions of dollars in revenue flow for major U.S. companies—currently, ZTE gets 25-30 percent of its components (about $2.6 billion worth) from U.S. suppliers, including Qualcomm, Microsoft and Intel.

After the announcement of the ban, Chinese funds slashed ZTE’s valuation, and American companies that have ties to ZTE have seen their stocks tumble on the markets; Acacia Communications, a Massachusetts-based producer of fiber-optic components, said its stock slid 31 percent. However, ZTE posted a record profit in the first quarter; net profit rose 39 percent, although ZTE says that the results don’t fully account for the impact of the ban. ZTE says it is complying with the ban, but is also taking steps to find a solution, saying that the company is forming a compliance committee led by the CEO and developing training for employees.

Tang Media Partners strikes deal with Tencent Pictures

Donald Tang’s Tang Media Partners (TMP) has made a deal with Tencent Pictures and China Everbright International, a Hong Kong-based bank, to acquire 10-20 Hollywood titles per year. However, only one or two of those films will be released theatrically in China. TMP has also agreed to work with Tencent Penguin Pictures, the animation production arm of Tencent Films, to co-invest and co-develop a TV series based off of an online novel called “Dian Dao Wei Zhi,” and formed a partnership with Reliance Entertainment, a Mumbai-based media company, to bring Indian films into China. Over the past few years, Bollywood movies have seen massive success in the Chinese markets, most recently with “Secret Superstar,” which topped $100 million at the Chinese box office.

Variety reports that the deal is part of TMP’s growth strategy; Tang has said that he hopes to have a share flotation of the company in 18-24 months and that the group is currently putting together pre-IPO financing. The company says that this is a part of their “dual-core strategy” of access to the Chinese market, while integrating Hollywood-level film quality and production. According to Tang, TMP plans on making Chinese content specifically for Chinese audiences, as well as content that they believe can travel globally.

Cinedigm to launch Chinese content platform in the U.S.

Cinedigm, a U.S.-based digital content distributor, plans to launch a new over-the-top channel (i.e. the delivery of film and television over the internet, rather than through traditional cable or satellite TV subscriptions) to exclusively stream Chinese film and television in the United States.

According to Cinedigm’s CEO, Chris McGurk, there is a dearth of Chinese content available for American audiences, and he wants to turn this still-unnamed platform into the equivalent of a DramaFever or Crunchyroll, streaming platforms targeted specifically for Korean and Japanese content, respectively.

McGurk plans on sourcing content that has international appeal, even though the language will be in Chinese, citing both Crunchyroll and DramaFever as successful examples of platforms that feature local-language content that appeals to a much broader audience. According to McGurk, several genres, such as fantasy drama and animation, would appeal to this target demographic.

Alibaba acquires AI startup SenseTime

Alibaba invested $600 million in Chinese artificial intelligence startup SenseTime, subsequently making it the most valuable AI startup in the world. Currently, some of SenseTime’s biggest clients and partners include Qualcomm, NVIDIA Corp and Xiaomi Corp.

SenseTime specializes in facial and image recognition technology that can analyze data on enormous scales; according to Bloomberg, it contributes to the “world’s biggest system of surveillance” in China. The company also plans to use their artificial intelligence tech to expand into other areas and has partnered with Honda to develop autonomous cars.

SenseTime plans on using Alibaba’s funding to develop a code dubbed “Viper,” which will be used to analyze data from live camera feeds that could be used for mass surveillance. In order to do so, SenseTime needs Alibaba’s backing to develop massive infrastructure, such as building at least five supercomputers in top-tier cities that are needed to power Viper. SenseTime is already talking about raising another round of financing that would push the company’s valuation to $4.5 billion.

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