Welcome to the 209th edition of Trade War ~
Today’s issue comes after a several week hiatus in April while I was traveling in China, a trip that took me across a broad swathe of the mainland, with visits to the northern cities of Beijing, Tianjin, and Xi’an, to the financial capital of Shanghai, the southwestern cities of Changsha, Liuzhou, and Nanning, and with a final stop in Guangzhou.
Along with the latest news on China, starting today and over the coming weeks I will include special coverage and pictures from my eye-opening, just-concluded trip. To get the ball rolling, today’s issue is unpaywalled and available to all. Enjoy!
Now on to the news ~
In a visit to China, US Secretary of State Antony Blinken touts progress in relations but warns Beijing over support for Russia. Chinese leader Xi Jinping calls for a partnership, not a rivalry and criticizes Washington for “saying one thing and doing another.”
In a surprise visit to China, Elon Musk scores wins for beleaguered Tesla. Tesla announces it will produce a cheaper vehicle but competition from Chinese EV makers is sure to be fierce—and could extend to the US market in the future.
Xi will head to France, Hungary and Serbia, on his first European trip in five years. Economic frictions with China are rising one year after European Commission President Ursula von der Leyen’s called for “de-risking” and reduced dependency. And China will hold a long-delayed Third Plenum in July.
Blinken touts progress but warns China
While noting that “important progress” has been made in improving U.S.-China relations, Secretary of State Antony Blinken also delivered a warning during his recent three-day trip to China: Beijing must stop exporting products that aid Russia’s defense industry or face sanctions.
Chinese state-owned companies are selling key components including microelectronics and machine tools that have “a material effect against Ukraine” and constitute “a growing threat that Russia poses to countries in Europe,” Blinken said at a press briefing in Beijing on April 26.
“We’re looking at the actions that we’re fully prepared to take if we don’t see a change . . . we’ve already imposed sanctions on more than 100 Chinese entities, export controls and we’re fully prepared to take additional measures,” Blinken said.
“The Biden administration is also taking a hard line on the risk that China’s industrial overcapacity for products like solar panels and electrical vehicles flood the U.S. with low-cost state-subsidized exports that could harm domestic firms,” reports Politico’s Phelim Kine.
“This is a movie that we’ve seen before and . . . President Biden will not let this happen on his watch,” Blinken said while in Beijing.
Watch the video of Blinken’s full press conference here or below:
Xi: stop “saying one thing and doing another”
In a meeting with Blinken in Beijing’s Great Hall of the People, Chinese leader Xi Jinping pushed back, suggesting that Washington has been “saying one thing and doing another.”
“[Our] two countries . . . should be true to their words,” Xi said during the meeting on April 26. “Faith and action will lead to results, rather than saying one thing and doing another.”
“China and the United States should be partners rather than rivals; help each other succeed rather than hurt each other; seek common ground and reserve differences rather than engage in vicious competition.”
“The earth is big enough for China and the United States to develop together and prosper independently. China would like to see a confident, open, prosperous and developing United States. We hope that the United States can also take a positive view of China's development,” Xi added.
“China has been furious at the U.S.’s recent efforts at shoring up the alliance with Japan and the Philippines over the South and East China Seas, a military package for Taiwan and tech curbs over Chinese access to advanced semiconductors,” reports Politico.
Check out the transcript of Xi’s comments from CCTV (Chinese.)
Elon Musk scores wins for Tesla in China
In an unannounced visit to China in late April, Tesla’s Elon Musk secured Beijing’s approval for its driving system, as well as inked a mapping deal with Chinese tech giant Baidu, both major wins.
“Tesla Inc.’s locally made cars have cleared a key data security and privacy requirement in China in a boost for Elon Musk,” reports Bloomberg News.
“The data security tests included how a vehicle collects ‘sensitive personal information’ and whether a driver can easily stop a car from collecting data, the China Association of Automobile Manufacturers said in a statement.”
Tesla has struggled in China as competition has grown from domestic EV makers including leader BYD, with its market share falling from 10.5 percent during the first quarter of last year, to 6.7 percent in the fourth quarter. At the same time, deep price cuts by Tesla could wipe out its entire China earnings.
During his visit, Musk met with Premier Li Qiang who in his earlier role as top party official in Shanghai oversaw the opening of what is now Tesla’s top factory globally.
“Bottom line: Tesla cannot achieve any of its ambitious future goals without continuing to be successful in the China market,” says Tu Le, the managing director of consultancy Sino Auto Insights.
Cheap Tesla coming but can it compete?
“During the Tesla earnings call on April 23, Elon Musk said what investors wanted to hear—that the cheap Tesla was coming after all. Previous reports that it was being shelved spooked investors a lot,” writes Alysha Webb for Electrify News.
But will it be something truly new or just a watered down, cheap version of the Model 3? If it is the latter, it could still be competitive in the U.S., but only so long as tariff walls continue to keep out Chinese competitors.
“Where Chinese electric cars really bring home the bacon is in ‘xìn jià bǐ,’ which I translate as ‘value for money.’ That is where I think they can beat Tesla hands-down, not just in China but in the U.S. The key is in user experience technology,” writes Chinese auto market expert Webb (and a former Shanghai-based Businessweek colleague of mine.)
“For Chinese consumers, that means more than just a nice-looking car with a decent interior. It means an out-of-this world user experience. It means an EV packed with the latest technology, from pretty much everything your mobile phone can do, to in-car karaoke and, in the SU7’s case, built-in mobile phone docks, a Go-Pro plug, and a fridge, among other amenities.”
“The Tesla name at a lower price point would still attract buyers even if it was little more than a lesser version of the Model 3,” writes Webb.
“But what if a cheap Tesla in the U.S. had to compete head-on with cheaper Chinese EVs—affordable electric cars with not only a decent range but all that Chinese user experience technology?”
China trip take
My conclusion based on what I saw in my travels across China: buoyed by unfair subsidies or riding high on innovative and nimble business strategies (or both), Chinese EV players are going to upset global markets, unseating domestic brands in the U.S. and Europe, tariffs barriers notwithstanding. Cutthroat competition in China, the world’s largest EV market, may have hurt profit margins but it is also giving the best of the brands the ability to innovate while producing at ever lower costs, something undoubtedly appealing to global consumers, if they can just get their hands on the Chinese offerings (a Mexican production base, anyone?)
Immediately recognizable by their distinctive green license plates, EVs are everywhere in China. This year electric vehicles sales will leap to about 10 million, making up about 45 percent of all car sales. And by 2030, almost one in three cars on the roads in China are expected to be electric, compared to almost one in five in the U.S. and European Union, the IEA’s latest Global EV Outlook predicts.
“In China, more than 60 percent of electric cars sold in 2023 were already less expensive to buy than their conventional equivalents. However, in Europe and the United States, the purchase prices for cars with internal combustion engines remained cheaper on average,” the IEA report notes.
A Chinese electric vehicle (even without a clear logo it’s easy to pick out by its green plate) drives down Shanghai’s bund, with the Pudong skyline behind it.
As a vicious price war continues amongst China’s top premium EV makers, Shanghai-based Nio had the best April performance, with sales up 31.6 percent, month on month.
Here’s a shot of a Nio on display in Shanghai’s Hongqiao Airport.
“Looking beyond short-term challenges, Xpeng is about to embark on a major product cycle,” with 10 brand new models and expansion into new overseas markets over the next three years, Chief Executive Officer He Xiaopeng said in March.
A dealership for Guangzhou-based Xpeng, with its distinctive “X” logo, in downtown Shanghai—notice the green plate designating yet another EV in the street (from Shanghai Automotive’s Roewe).
Xi heading to Europe, first in 5 years
Xi Jinping is about to embark on his first trip to Europe in five years, starting on Monday with his arrival in France, to be followed by stops in Hungary—the only EU country now participating in the Belt and Road Initiative—and Serbia.
“France sees Xi’s visit, which officially marks 60 years of French-Chinese diplomatic relations, as an important diplomatic moment, and wants to focus on China’s broader relations with the EU. [French President Emmanuel Macron] invited European Commission President Ursula von der Leyen to the talks Monday,” reports the Associated Press.
“After leaving France, Xi will visit Hungary and Serbia, both seen as China-friendly and close to Russian President Vladimir Putin, rebuffing Western criticism of his full-scale invasion of Ukraine.”
Hungary has benefitted economically as China has opened EV battery factories across the Central European country, including a 7.3 billion euro ($7.9 billion) EV battery plant now being constructed by CATL, the world’s largest EV battery maker, near Debrecen, Hungary.
China is also modernizing the railway between Hungary and Serbia’s capitals of Budapest and Belgrade, a more than $2 billion project.
“This is a highly strategic visit to Europe by Xi. And in his itinerary you can divine the runes of Chinese policy on Europe now, bolstering the traditional links as far as possible, and reinforcing new ones,” says Kerry Brown, professor of Chinese Studies and director of the Lau China Institute at King’s College London.
Third Plenum to be held
China will hold it long-delayed Third Plenum, a meeting typically focused on economic reform, in July.
“The session will primarily study issues concerning further comprehensively deepening reform and advancing Chinese modernization,” the official Xinhua News reported.
“Delaying the gathering to 2024 marked the first time it’s been held in an off-schedule year in over three decades, adding to the uncertainty around China’s already-opaque political system,” reported Bloomberg News.
"The meeting had been expected to happen late last year but was postponed without explanation," says Julian Evans-Pritchard, head of China economics at Capital Economics.
Notable/In depth
For falling property sector, China needs more demand
“While property sales were already slowing down at the end of 2023, the decline has been more significant than what we anticipated. Through the first quarter of 2024, property sales have dropped 28 percent nationwide. Without stabilizing property demand, it will be much tougher to get out of the deflation that China has been in since early 2023, which will weigh on the growth outlook,” writes MacroPolo Fellow Houze Song.
“To shore up the sector, China needs more demand. For instance, the broad economic slowdown has led to >3 percentage points decline in Chinese households’ nominal income growth (~70 percent of which can be attributed to lower inflation), while the mortgage rate has dropped by only 1.6 percentage points. That spread means that property prices should drop by roughly another ~20 percent.”
“Banner of liberal democracy is waved as a shield”
“Critics of U.S.–China scientific exchange have pointed to Beijing’s protectionist stance and dictatorial regression as breaking the promise of ‘reciprocity.’ The proposed responses from the U.S. side, however, are alarmingly like the restrictions put in place by the Chinese State,” writes Yangyang Cheng, a Fellow at Yale Law School’s Paul Tsai China Center who has a PhD in physics from the University of Chicago.
“U.S. lawmakers and tech executives routinely decry China’s use of new technologies to strengthen its military, expand state surveillance, and commit human rights abuses, while doubling down on similar developments and applications at home and with allied countries . . . The epithet of ‘communism’ erases the role of global capital as a contributor to and beneficiary of repression in China and elsewhere. The banner of liberal democracy is waved as a shield to excuse similar behavior from the home team as justified and necessary to defeat the other side.”
Europe’s economic frictions with China grow
“As we mark one year since European Commission President Ursula von der Leyen’s landmark speech outlining a new vision for Europe’s relationship with China framed around “de-risking” and reducing dependencies on Beijing, economic issues are increasingly a source of friction in relations with China—and central to transatlantic alignment on China policy,” writes Atlantic Council Global China Hub’s David Shullman.
“[On April 9], the EU announced a new anti-subsidy probe into China’s wind turbine industry and extended its guide on China’s distortions in different sectors of its economy, further indication Brussels is preparing for more trade actions to defend key industries. This comes after a year of strengthening Europe’s economic defenses against China’s leverage, including the publication of an economic security strategy.”
Check out the full April edition of the Global China Newsletter here.
Beijing picture
The Forbidden City on a beautiful April morning in Beijing.