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US-China Market Watch: New Tariffs, Fan Bingbing, Jack Ma Retires

October 01, 2018
Conflict between US and China
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Your monthly roundup of the latest US-China business and industry news.

U.S.-China trade war escalates

Another round of tariffs went into effect on $200 billion of Chinese goods on September 24. The tariffs include a 10 percent tax on Chinese goods and will go up to 25 percent by January 1, 2019. The administration removed about 300 products from the original list, such as smartwatches, Bluetooth devices, and car seats, after receiving thousands of comments from importers. However, despite the adjustments, Trump’s announcement was still met with widespread protest from the business community and directly impacts consumer products.

In retaliation, China imposed their own reciprocal tariffs on $60 billion of U.S. goods; Beijing’s response prompted Trump to threaten taxes on an additional $257 billion of Chinese imports, which would essentially cover all Chinese goods imported into the U.S. China could potentially target the U.S. in ways beyond just tariffs, such as putting embargoes on important components to the U.S. and levying “asymmetrical tariffs” that would put different tariff rates on different products. Chinese Vice Premier Liu He and U.S. Treasury Secretary Steve Mnuchin were scheduled to restart trade talks, but sources say that China scrapped all planned meetings between the two, in light of Trump’s latest tariffs.

China is beginning to implement policies to buffer its economy from the effects of the trade war. The government is supporting sectors such as tourism and sports to boost its domestic economy. The Export-Import Bank of China is also teaming up with government agencies to support exporters who have been affected by the U.S.-China tariffs. China has also announced it is cutting tariffs on imported goods to encourage consumer spending and business investment, although it is unclear whether those tariff cuts will apply to American goods. However, some small to mid-sized Chinese firms—faced with diminishing orders, due to the tariffs—have already moved their operations abroad to mitigate rising costs. For the United States, gross domestic product grew at a robust 4.1 percent in the second quarter, but economists expect that the trade war will slow growth. The Federal Reserve expects overall GDP will rise 2.8 percent for 2018 and slow to 2.4 percent in 2019.

Fan Bingbing, Hollywood, and China

The disappearance of China’s most famous actress, Fan Bingbing (best known in the United States for her work in the X-Men franchise), has rattled Hollywood and throws Hollywood’s relationship with China into the air. Fan’s disappearance is tied to a tax evasion scandal that came to light in June, where Chinese film studios were purportedly using “yin-yang” contracting (the practice of using two contracts, one with a lower salary amount to submit for tax purposes, and a second secret contract that lists the real amount paid) to avoid paying higher taxes.

Her disappearance also puts other Hollywood projects she was signed to, such as Jessica Chastain’s upcoming “355,” in limbo and has even affected the distribution of Hollywood movies in China. “Crazy Rich Asians,” one of Hollywood’s biggest blockbusters this summer, won’t play in China, possibly because the film’s content promotes what the Chinese government calls “money worship.”

China is also clamping down on Hollywood’s access to China’s domestic television industry as part of their “cultural cleanup.” Regulators drafted a new set of rules that will ban the broadcast of foreign TV shows during primetime hours and will limit the volume of imported streaming content. The use of foreign talent on television sets will also be limited—no more than one-fifth of the crew can be non-Chinese citizens, a show’s writer and director must be Chinese, and the leading actor and actress cannot both be non-Chinese.

Alibaba: Jack Ma retirement, chip investment

Jack Ma, billionaire founder and executive chairman of Alibaba Group Holding Ltd, is planning to retire within a year. Current Alibaba CEO, Daniel Zhang, will take over Ma’s role. After he retires, Ma plans to focus his attention on philanthropic ventures, with a focus on education (Ma is a former English teacher), but will remain on the board of directors until the company’s general meeting in 2020.

Alibaba continues to speed forward, despite the announced retirement of its leader; this time, the company is setting up a chip subsidiary that aims to launch the “first self-developed AI inference chip” in the second half of 2019. The chip could be used in autonomous cars, smart cities and logistics, and is part of the company’s push into cloud computing and the Internet of Things. Reuters reports that Ma said that China needed to develop its own “core technology” such as chips to avoid over-reliance on U.S. tech and follow the government’s plans to support domestic high-tech industries.

Google’s China plans run into complications

Ever since the search engine withdrew from China in 2010, the company has been looking for a way to regain entry and purportedly planned to make concessions to China’s censorship laws in order to do so. In an internal memo circulated by employees, Google was planning to launch a censored search app that would remove information the Chinese government deemed sensitive and would link users’ searches to their personal phone numbers.

The revelation prompted serious concerns from U.S. lawmakers about Google’s role in the tamping down of free speech and privacy issues in China. United States House Representative David Cicilline asked whether the company would “ensure that individual Chinese citizens or foreigners living in China, including Americans, will not be surveilled or targeted through Google applications.” Google testified at a Senate hearing on data privacy on September 26 but maintained that plans to launch such a product in China were “unclear.”

CrossFit on the rise in China

CrossFit, a U.S.-based fitness regimen that mixes aerobic exercise and strength training, is gaining popularity as a workout form in China’s metropolitan areas. The first CrossFit facility opened in Shanghai in 2013; currently, there are 160 certified CrossFit facilities in China. Some members say they enjoy the comprehensiveness of the CrossFit regimen and the overall health benefits, but others believe the barriers to entry are too high. China’s fitness market is expected to generate almost $7 billion in revenue this year, according to IBIS World, a provider of global business intelligence information, as reported by China Daily.

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