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The China Intelligence Briefs are the start of a global initiative to provide context and recommendations to businesses, non-profit organizations, and policy makers who are looking for specific examples of opportunity or disruption from global events. While analyzing the macro problems we often identify specific issues that affect our clients and readers. Identifying both opportunities & challenges allow us to better identify solutions at home and abroad for a wide range of disciplines. In addition to the China Intelligence Briefs, we maintain detailed notes from interviews, overseas trips & business missions, conferences, conventions, and private events. We provide access to these notes and other analytical products for clients and paid subscribers.

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Our Analysts, Associates, Consultants, and Interns all possess extensive experience in a foreign country and a foreign language capability. Our talent pool includes graduates from the elite Tsinghua University in Beijing, Georgetown University, George Washington University, UC Berkeley, and University of South Carolina. Being based in the Washington, DC Metro Area provides our team the advantage to build relationships with policy makers, foreign diplomats, business leaders, and non-profit groups providing a holistic view of global policy and the impacts to the business community. In addition to being based in the Washington, DC area, we retain the input and advice from affiliates located in China. This allows us to maintain on-ground awareness of changing business and political environment conditions and facilitate client projects between the two countries and the greater Asia continent.

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Executive Summary

The month of April and May saw significant events in the terms of political, economic, and security issues involving China and the United States. Some changes were seen as been positive steps, such as the meeting between U.S. President Donald Trump and North Korean Lead Kim Jong-un, but others indicated potential setbacks. The US and China are still involved in escalating rhetoric and tariff disputes which many fear are the indicators of an impending trade war. There were many indications China is preparing to weather the storm by cancelling Sorghum imports there by reducing dependency if tensions escalate. China has also doubled down on  initiatives into their growing high-tech industry, specifically showing support for domestic chip manufactures in the face of United States moves against Chinese tech giants ZTE and Huawei, both of which the US claim pose a national security threat. More broadly, China’s Belt and Road Initiative (BRI) continues to run into geopolitical hurdles as it failed to garner more support for India in the South Asian region. Despite this, investments and projects continue to be added to the docket which will likely mean more opportunities for foreign firms to benefit from the series of massive projects already planned. In order to assess the impacts of potential actions following rhetoric and political posturing, FAO Global analysts conduct daily monitoring of significant events that are likely to have wide ranging implications for policy and business strategy.

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China’s One Belt One Road/Belt and Road Initiative

Malaysian election possibly thwarts China’s One Belt One Road progress

SUMMARY

As of May 29, following criticism over the recent years that Malaysian Prime Minister Najib Razak’s administration had allowed Beijing too much influence in agreeing to China’s One Belt One Road Initiative (BRI) projects, Mahathir Mohamad of Pakatan Harapan, an opposition party, won the early May election in a huge upset. There is a great deal of uncertainty over how the new prime minister plans to deal with Chinese investment in the future and Mohammad has promised to rework old agreements after accusing the old administration of giving preferential treatment to Chinese investors. The $13 billion, 430 mile long East Coast Rail Link, built by China Communications Construction, was one of the bigger targets of criticism for waste with concerns over inflated prices and questions of the project’s usefulness to Malaysia. As of May 2018, it was 20% finished. Malaysia was the 4th largest destination for Chinese investment in 2017 with numerous port and rail projects on the docket for development.

FAO GLOBAL ASSESSMENT

In addition to bad news for investors looking to profit from Chinese BRI projects in Malaysia, the election results also call into question how tenuous the initiative projects might be in other democratic countries. Investors looking to take advantage of the new railway should first wait and see how the new PM decides to handle business with China. The existing contract to complete the railroad does have a cancellation provision, albeit a costly one, that could result in the project never being finished.

Related Links

1. The Diplomat — What’s Next for Malaysia-China Relations After the 2018 Elections?
2. Forbes — How Malaysia Became a ‘Model’ For China’s Overseas Economic Expansion
3. CNBC — The shocking Malaysian election result could hit Chinese investments

 

China, Japan to establish Belt and Road Council

SUMMARY

As of May 8th, the Japanese and Chinese governments have announced plans to create a council to discuss joint China’s Belt and Road Initiative (BRI) projects in other nations. Prime Minister Shinzo Abe and Chinese Premier Li Keqiang are expected to formally establish the council during the Japanese, Chinese, South Korean summit happening May 9. The council would include private corporations from both countries in addition to high-ranking government officials. The ultimate goal of the council is to establish coordination between the two governments on Eurasian infrastructure projects. This is one of several signs of Japanese efforts to improve economic relations between with the People’s Republic of China (PRC). Japan has major advantages in technology and financial industries but struggles to stay cost competitive. Chinese firms have had trouble with credibility, with the concept of guanxi or connections (or mutually beneficial relationships) playing a huge role in who is successful. United, the two sides can help the other overcome their shortcomings. This announcement comes amidst trade disputes between the United States and China.

FAO GLOBAL ASSESSMENT

In the midst of growing uncertainty with American trade, China needs to find reliable partners in the region. Beijing will need to establish a new, stable source of high-tech imports while it works on bringing its own tech industry into maturity and Japan could be a strong contender. Should the council be successful, it could indicate major opportunities for Japanese tech and shipping firms. On the other hand, this could reduce reliability on American technology companies that may be at risk of losing out on the Chinese market. In order to mitigate the consequences of this potential move, American firms may seek Japanese partners in order to take advantage of a possible supply chain shift and mitigate disruptions due to trade tensions.

Related Links

1. The Nation – Japan, China eye Belt & Road council
2. Kyodo News – Japan, China try to create amicable atmosphere after years of disputes
3. CNN – China’s ZTE says main operations ceased after US ban
4. Business Insider – The Most Misunderstood Business Concept in China

 

India not enthusiastic about China’s Belt & One Road Initiative

SUMMARY

China did not get the support it was looking for from India regarding Beijing’s One Belt One Road Initiative (BRI) following an important security bloc meeting Tuesday, April 24. India’s Prime Minister Modi is expected to visit Chinese President Xi Jinping in China later this week to discuss India’s potential membership. One of the many strategic and economic goals of BRI is to build an infrastructure network directly connecting China to the rest of Asia and the world. India is still not a member of the project and has expressed interest in producing its own BRI style initiative, although that has not taken hold. One hurdle to China’s ambitions is Pakistan’s allowance of construction through the disputed Kashmir region of Pakistan which is an area embedded in a territorial dispute between Pakistan and India. Recently Indian and Chinese militaries have been engaged in small scale skirmishes over the territorial border of the Doklam (Donglang in China) plateau that at most would be described as low intensity. China’s close relationship with Pakistan, the strategic competition with India, and the prospect of being left out of the broad sweeping BRI will likely push India to continue engagement in order to influence any future projects that will affect Indian interests.

FAO GLOBAL ASSESSMENT

The fifth largest economy in the world, India has been an attractive place for Western investment for many years. The potential for new Chinese funded infrastructure projects means more opportunities that will likely affect foreign companies doing business in the region. Many Indian roadways and mountain routes are in desperate need of repair and additional investment could be beneficial for India as a downstream supplier to many of the world’s industries. Geopolitically, if China can convince India to support (or at the least not hinder) the BRI despite Pakistan’s involvement, India may seek to leverage it’s economic and political weight to improve security conditions by closely engaging in BRI initiatives in its immediate area of interest.

Related Links 

1. Reuters – China Fails to get Indian Support for BRI
2. China Daily (US) – China and India see upswing in relations
3. Harvard Business Review – 3 Reasons Global Firms Should Keep Investing in India

 

Chinese One Belt One Road Investment in Pakistan’s Gwadar

SUMMARY

International excitement due to China’s One Belt One Road (BRI) Initiative has made recent strides in port city Gwadar, Pakistan, a country Beijing plans on investing $57 billion into. Construction plans include improving the deep-water port for both trading and military use, the addition of a luxury golf resort, and an airport to rival the Islamabad International Airport just finished by a Chinese company in Islamabad. Up-scale residential buildings are expected to accompany the economic development initiative in the area. Investment missions to the U.S. are already being advertised in the Washington, DC area. As part of the BRI, China has been working on creating the China-Pakistan Economic Corridor, or CPEC, giving China access to the India Ocean and the oil-rich Middle East. Improvements made to Gwadar that support naval and submarine requirements make Gwadar ideal location for the second permanent military outpost for China overseas, after a base in Djibouti.

FAO GLOBAL ASSESSMENT

Chinese investment and potential new trade routes will likely produce a wide range of opportunities for companies looking to enter the region. While there are some obstacles to getting involved, foreign companies from the UK, Australia, and the US have already begun investing alongside Chinese state-owned enterprises. Pakistan has made a major effort to ensure a safe environment for investment from Beijing – attempting to create a friendlier destination for foreign investors. However, Pakistan still has a number of militant groups operating in the in Balochistan Province where Gwadar is located and attacks against projects and authorities are still common. Kidnappings do occur but are less pronounced. Gwadar will likely have an increased security presence once complete but investors should take precautions to mitigate exposure to risk that may occur.

Related Links

1. South China Morning Post – Is China’s ambitious Belt and Road Initiative a risk worth taking for foreign investors?
2. Asia Times – China on building spree of airports, ports in Pakistan
3. Pakistan Observer – Pakistan economy has potential to grow by 10pc annually: Miftah
4. Fortune – China is Investing $57 Billion Into Pakistan
5. CPEC Info – CPEC vital for China’s BRI because of Gwadar

 

China’s Belt and Road Initiative Strategic Goals/Implications

SUMMARY

China has recently announced plans to build up ports in Vatanau, a small south Pacific Island nation off the Northeast Coast of Australia that could lead to significant duel use by Chines merchant ships and naval vessels. Additionally, investments into Brunei, Pakistan, and Djibouti ports signify Beijing’s determination to move China’s largest infrastructure plan forward resulting in significant strategic benefits when implemented. Recently, multiple research institutes and news sources have highlighted the strategic impact of China’s One Belt One Road Initiative (or Belt and Road Initiative (BRI)). China’s financial and logistic involvement in a proposed 15 port projects signals a strategy that would not only offer economic benefits, but build political and military influence in the regions involved. This would give China more leverage to  counter U.S. influence in each of the regions. Launched in late 2013, the program currently has 60 countries that have agreed to be involved and will connect 65% of the world population.

FAO GLOBAL ASSESSMENT

Economic investment in order to garner good graces or build leverage in foreign states is a common tactic among sovereign states, and is certainly not new for China. Government initiatives and ambitious entrepreneurs (many with state support) have been actively investing into infrastructure projects for many years now. With access to ports through out  the Indo-Pacific, China will be in a better position to make headway in its maritime security goals, such as its claims to a number of island chains. Diversified supply routes further reinforce China’s interest in securing economic, military, and political interests. Opportunities lay in resupply contracts and services supporting the various port projects.

Related Links

1. US NEWS – China’s Silk Road Security Goals
2. Business Insider – China’s Belt and Road Infrastructure Project

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China Economics

Canada blocks Chinese company from acquiring Aecon

SUMMARY

As of May 31, the Canadian government announced that it was blocking a proposed $1.18 billion USD acquisition of the Canadian firm Aecon Group Inc. by the China Communications Construction Company (CCCC) over national security concerns. Had the deal gone through, CCCC would have received troves of documents from the Canadian government detailing government contracts, including ones involving nuclear reactors. This is the latest acquisition block by a western country, as fears over Chinese companies close to Beijing leadership gaining control of private entities abroad are on the rise. In early May, there was a conflict between the United States and China after a Chinese company attempted to purchase American company SkyBridge Capital after the Committee on Foreign Investment in the United States (CIFUS) rejected the proposal. In January 2018, CIFUS rejected plans for Ant Financial, a Chinese online payment company, to acquire MoneyGram International, an American money transfer company citing cyber security concerns.

FAO GLOBAL ASSESSMENT

The recent rise of blocked Chinese company acquisitions in North America could mean more business for western firms that specialize in cross-border facilitation but will likely deter Chinese would-be investment into the United States. However, many industries are still open to investment, partnerships, and joint ventures for Chinese and US businesses to pursue. Potential Chinese investors would likely benefit from public messaging and public relations campaigns aimed to win over US constituents. Likewise, US companies should also understand the broader socio-political implications that affect the investment climate and the regulations that govern these types of investments when taking on Chinese investors.

Related Links

1. Bloomberg — Trudeau Says ‘Australian Colleagues’ Warned on China’s Aecon Bid
2. Reuters — Canada blocks Chinese takeover of Aecon on national security grounds
3. Bloomberg — China Warns of Canada Investment Chill After Aeson Deal Blocked
4. New York Times — Canada Blocks Chinese Takeover on Security Concerns
5. Business Times — China shunned Australia’s minister during recent visit: diplomat

 

China: Hainan is open for (high class) business

SUMMARY

As of May 30, Hainan Province, China, also known as “Hawaii of the East,” is quickly becoming one of the world’s most luxurious holiday destinations. On May 1, Beijing enacted a new policy granting vacationers from abroad (including the United States) 30-day visa-free visits, just one of several new programs put in place by Beijing since April to attract foreign visitors. In April, Chinese President Xi Jinping committed to making the island a “pilot zone for reform” by 2020. In mid-May, China released a list of people and corporations it hopes will bring their investments to Hainan, including American businessman Warren Buffett, US media conglomerate Time Warner, and South Korean phone maker Samsung. Their goal is to turn the quiet beach into one of the most significant free-trade zones in the world by asking individuals or organizations on the list to set up headquarters or industrial parks on the island. Some additional incentives for travelers include more relaxed government policies, a plethora of hotels, subsidized housing, and possible legalization of gambling on the horizon.

FAO GLOBAL ASSESSMENT

China’s announced pro-tourism policies  in Hainan is potentially a great opportunity for firms specializing in healthcare, tourism, and maritime activities to take advantage of the new legislation and put down roots in China. The Chinese government has made it clear that western influencers will be welcome with their list of ideal investors — making Hainan a solid window of entry for companies looking to enter the Chinese market. Investors should keep in mind, however, that Chinese regulations can change quickly and unexpectedly, making a focus on new legislation a must for any firm expanding their business to China.

Related Links

1. Skift — China Aims to Attract More Luxury Travelers to Hainan
2. South China Morning Post — China’s Hainan wants big names like Warren Buffett to come and invest
3. South China Morning Post — ‘China’s Hawaii’ looking for 1 million new residents, more than the population of Stockholm
4. Reuters — China’s Hainan offers more countries visa-free access

 

China to be importing more American goods

SUMMARY

As of May 21, Beijing announced that it would be purchasing additional American imports in the coming years after both the United States and China decided to “halt” the trade war — a conflict US President Donald Trump claims was sparked primarily by the large American deficit in their trade relationship. On May 18, Chinese officials offered to up their current American imports by $200 billion, a significant dent in the what was a $376 billion deficit in 2017. The trade deficit is largely a bi-product of many of the existing import restrictions left over from 10 years ago when China initially joined the World Trade Organization (WTO) and critics claim it’s outdated. At the time, the country’s highest priority was to increase economic growth, not consumption. Today, these restrictions have led to Chinese citizens traveling abroad to purchase foreign products so they can avoid paying expensive tariffs. 

FAO GLOBAL ASSESSMENT
An increase in exports to China is likely to result in a small reprieve for firms struggling amidst the recent trade dispute. Firms specializing in agricultural products, machinery, and fuel sources can take advantage of this opportunity by preparing export logistics and should consider adopting Chinese online payment systems like Alipay so they can be in the best position possible should China move forward with this proposal. However, on-going tit-for-tat trade negotiations between the U.S. and China have hit many of these sectors creating temporary disruptions.

Related Links

1. Chicago Tribune — Economic talks between US and China lead to trade war truce
2. 21世纪经济报道 – 扩大进口是供给侧结构性改革的重要内容
3. The Washington Post — China offers to buy more American products, Kudlow says 
4. Yahoo Finance — US commodity exports to China to rise amid trade talks, but volumes are capped

 

Ford forced to hit the brakes in China

SUMMARY

As of May 10, multiple sources have reported that American car manufacturer Ford’s imports coming through Chinese customs have been held up with unusual delays from officials insisting upon additional technical checks. Back in 2006, Ford initiated a $5 billion USD plan to build dealerships and additional factory space in the country, hoping to surpass brands that already had a strong presence in China, such as General Motors and Volkswagen. This isn’t the only financial trouble Ford is facing right now – recently the car manufacturer has committed the company to an aggressive cost-cutting program with the hope of improving their bottom line. Back in April, Ford announced it would be dropping its sedan models. Ford is far behind competitors in the areas of electric and autonomous vehicle development as well which is a growing sector in both countries. These issues come amid major trade tensions between the United States and China with some experts claiming this is Beijing’s way of taking a stance against US President Trump’s tariffs. Other American imports are being delayed at customs including pork shipments. In mid-April, Beijing announced it would be easing laws requiring foreign entities to find local partners before building factories.   

FAO GLOBAL ASSESSMENT

Ford’s Chinese customs hold up is not only a indicator of increased scrutiny by Beijing of American imports, it also spells bad news for the U.S. car maker. If Ford is forced to drastically downsize their operation or even close its doors entirely, it would have a major impact on manufacturers in its supply chain. If Ford decides that the Chinese market is worth fighting for, one option Ford should consider building factories inside China’s borders. However, this decision would likely strike a chord in the U.S. manufacturing sector under U.S. President Donald Trump’s initiative to reinvigorate U.S. manufacturing. The recent announcement to relax laws on automotive investments could open new opportunities to the foreign car manufacturers, suppliers, and dealerships.  

Related Links

1. Axios – Growing list of US products face issues at China’s borders
2. The Globe and Mail – Ford imports delayed at Chinese port amid trade tensions
3. The Wall Street Journal – Why Ford’s Big China Wager Is Faltering
4. Reuters – Ford accelerates cost-cutting plan, will drop most U.S. sedans
5. Reuters – Red light: Ford facing hold-ups at China ports amid trade friction

 

Dandong, a Chinese- North Korea border town sees a property boom

SUMMARY

In the wake of political progress between North and South Korean leaders, a little Chinese town just over the Yalu River from North Korea has seen an unprecedented real estate boom. In the border city of Dandong, China, home prices doubled from 3,000 yuan (USD$471.50) to 5,500 yuan (USD$863) in the two days before the inter-Korea summit between North Korean leader Kim Jung-un and South Korean President Moon Jae-In on April 27. Property investors from Beijing, Shanghai, and Tianjin have come to Dandong in droves looking to buy up real estate, but locals are concerned with the creation of a possible housing bubble. After a sharp deterioration in Chinese-North Korean relations last year, Dandong real estate prices took a major hit but started a slow recovery with positive signs after Kim’s landmark visit to Beijing in March. Experts say that the Dandong’s housing market is likely to see further skyrocketing of prices if the United States-North Korea summit is successful. In the past, there was some spiked interested in the area around the announcement of the construction of a bridge crossing the Yalu River to open November 2015, but today it sits unused because it remained closed on the North Korean side.

FAO GLOBAL ASSESSMENT

The relatively undeveloped nature of the Dandong area makes it a prime location for investment. If North Korea opens its borders or allows more substantial legal movement between the two countries, there will be loads of demand for Korean language media, Korean products, Chinese-Korean language centers, and housing. Due to China’s low housing costs outside of major urban centers, property investment for foreign firms carries minimal risk. Even now at their higher prices, in some areas average home in Dandong lists at $863 per square meter, home prices still trail behind other major Chinese cities. While it is possible to navigate the complex laws that often hinder foreign investment firms, mounting trade tensions between China and United States will likely deter significant investment from western firms into the city until the North Korea tensions are reduced and recent trade disputes are resolved.

Related Links

1. UPI – Report: Real estate is booming in Chinese city near North Korea
2. GB Times – Real estate prices at China-North Korea border city double within 48 hours
3. South China Morning Post – Rocketing prices? Chinese property speculators hope for peace premium as they move in on North Korea
4. Global Times – Real estate prices rise at China-North Korea border city
5. Huffington Post – The Median Home Price is $188,900. Here’s What That Actually Buys You.
6. Washington Post – On China’s border with North Korea, a constricted economic lifeline is still a lifeline

 

Volkswagen and China’s Didi Car Share App to Partner

SUMMARY 

In a partnership expected to be announced early May, Chinese ride-hailing company Didi Chuxing and Volkswagen (VW), the world’s largest car manufacturer, will be become equity partners in a joint venture focused on ride-sharing. The two companies plan on perfecting a fleet of green vehicles, special models specifically for ride-sharing, and are placing a large emphasis on developing autonomous vehicles. This decision comes in the wake of China’s recently announced liberalization of laws restricting foreign manufacturers’ venture ownership and an earlier announcement of Didi forming an alliance with 31 car manufacturers, including Toyota and Nissan. Now the country’s largest ride-hailing app, Didi rose from humble beginnings, starting out with just 800,000 yuan ($125,000) to a whopping $50 billion USD in the span of just 5 years. Worldwide, Didi was named the second most valuable startup, following Uber, even though Didi bought out Uber’s Chinese brand back in 2016. Didi made their foreign debut late April in Toluca, Mexico and late last year, the Chinese firm dipped their toe into the broader Latin American market with their purchase of a Brazilian ride-hailing company.

FAO GLOBAL ASSESSMENT

This joint-venture is likely to have a significant impact on car manufacturers and organizations in the China automotive supply chain. The partnership’s emphasis on developing new models for Didi’s fleet could allow for a boom in the development of economical self-driving and green cars. One of the most significant aspects for the upcoming VW-Didi fleet will be maintenance. Automotive parts companies, self-driving tech start-ups, and service providers will likely be clamoring for a chance to support this initiative. If this partnership proves fruitful, we will likely see more joint-ventures between car manufacturers and tech start-ups.

Related Links

1. The Wall Street Journal – China’s Didi, Volkswagen Plan Ride Hailing Venture
2. Reuters – Exclusive: Volkswagen in talks to man fleet, co-develop self-driving cars
3. Fortune – Volkswagen and Didi Chuxing Have Team Up on a New Self-Driving Venture
4. Tech Crunch – Confirmed: Didi buys Uber China in a bid for profit, will keep Uber brand
5. China Daily –Didi Chuxing speeding ahead
6. Reuters – China’s Didi Chuxing launches ride service in Mexico

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China Policy

US pullout of nuclear deal with Iran adds to Chinese influence

In early May of this year, United States President Donald Trump’s announced that the U.S. would be withdrawing from the denuclearization deal with Iran and re-imposing sanctions, sending shock waves through the world. Amidst the ensuing confusion, China has made it clear they intend to increase trade with the Middle Eastern country in spite of US sanctions. One of Iran’s biggest recipients of Iranian crude oil, China has already made major investments into the economy including major infrastructure projects. As competition for Iranian exports shrink, oil prices may fall making it all the more attractive for Chinese purchase. This isn’t the first time Chinese interests have been affected by U.S. policy. Earlier this year, amidst a major trade dispute between China and the United States, U.S. lawmakers banned American firms from doing business with Chinese telecommunications manufacturer ZTE who allegedly violated sanctions by doing business with Iran. The company is also accused of rewarding employees responsible for selling products to Iran.

FAO GLOBAL ASSESSMENT

China has been working hard to promote their massive economic investment initiative, the One Belt One Road, all over the world, and Iran, should it become further isolated with renewed sanctions, is likely to become more integral for the program. The future economic and political consequences of this cannot be overstated. The elimination of Iranian oil from the market may cause American gas prices to increase. This creates a much more hospitable environment for clean energy producers to obtain financial support from the government and motivates more consumers to consider alternative sources of energy, possibility opening a door for new energy firms to enter the market or expand.

Related Links

1. CNN — Trump withdraws from Iran nuclear deal, isolating him further from world
2. International Policy Digest — The Battle for the Iranian Nuclear Deal: China Approaches a Watershed
3. New Strait Times — China stands to gain in Iran
4. MEHR News Agency — US withdrawal from N-deal; unsettling implications
5. South China Morning Post — Iran’s top envoy to China calls on Beijing to help safeguard nuclear deal
6. Business Insider — Trump has decided to pull out of the Iran nuclear deal – here are the winners and losers

 

CFIUS Blocks Chinese Acquisition of US Firm

SUMMARY

The deal made between Chinese conglomerate HNA Group and American company SkyBridge Capital, a hedge fund led by Anthony Scaramucci, a former aide to U.S. President Trump, has fallen through. The Committee on Foreign Investment in the United States (CFIUS), formed to consider foreign acquisitions of American companies that could put the country’s national security at risk, has rejected HNA’s application due to security concerns. This announcement follows a number of similar unsuccessful deals between U.S. and Chinese companies including Ant Financial’s application to acquire MoneyGram, a money transfer company, back in January that was denied also due to national security concerns. Bipartisan legislation, introduced by Senator John Cornyn of Texas, deemed the “Cornyn Bill,” would further strengthen CFIUS and give it the authority to scrutinize joint ventures with foreign firms. Chinese companies have been on a buying spree acquiring companies around the globe, often outbidding competitors by more than double. Furthermore, the rapid purchasing of American assets by Chinese companies is similar to the strategy Beijing has been taking in their One Belt One Road Initiative, an economic project that many experts have accused China of leveraging their economic advantages to gain influence in southeast and central Asia.

FAO GLOBAL ASSESSMENT

The news of HNA’s unsuccessful attempt to purchase SkyBridge in addition to legislation aimed at giving CFIUS more power is likely to further strain the already tense trading relationship between China and the United States. While flush with cash, Chinese firms may find more difficulties in acquiring high-tech or financial institutions due to the current political environment. This is likely to hamper opportunities for US tech companies that have created a technology with intent to share or sell, but will face scrutiny if that new technology is deemed a national security interest.

Related Links

1. Reuters – China’s HNA drops bid to buy Scaramucci’s SkyBridge due to regulatory hold-up
2. The Hill – Alarmed by foreign deals, lawmakers eye new review power
3. Bloomberg – A Top Senate Republican Slams Tech Lobby’s CFIUS Bill Push
4. Industry Week – Should We Allow the Chinese to Buy Any US Company They Want?

 

Chinese restrictions on foreign ownership automotive industry liberalized

SUMMARY

On Tuesday, April 19, Chinese leaders announced they will be loosening restrictions on foreign ownership of car manufacturers incrementally through to 2022. Current legislation does not permit foreign car manufacturers to own more than 50 percent of joint ventures with local companies. Chinese President Xi Jinping has also promised to lower tariffs on imported cars by the end of the year. China is the world’s biggest electric vehicle market and its growth is helping support new battery technology. In the past, Chinese car brands have struggled to shake negative reputations regarding their quality. [ANALYST COMMENT: This move may be a reflection of the confidence Beijing has in its automotive industry’s ability to go head-to-head with foreign competitors.] This announcement comes amidst a flurry of new trade restrictions between the U.S. and China.

FAO GLOBAL ASSESSMENT:

This move by the People’s Republic of China (PRC) could be seen as one incentive to United States President Donald Trump to step back from his threatened trade war with China. For car producers outside of China, this could be an important opportunity but one that will require pivoting to the needs of Chinese consumers, many of whom live in multi-generational households with a single child and are increasingly coming into disposable income. Many trucking and logistics companies have expressed desire to open their own factories, but retooling a billion dollar investment from top-car manufacturers should be approached more strategically. There is more to China operations for the top auto manufactures then just opening a factory. If U.S. firms choose to dump their Chinese partners this could have significant effects on dealer networks, distribution lines, and current contracts that have helped build up current capacity.

Related Links

1. Business Times – Global carmakers gear up as China opens up sector
2. Reuters – China to open auto market as trade tensions simmer
3. Boston Globe – China to allow full foreign ownership in auto industry
4. Cheung Kong Graduate School of Business – Stuck in First Gear: Chinese Car Manufacturers Struggle to Compete with Foreign Brands

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China Security

The Secret Trip to North Korea

SUMMARY

Over Easter Weekend, (March 31-April 1) then CIA Director Mike Pompeo and other intelligence officials make a secret trip to North Korea as a representative for the Trump administration. The goal of the trip was to lay the groundwork for talks between Kim Jung-un, who came to power in 2011, and United States President Trump about North Korea’s nuclear weapons program. Following that reveal, South Korean president, Moon Jae-in, made an announcement less than a week later that Kim will no longer require the removal of US troops from South Korea as a condition for North Korean denuclearization. Should this news be confirmed by North Korea, it could seriously alter US military strategy in the region. Spring 2018 has seen an almost 180 degree turn in North Korean foreign policy and Kim’s willingness to reach out to leaders abroad.

FAO GLOBAL ASSESSMENT

This is not the first time talks with North Korea have looked promising. At the start of the 21^st, century, the years of 2000 and 2007 both saw progress in peace talks before falling apart. This time, it seems that Chinese sanctions on North Korea are applying the right amount of pressure considering trade between China and North Korea has decreased since 2018. North Korea is still reliant on China for much needed fuel and trade but is feeling increased strain without a steady supply of fossil fuels. A final North Korea solution doesn’t likely come without Chinese involvement. Keeping China on board provides North Korea with reassurances should talks with the US fail. However, due to historical issues between the hermit kingdom and China, a North Korea ideal solution may not be the same as China’s.

Related Links

1. NY Times – North Korea Drops Troop Demand
2. CNN – North Korea drops withdrawal of US troops
3. VOX – North Korea promises huge concession

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Primary Contributors

These briefs were put together through open-source analysis, insight from interviews, conference attendance in the US and China, and on-ground experience in the US Government, International Think-Tanks, and Conducting business in China. 

Senior Analyst – Brandon Hughes

Brandon Hughes is the founder of FAO Global, a former Senior Regional Analyst-Asia for Planet Risk. He has previously worked with the U.S. Army, the Carnegie-Tsinghua Center for Global Policy, and Asia Society. He is a combat veteran and has conducted research on a wide variety of regional conflicts and foreign affairs in countries as diverse as China, Myanmar, Afghanistan, and Kosovo. Brandon holds a L.L.M in International Relations from Tsinghua University, Beijing and a Bachelors in International Business and has studied at Johns Hopkins University, Beijing Language & Culture University, and Rangsit University, Thailand. He has extensive overseas experience focused on international business, international security and U.S.-China relations.

Asia Policy Analyst – Adriana Ray

Adriana Ray is an Asia Policy Analyst at FAO Global where she researches and writes on Economic, Security, and Political issues in the region. Adriana is currently a graduate student at Georgetown University’s School of Foreign Service where she is pursuing a Masters in International Security. She is also an alum of Tsinghua University and Furman University.

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