Newsletter 167 - June 4, 2023
Welcome to the 167th edition of Trade War.
With skittish foreign investors reconsidering their China investments, Beijing has been making nice with visiting executives including Tesla’s Elon Musk and JP Morgan’s Jamie Dimon.
Weak manufacturing and slowing growth in services in May suggests Chinese economy at risk of downward spiral. “Revenge spending” never materializes as consumption struggles with underlying weakness. And local governments’ debt burdens are complicating efforts to boost growth.
As companies diversify their production they are finding they must pursue a strategy of “China plus many,” shifting production to two or more countries, rather than the old model of “China plus one.” And for the first time since he took power one decade ago, Xi Jinping has assembled his own economic team.
Before the news, let’s take a brief moment to remember the tragedy that happened on this day in Beijing 34 years ago …
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China woos foreign businesses
With skittish foreign investors reconsidering their China investments, Beijing has been making nice with visiting executives including Tesla’s Elon Musk and JP Morgan Chase’s Jamie Dimon, reports Bloomberg News.
Along with meetings with Musk and Dimon, senior communist party officials have sat down recently with corporate chiefs from Starbucks, Jardine Matheson, investment company Franklin Templeton, and British semiconductor firm Arm.
And fresh on the heels of touting the importance of the mainland market and warning about U.S. restrictions on semiconductor sales to China, Nvidia’s chief executive Jensen Huang is also about to visit Beijing, according to people familiar with the matter.
“The flurry of engagement comes after an espionage probe into expert consultancies used by firms to operate in China spooked foreign investors. President Xi Jinping called protecting industrial security the ‘priority of priorities’ at a high-profile meeting this month,” reports Bloomberg.
Investment in China has dropped precipitously, down by $30 billion in the first quarter. And the benchmark MSCI China Index has fallen more than 50 percent from its 2021 high.
“Xi no longer needs rapid growth to justify his rule, but if the economy is doing too badly it will bring extra security risks for him,” says National University of Singapore professor Alfred Wu. “That’s why China is still courting foreign investment and foreign businesses.”
During a meeting with foreign minister Qin Gang, Tesla’s Musk spoke out against decoupling, saying the U.S. and China’s ties were inseparable, according to Chinese media reports. Musk’s other meetings included those with officials from the industry and information technology regulator and commerce ministry.
“Musk, who has previously suggested Taiwan could be run as a special administrative zone of China, has enjoyed significant official support for his Shanghai-based Gigafactory. Tesla contributed almost one-quarter of Shanghai’s total automotive production value last year,” reports Bloomberg.
Separately, Shanghai party chief Chen Jining called for help from Jamie Dimon to bring more international banks to his city. In 2021, Dimon had to make a public apology after joking that JP Morgan would likely be around longer than the Chinese Communist Party.
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