Posted on

With Covid-19 Under Control, China’s Economy Surges Ahead

BEIJING — As most of the world still struggles with the coronavirus pandemic, China is showing once again that a fast economic rebound is possible when the virus is brought firmly under control.

The Chinese economy surged 4.9 percent in the July-to-September quarter compared with the same months last year, the country’s National Bureau of Statistics announced on Monday. The robust performance brings China almost back up to the roughly 6 percent pace of growth that it was reporting before the pandemic.

Many of the world’s major economies have climbed quickly out of the depths of a contraction last spring, when shutdowns caused output to fall steeply. But China is the first to report growth that significantly surpasses where it was at this time last year. The United States and other nations are expected to report a third-quarter surge too, but they are still behind or just catching up to pre-pandemic levels.

China’s lead could widen further in the months to come. It has almost no local transmission of the virus now, while the United States and Europe face another accelerating wave of cases.

The vigorous expansion of the Chinese economy means that it is set to dominate global growth — accounting for at least 30 percent of the world’s economic growth this year and in the years to come, Justin Lin Yifu, a cabinet adviser and honorary dean of the National School of Development at Peking University, said at a recent government news conference in Beijing.

Chinese companies are making up a greater share of the world’s exports, manufacturing consumer electronics, personal protection equipment and other goods in high demand during the pandemic. At the same time, China is now buying more iron ore from Brazil, more corn and pork from the United States and more palm oil from Malaysia. That has partly reversed a nosedive in commodity prices last spring and softened the impact of the pandemic on some industries.

Still, China’s recovery has done less to help the rest of the world than in the past because its imports have not increased nearly as much as its exports. This pattern has created jobs in China but placed a brake on growth elsewhere.

China’s economic recovery has also been dependent for months on huge investments in highways, high-speed train lines and other infrastructure. And in recent weeks, the country has seen the beginning of a recovery in domestic consumption.

The affluent and people living in export-oriented coastal provinces were the first to start spending money again. But activity is resuming now even in places like Wuhan, the central Chinese city where the new coronavirus first emerged.

“You’ve had to line up to get into many restaurants in Wuhan, and for Wuhan restaurants that are popular on the internet, the wait is two or three hours,” said Lei Yanqiu, a Wuhan resident in her early 30s.

Image
Credit…Hector Retamal/Agence France-Presse — Getty Images

George Zhong, a resident of Chengdu, the capital of Sichuan Province in western China, said that he had made trips to three provinces in the past two months and has been actively shopping when he is home. “I spend no less than in previous years,” Mr. Zhong said.

China’s economic growth in the past three months came in slightly below economists’ forecasts of 5.2 percent to 5.5 percent. But the performance was still strong enough that stock markets in Shanghai, Shenzhen and Hong Kong rose in early trading on Monday.

The country’s broadening recovery could also be seen in economic statistics just for September, which were also released on Monday. Retail sales climbed 3.3 percent last month from a year ago, while industrial production was up 6.9 percent.

China’s model for restoring growth may be effective, but may not be appealing to other countries.

Determined to keep local transmission of the virus at or near zero, China has resorted to comprehensive cellphone tracking of its population, weekslong lockdowns of neighborhoods and cities and costly mass testing in response to even the smallest outbreaks.

Image

Credit…Carlos Garcia Rawlins/Reuters

China’s rebound also comes with some weaknesses, particularly a jump in overall debt this year by an amount equal to as much as a third of the economy’s overall output. Much of the extra debt is either borrowing by local governments and state-owned enterprises to pay for new infrastructure, or mortgages taken out by households and companies to pay for apartments and new buildings.

The government is aware of the risk of letting debt accumulate quickly. But reining in new credit would hurt real estate activity, a sector that represents up to a quarter of the economy.

Another risk to China’s recovery is its heavy dependence on exports. The surge in exports in the past three months, along with lower prices for imports of commodities, accounted for a sizable chunk of economic growth. Exports still represent over 17 percent of China’s economy, more than double the proportion that they make up in the American economy.

China’s leaders recognize that the country’s exports are increasingly vulnerable to geopolitical tensions, including the Trump administration’s moves to unwind trade relations between the United States and China. Shifts in global demand might also threaten exports, as the pandemic batters overseas economies.

Image

Credit…Jane Barlow/Press Association, via Associated Press

Xi Jinping, China’s top leader, has increasingly emphasized self-reliance, a strategy that calls for expanding service industries and innovation in manufacturing, as well as enabling residents to spend more.

“We need to make consumers the mainstay,” said Qiu Baoxing, a cabinet adviser who is a former vice minister of housing, at the news conference in Beijing. “By focusing on domestic circulation, we are actually enhancing our own resilience.”

But empowering consumers has long been a challenge in China. Under ordinary circumstances, most Chinese are compelled to save for education, health care and retirement because of a weak social safety net. The economic slowdown, and the pandemic, have meant lost jobs, compounding the problem, particularly for low earners and rural residents.

Beijing’s approach to helping ordinary Chinese during the slowdown has been to provide companies with tax rebates and large loans from state-owned banks, so that businesses would not need to lay off workers. But some economists argue that Beijing should instead be handing out coupons or checks to more directly assist the country’s poorer citizens.

Millions of Chinese migrant workers endured at least a month or two of unemployment in the spring as factories were slow to reopen after the epidemic. Young Chinese found themselves dipping into their savings to eat or taking on second jobs to make up for slashed wages.

But Chinese government economists are wary of providing direct payments to consumers. They say that the government’s priorities are investment-driven growth and measures to improve productivity and quality of life, such as digging new sewerage systems or adding elevators to three million older apartment towers that lack them.

Image

Credit…Keith Bradsher/The New York Times

“We’ve seen a lot of suggestions to increase consumption, but the crux is to enrich people first,” said Yao Jingyuan, a former chief economist of the National Bureau of Statistics who is now a policy researcher for the cabinet.

Western governments have experimented with providing extra-large unemployment checks, one-time payments and even subsidized meals at restaurants. These payments have been aimed at helping families sustain a minimum standard of living through the pandemic — which in turn has fueled demand for imports from China.

The widening of the trade surplus — in which the increase in exports exceeded the growth in imports — represented 0.6 percentage points of the 4.9 percent economic growth, an official said on Monday. Consumption and investment in China accounted for the rest.

“On the whole, China’s economy was primarily driven by domestic demand,” Liu Aihua, a spokeswoman for the National Bureau of Statistics, said at a news conference in Beijing.

But Michael Pettis, a finance professor at Peking University, said that as people in other countries supported by government subsidies continue to turn to China for products during the pandemic, “we’re going to see a resurgence of trade conflict, and not just U.S.-China, but global.”

Liu Yi and Amber Wang contributed research.

Posted on

OnePlus co-founder Carl Pei leaves the company to start a new venture

Carl Pei, who co-founded the smartphone giant OnePlus in his 20s, has left the company, two sources familiar with the matter told TechCrunch.

Pei played an instrumental role in designing the OnePlus smartphone lineup over the years, including the recently launched OnePlus Nord, which has been the company’s biggest hit to date. Outside Shenzhen, China, where OnePlus is headquartered, Pei has also been the face of the Chinese firm, appearing at trade conferences, interacting with loyal customers and giving interviews to the media.

In the early years of OnePlus, Pei devised various marketing strategies for best positioning the company’s products and creating hype about them. In 2014 and 2015, when OnePlus struggled with scaling its inventories, the company sold its phones through invites and several other clever marketing techniques, including one in which people were required to destroy their current phones to buy a new OnePlus smartphone.

Also in the early years of the company, Pei lived almost exclusively in low-cost hotels in China and India to better understand the market and easily travel to new cities. OnePlus is now one of the most successful premium smartphone makers in India and several other markets.

“We didn’t have proper product management. What we lacked in experience, we made up in hours,” he said in an earlier interview. He talked more about the company’s early days and the state of the smartphone market at Disrupt 2019.

Once he publicly asked Samsung to hire him so that he could learn more about overseeing operations and logistics. “So, Samsung, today I have a proposal for you: let me be your intern. Seriously. I would be honored to learn from your team about how you’ve been able to scale, run, and manage your business so successfully,” he wrote on his personal blog.

Pei reached out to Pete Lau in 2012 through social media. The two started OnePlus a year later. “He said, ‘I want to change the world.’ I thought this kid has ambitious thoughts and dreams. I think it comes from the heart and it’s very important. I think he has tenacity,” Lau recalled in an interview in 2015.

Years before they started OnePlus, Pei collaborated with a friend and sold white-labeled MP3 players in China.

Pei, 31, is not joining Samsung, but has clarity on what he wishes to do next. He is starting his own venture, according to a person familiar with the matter. Pei did not respond to a request for comment early Monday.

OnePlus did not respond to a request for comment.

Read More

Posted on

Hong Kong logistics unicorn Lalamove unveils foray into the US

Lalamove, an on-demand logistics service active in China, Southeast Asia, and Latin America, has officially entered the U.S. seven years after launch.

As the COVID-19 pandemic keeps millions of Americans home, Hong Kong-based Lalamove believes it can seize the growing demand for delivery services in the country. It makes its debut in the Dallas Fort-Worth area, a major hub for distribution and logistics in the U.S. In days the service will launch in Chicago and Houston.

The startup was one of the first in Hong Kong to hit the $1 billion unicorn valuation mark alongside its archrival GoGoVan. Its business is multifold and highly localized, but essentially it works as an Uber for businesses and individuals that need to move goods within the city.

In China, where it’s known as Huolala (货拉拉), it primarily serves as a broker between shippers who need to send cargo and a network of truck drivers. In Southeast Asia, the business functions similarly with the addition of food delivery for restaurants, a crowded and cash-burning space. In the U.S., its fleet of sedans, SUVs and pickup trucks are available 24/7, allowing it to target customers spanning catering, retail, e-commerce, manufacturing and construction, with fees starting at $8.90.

“Delivery is essential, especially during the pandemic. But many local businesses don’t have or cannot afford in-house fleets, so we’re excited to work with businesses in the Dallas Fort-Worth area to provide same-day, on-demand delivery services to their customers,” said Blake Larson, international managing director at Lalamove and formerly co-founder of Rocket Internet’s Asia-focused e-hailing startup Easy Taxi.

Like GoGoVan, Lalamove was founded by a Hong Kong entrepreneur who was educated in the U.S. Both companies have scored fundings from heavyweight institutions from China and elsewhere.

Lalamove’s investors included Hillhouse Capital, Sequoia Capital China and Xiaomi founder’s Shunwei Capital. Through a merger with China’s 58 Suyun, GoGoVan counts Tencent, Alibaba, KKR and New Horizon Capital amongst its backers.

The Hong Kong startup’s global expansion comes at a time when TikTok stumbles in the U.S. due to its links to China. In the logistics startup’s case, a Chinese team operates the Chinese division Huolala, while separate international teams manage the overseas segments of Lalamove, TechCrunch understands. The core of TikTok’s challenge in the U.S. is the video app’s dependence on its Chinese parent ByteDance’s technological capabilities.

To date, Lalamove has verified and onboarded more than 500 partner drivers in Dallas Fort-Worth, with plans to add another 500 in the area by the end of this year. It’s also hiring for its regional operational office at a time when the U.S. is struck by widespread virus-induced layoffs, furloughs and slowdown in hiring.

Lalamove claims it has to date matched more than 7 million users with a pool of over 700,000 delivery partners in 22 markets around the world.

Read More

Posted on

Arm CEO Simon Segars discusses AI, data centers, getting acquired by Nvidia and more

Nvidia is in the process of acquiring chip designer Arm for $40 billion. Coincidentally, both companies are also holding their respective developer conferences this week. After he finished his keynote at the Arm DevSummit, I sat down with Arm CEO Simon Segars to talk about the acquisition and what it means for the company.

Segars noted that the two companies started talking in earnest around May 2020, though at first, only a small group of executives was involved. Nvidia, he said, was really the first suitor to make a real play for the company — with the exception of SoftBank, of course, which took Arm private back in 2016 — and combining the two companies, he believes, simply makes a lot of sense at this point in time.

“They’ve had a meteoric rise. They’ve been building up to that,” Segars said. “So it just made a lot of sense with where they are at, where we are at and thinking about the future of AI and how it’s going to go everywhere and how that necessitates much more sophisticated hardware — and a much more sophisticated software environment on which developers can build products. The combination of the two makes a lot of sense in this moment.”

The data center market, where Nvidia, too, is already a major player, is also an area where Arm has heavily focused in recent years. And while it goes up against the likes of Intel, Segars is optimistic. “We’re not in it to be a bit player,” he said. “Our goal is to get a material market share and I think the proof to the pudding is there.”

He also expects that in a few years, we’ll see Arm-powered servers available on all of the major clouds. Right now, AWS is ahead in this game with its custom-built Gravitron processors. Microsoft and Google do not currently offer Arm-based servers.

“With each passing day, more and more of the software infrastructure that’s required for the cloud is getting ported over and optimized for Arm. So it becomes a more and more compelling proposition for sure,” he said, and cited both performance and energy efficiency as reasons for cloud providers to use Arm chips.

Another interesting aspect of the deal is that we may just see Arm sell some of Nvidia’s IP as well. That would be a big change — and a first — for Nvidia, but Segars believes it makes a lot of sense to do so.

“It may be that there is something in the portfolio of Nvidia that they currently sell as a chip that we may look at and go, ‘you know, what if we package that up as an IP product, without modifying it? There’s a market for that.’ Or it may be that there’s a thing in here where if we take that and combine it with something else that we were doing, we can make a better product or expand the market for the technology. I think it’s going to be more of the latter than it is the former because we design all our products to be delivered as IP.”

And while he acknowledged that Nvidia and Arm still face some regulatory hurdles, he believes the deal will be pro-competitive in the end — and that the regulators will see it the same way.

He does not believe, by the way, that the company will face any issues with Chinese companies not being able to license Arm’s designs because of export restrictions, something a lot of people were worried about when the deal was first announced.

“Export control of a product is all about where was it designed and who designed it,” he said. “And of course, just because your parent company changes, doesn’t change those fundamental properties of the underlying product. So we analyze all our products and look at how much U.S. content is in there, to what extent are our products subject to U.S. export control, U.K. export control, other export control regimes? It’s a full-time piece of work to make sure we stay on top of that.”

Here are some excerpts from our 30-minute conversation:

TechCrunch: Walk me through how that deal came about? What was the timeline for you?

Simon Segars: I think probably around May, June time was when it really kicked off. We started having some early discussions. And then, as these things progress, you suddenly kind of hit the ‘Okay, now let’s go.’ We signed a sort of first agreement to actually go into due diligence and then it really took off. It went from a few meetings, a bit of negotiation, to suddenly heads down and a broader set of people — but still a relatively small number of people involved, answering questions. We started doing due diligence documents, just the mountain of stuff that you go through and you end up with a document. [Segars shows a print-out of the contract, which is about the size of two phone books.]

You must have had suitors before this. What made you decide to go ahead with this deal this time around?

Well, to be honest, in Arm’s history, there’s been a lot of rumors about people wanting to acquire Arm, but really until SoftBank in 2016, nobody ever got serious. I can’t think of a case where somebody actually said, ‘come on, we want to try and negotiate a deal here.’ And so it’s been four years under SoftBank’s ownership and that’s been really good because we’ve been able to do what we said we were going to do around investing much more aggressively in the technology. We’ve had a relationship with Nvidia for a long time. [Rene Haas, Arm’s president of its Intellectual Property Group, who previously worked at Nvidia] has had a relationship with [Nvidia CEO Jensen Huang] for a long time. They’ve had a meteoric rise. They’ve been building up to that. So it just made a lot of sense with where they are at, where we are at and thinking about the future of AI and how it’s going to go everywhere and how that necessitates much more sophisticated hardware — and a much more sophisticated software environment on which developers can build products. The combination of the two makes a lot of sense in this moment.

How does it change the trajectory you were on before for Arm?

Read More

Posted on

In U.S.-China Tech Feud, Taiwan Feels Heat From Both Sides

TAINAN, Taiwan — The United States and China are wrestling to lead the world in artificial intelligence, 5G wireless and other cutting-edge technologies. But the real wizardry that makes those advancements possible is being performed on a yam-shaped island that sits between them, geographically and politically.

On Taiwan’s southern rim, inside an arena-size facility stretched out among lush greenery and coconut palms, colossal machines are manipulating matter at unimaginably tiny scale. A powerful laser vaporizes droplets of molten tin, causing them to emit ultraviolet light. Mirrors focus the light into a beam, which draws features into a silicon wafer with the precision, as one researcher put it, “equivalent to shooting an arrow from Earth to hit an apple placed on the moon.”

The high-performance computer chips that emerge from this process go into the brains of the latest tech products from both sides of the Pacific. Or at least they did until last month, when the Trump administration effectively forced leading chip makers in Taiwan — and elsewhere — to stop taking orders from China’s proudest tech champion, the 5G giant Huawei.

The administration’s stranglehold on Huawei shows that for all of China’s economic progress, the United States still has final say over the technologies without which the modern world could not run. Chip making relies on American tools and know-how, which gives officials in Washington the power of life and death over semiconductor buyers and suppliers anywhere on the planet.

Next in the firing line is China’s most advanced chip producer, Semiconductor Manufacturing International Corporation. The U.S. Department of Commerce told American companies last week that they needed permission to export to SMIC, saying its chips could be used by China’s military. If the administration blocks SMIC from using American software and equipment entirely, it will sharply set back Beijing’s hopes for meeting more of its own semiconductor needs.

That leaves Taiwanese chip companies — including the industry’s leading light, Taiwan Semiconductor Manufacturing Company, which owns the Tainan plant — in a tough spot.

Image
Credit…Bart Van Overbeeke Fotografie, via Reuters

They are forced to heed the dictates of American tech policy. Yet they can scarcely ignore the fact that so many of their customers and their customers’ customers are in China, where the Communist government is also threatening Taiwan with ever bolder displays of military force. China has for decades claimed the self-governing democracy as part of its territory.

In the high-stakes tech fight, TSMC had been playing Finland: a sometime friend to both feuding giants. But that is not the way the tech world works anymore.

“China has virtually no room for maneuver,” said Pierre Ferragu, the head of technology research at New Street Research. “The U.S. definitely has the upper hand in the struggle.”

Tensions in the Taiwan Strait are rising more broadly this year.

The Trump administration has stepped up official exchanges with Taiwan ever since its president, Tsai Ing-wen, won re-election in January over an opponent who was friendlier to Beijing. In response, Chinese aircraft and warships have menaced the island with growing frequency.

When a State Department representative, Keith Krach, visited Taiwan recently, Ms. Tsai feted him at a banquet alongside a bevy of government dignitaries and TSMC’s retired founder, Morris Chang, a nod to the company’s significance to Taiwan’s relations with the United States.

American officials have taken a great interest in TSMC, whose advanced chips are used in fighter jets and other hardware critical to America’s military edge. The company said this year that it would build a new factory in Arizona, responding to American concerns about overreliance on offshore production.

Now, the Trump administration’s campaign against Huawei has forced TSMC to turn against one of its biggest customers. With the two companies unable to work together without licenses, Huawei may find itself unable to make its late-model handsets, an important chunk of its business, once it uses up its chip inventory.

“I don’t think Huawei has much of a future unless they can find some way to get their suppliers to get export licenses,” said Matt Bryson, an analyst with Wedbush Securities.

One of Huawei’s deputy chairmen, Guo Ping, said last week that the company was assessing its options.

“Survival is our main goal,” Mr. Guo said in Shanghai. “As Alexandre Dumas once said, all of human wisdom is summed up in two words: wait and hope.”

TSMC executives sound confident that Huawei’s plight will not dent it much. If Huawei cannot order chips from the company, then its rivals will instead.

Mark Liu, TSMC’s chairman, said at an industry conference last week that Taiwan would continue improving its technology so American and Chinese companies had no choice but to keep working with the island.

“We are enjoying the success of the past,” Mr. Liu said. But for the future, “we cannot stay where we used to be before.”

TSMC could still get caught in the middle, though, if the U.S. government’s continuing attacks prompt Beijing to strike back.

A full-blown clampdown on sales to SMIC could increase the risk of Chinese retaliation “really significantly,” said Mr. Ferragu of New Street Research. Countermeasures that Beijing might once have considered too self-defeating — such as choking off Qualcomm’s or Apple’s sales in China, effectively depriving Chinese citizens of most high-end smartphones — could start to seem more acceptable.

Image

Credit…Alex Plavevski/EPA, via Shutterstock

“At this point, it’s really a game of poker,” Mr. Ferragu said. Apple and Qualcomm are both TSMC customers.

For Taiwan, these are not just business questions. China’s reliance on TSMC’s chips has long made people on the island see the company as a bulwark against Chinese military aggression. At its shareholder meeting this summer, an investor, Huang Hsueh-fen, approached the microphone hugging a giant bouquet.

“No matter how serious the pandemic becomes, I must still come offer flowers to the company that is our sacred mountain, protector of the nation,” Ms. Huang said.

Tech workers in Taiwan have a Mandarin rhyme about the young engineers who put in late nights and sacrifice their health for the company: “A hundred thousand youths, a hundred thousand livers, shift by shift TSMC is saving Taiwan.”

So what happens if China stops needing TSMC as much as it does now?

This could happen naturally. TSMC is working at the frontiers of physics to continue doubling the number of transistors it can fit onto a piece of silicon. That principle, known as Moore’s Law, has guided semiconductor development for decades.

Not all tech products today need the most advanced chips, though. Some work best by packaging high-end processors with less sophisticated ones. Simple “internet of things” devices do just fine with simpler chips.

“The way we design chips is changing. It just has to,” said Jay Goldberg, a tech industry consultant and former Qualcomm executive. “Moore’s Law is slowing, and we’re just having to design chips in a way to accommodate that.”

A TSMC spokeswoman, Nina Kao, said demand for the company’s latest production processes was “stronger than ever.”

China could also lessen its dependence on Taiwan by getting better at making chips itself.

Beijing last year created a $30 billion fund for investing in chip projects. In recent months, thousands of Chinese companies have said they are getting into the semiconductor business, according to an analysis by the 21st Century Business Herald, a government-owned newspaper.

Image

Credit…Taiwan Ministry of Foreign Affairs, via Associated Press

China is trying to poach more Taiwanese talent for the task. Dozens of former TSMC managers and engineers joined two ambitious Chinese chip projects last year, according to a person with knowledge of the matter.

Ms. Kao of TSMC said recent turnover was less than 5 percent, which the company considered a healthy level.

Lin Chih-chieh, a law professor at National Chiao Tung University in Hsinchu, Taiwan, said the island needed stronger laws to keep Taiwanese chip makers’ trade secrets from being spirited away to China.

Still, Ms. Lin said, Taiwan’s chip strengths prevent China from subjugating the island as quickly as it did Hong Kong, where the government has curbed civil liberties.

“At least compared to Hong Kong, we are lucky,” she said. “Hong Kong has no ‘Made in Hong Kong’ products, almost nothing.”

Posted on

Trump, Biden and Domestic Economic Policy

In July, former Vice President Joseph R. Biden Jr. presented an economic strategy to “rebuild domestic manufacturing capacity,” restoring local supply chains from semiconductors to pharmaceuticals. In September he added a tax penalty to the plan, aimed at companies that move jobs to other countries, alongside a tax credit for businesses that bring them home.

The proposals might have seemed like something from President Trump’s playbook.

“There is a common concern, which the Trump candidacy forced a lot of people to think harder about,” said Jared Bernstein, a former top economic adviser to Mr. Biden who is informally advising his presidential campaign. And that is “the extent to which globalization has left significant swaths of people in many different communities behind.”

These common understandings could reshape the global economy. No matter who wins in November, economic policy for the next several years will aim to protect American employment from outsourcing driven by employers seeking lower labor costs, and to reclaim a foothold in industries that the United States had given up for lost.

“If the argument is that we need high-paying manufacturing jobs, because they fit the skill set of a lot of people that are being left out, that is an argument for deglobalization,” said Derek Scissors, an economist at the American Enterprise Institute, a conservative think tank in Washington. “We would have to have some deglobalization for this to work.”

Depending on how the next administration deploys the tools of government to serve this cause, the United States could reconfigure the global network of corporate supply chains that multinational corporations have established over the last four decades. A “flat world” with countries ever more closely tied together through trade and investment, pursued by presidents from Ronald Reagan to Barack Obama, seems to be an outdated goal.

A Biden administration is unlikely to continue to impose tariffs on friends and foes alike, deploying protectionist tools in a more strategic and disciplined way. Still, policy proposals suggest that Mr. Biden would stick to the goal of encouraging, steering, cajoling or pushing American companies to develop critical industries and the jobs they support in the United States.

“Biden is not blindly pro-trade, but he doesn’t want to shrink from the world like President Trump has,” said Ben Harris, a senior economic adviser to Mr. Biden and his campaign. “What the vice president proposes is a new approach to globalization, one in which we don’t get behind every trade deal on the grounds that more trade is always better.”

Mr. Trump has put tariffs on imports from rivals and allies, started a trade war with China and blocked the access of Chinese companies to American technology. He renegotiated the North American Free Trade Agreement, short-circuited the World Trade Organization’s dispute settlement system and pulled the United States out of the Trans-Pacific Partnership.

But a membership survey published in September by the American Chamber of Commerce in Shanghai found that despite the administration’s push for American companies to redirect investment to the United States, only 4 percent planned to do so; 79 percent reported no change in plans.

Moreover, the trade war has come at a cost. Tariffs imposed by the United States and retaliatory measures taken by aggrieved trading partners have shaved billions off the U.S. economy, according to a Federal Reserve paper. And a 2019 study by economists at the Fed, Princeton University and Columbia University showed that tariffs imposed additional burdens on American households, raising the cost of imports and curtailing exporters’ access to markets.

For all that cost, there has been no improvement in Mr. Trump’s preferred indicator of economic dominance, the nation’s trade balance. The balance between America’s exports and imports of goods and services sank in July to its deepest deficit since the administration of George W. Bush. The balance in the trade of goods alone recorded its deepest deficit at least since the administration of Mr. Bush’s father.




Trade Balance of Goods

1995

2000

2005

2010

2015

2020

$10

bil.

20

30

40

50

60

70

80

Trade Balance of Goods

1995

2000

2005

2010

2015

2020

$10

billion

Recessions

20

30

40

50

60

70

80


Balance of payments basis

Source: Bureau of Economic Analysis

By Karl Russell

Over the summer, Robert Lighthizer, the top U.S. trade negotiator, published an essay extolling the administration’s pugnacious approach as a strategy that “at long last, prizes the dignity of work.” And yet Moody’s Analytics estimated last year that the trade war with China had cost 300,000 U.S. jobs.

When the administration put tariffs on steel and aluminum from Canada, the United Steelworkers union complained that “the regular chaos surrounding our flawed trade policies is undermining the ability to project a reasoned course and ensure that we can improve domestic production and employment.”

Sign up for On Politics to get the latest election and politics news and insights.

And Harley-Davidson moved production of motorcycles for the European market from the United States to Thailand, to avoid getting caught up in the administration’s trade skirmishes with Europe.

Image
Credit…Luke Duggleby for The New York Times

Under Mr. Biden, “I would expect a more judicious and targeted form of protectionism,” said Kimberly Clausing, an economist at Reed College who has offered advice on tax policy to the Biden campaign. “Tax reform is useful to reduce the tilt of the playing field.” Ms. Clausing supports Mr. Biden’s proposed minimum tax on corporate profits, saying it would counter incentives introduced in the tax reform of 2017 for businesses to outsource production.

Whatever turn American protectionism takes, it will remain squarely focused on China. “Trump did wake us up on the China issue,” added Rob Atkinson, who heads the Information Technology and Innovation Foundation, a think tank close to the U.S. technology industry. “He made it clear that we have to get tough with China.”

Manufacturing has become increasingly automated. So the effort by multinational companies to find cheap workers has taken a back seat to other considerations, like finding skilled labor, being close to consumer markets and ensuring that supply chains can withstand shocks like pandemics, climate-related disasters or even trade wars. And those companies are paying more attention to the risks involved in their complex global networks.

This has reduced the pressure on American jobs. Factory employment remains far from its peak 40 years ago, but manufacturers added nearly 1.5 million jobs in the 10 years after employment hit bottom in February 2010, in the depths of the last recession. And a flight of white-collar service jobs from the United States has yet to materialize.




Manufacturing Employment

20

million

18

16

14

12

10

8

6

4

Recessions

2

’40

’50

’60

’70

’80

’90

’00

’10

’20

Manufacturing Employment

20

million

18

16

14

12

10

8

6

4

Recessions

2

1940

1950

1960

1970

1980

1990

2000

2010

2020


Seasonally adjusted

Source: Bureau of Labor Statistics

By Karl Russell

In August, the McKinsey Global Institute issued a report suggesting that a vast reorganization of global production could be underway: Production of 16 percent to 26 percent of global trade, worth $2.9 trillion to $4.6 trillion, could move elsewhere over the next five years, perhaps closer to the home market.

The driver of this change is fear — fear of natural disasters, pandemics or trade wars that might take out some vital cog in corporation’s far-flung production network. “The global supply chains built over the last 20 years were shaped by cost efficiency and a just-in-time delivery mentality,” said Susan Lund, a co-author of the report. “Now a just-in-case mentality has emerged. It’s the start of a different chapter.”

The United States might emerge a winner in this process. “Buy America” programs and other incentives might draw domestic investment in new technologies. If skilled labor becomes more important for modern manufacturing than cheap labor, the United States is likely to get more of it. “The offshoring that occurred happened 10 to 20 years ago,” Ms. Lund said. “This time it is upside only.”

The new U.S. approach to the world does carry some risk, as the relationship between the two largest economies, which drove the process of globalization for decades, become colder.

It will be difficult for the United States to disengage from China, which remains a huge market for American companies.

Yet the relationship could take a turn for the worse. Mr. Autor, for one, thinks that the new politics of trade and investment is splitting the world into a Chinese bloc and a Western bloc, led by the United States. “It will be a bipolar world, bifurcated, with different standards and different rights,” he said. Where the jobs end up will be a secondary consideration.

Posted on

China Gives Unproven Covid-19 Vaccines to Thousands, With Risks Unknown

First, workers at state-owned companies got dosed. Then government officials and vaccine company staff. Up next: teachers, supermarket employees and people traveling to risky areas abroad.

The world still lacks a proven coronavirus vaccine, but that has not stopped Chinese officials from trying to inoculate tens of thousands, if not hundreds of thousands, of people outside the traditional testing process. Three vaccine candidates are being injected into workers whom the government considers essential, along with many others, including employees of the pharmaceutical firms themselves.

Officials are laying out plans to give shots to even more people, citing emergency use, amounting to a big wager that the vaccines will eventually prove to be safe and effective.

China’s rush has bewildered global experts. No other country has injected people with unproven vaccines outside the usual drug trial process to such a huge scale.

The vaccine candidates are in Phase 3 trials, or the late stages of testing, which are mostly being conducted outside China. The people in those trials are closely tracked and monitored. It is not clear that China is taking those steps for everyone who is getting the shots within the country.

The unproven vaccines could have harmful side effects. Ineffective vaccines could lead to a false sense of security and encourage behavior that could lead to even more infections.

The wide use of vaccines also raises issues of consent, especially for employees of Chinese vaccine makers and state-owned companies who might feel pressure to roll up their sleeves. The companies have asked people taking the vaccines to sign a nondisclosure agreement preventing them from talking about it to the news media.

“My worry for the employees of the companies is it may be difficult for them to refuse,” said Dr. Kim Mulholland, a pediatrician at the Murdoch Children’s Research Institute in Melbourne, Australia, who has been involved in the oversight of many vaccine trials, including those for a Covid-19 vaccine.

Image
Credit…Lintao Zhang/Getty Images

While China is racing the United States and other countries to develop a vaccine, its rivals are moving more cautiously. American companies have pledged to thoroughly vet a vaccine before wide use, despite pressure from President Trump to go faster. In Russia, the first country to approve a vaccine even before trials were completed, the authorities have yet to administer it to a large population, according to health officials and experts.

It is not clear how many people in China have received coronavirus vaccines. Sinopharm, a Chinese state-owned company with a vaccine candidate in late-stage trials, has said hundreds of thousands of people have received its shots. Sinovac, a Beijing-based company, said more than 10,000 people in Beijing had been injected with its vaccine. Separately, it said nearly all its employees — around 3,000 in total — and their families had taken it.

Hong Kong-based Phoenix Television said this month that its Chinese journalists had been given the Sinopharm vaccine.

Tao Lina, a vaccine expert in Shanghai, said part of the government’s motivation was to “test” the public’s willingness to take a vaccine, laying the groundwork for wider acceptance.

“I think this is our country feeling us out,” said Mr. Tao, a former immunologist at the Shanghai Center for Disease Control and Prevention. “That is to say, even without an epidemic, everyone should consider the possibility of a resurgence and weigh whether they want to get a shot or not.”

Image

Credit…Wang Zhao/Agence France-Presse — Getty Images

On Friday, Zheng Zhongwei, an official with China’s National Health Commission, said the government had “gained the understanding and support” of the World Health Organization after China’s cabinet approved the emergency use program. A spokesperson for the W.H.O. said on Saturday that China had issued a “domestic emergency use authorization,” which are issued at the discretion of countries and are not subject to W.H.O. approval.

The vaccine candidates in Phase 3 trials have been previously tested on smaller groups of people. Phase 3 involves administering a candidate and a placebo to hundreds more, to see whether they are safe to take and effective in stopping the coronavirus. Roughly 100,000 people are involved in those trials, based on Chinese company disclosures. Virtually all of them are in other countries, however, because the coronavirus has been largely tamed in China.

Still, the Chinese government had already approved three vaccines for emergency use on others at home. In July, it said it would prioritize medical workers, epidemic prevention personnel, border inspection officials and people who “ensure basic city operations” to receive vaccines.

Now, it appears that those groups could be expanding.

This month, the government of Shaoyang, a city in Zhejiang Province, asked local officials to identify more people who could qualify as “emergency users.” People in schools, kindergartens and nursing homes were recommended for inclusion, as well as travelers heading to “medium- to high-risk areas.”

Other government notices have asked local officials to identify people as candidates for getting vaccinations, though it was not always clear whether they would be inoculated before or after vaccines had cleared Phase 3 trials.

Tough containment efforts appear to have tamed the virus in most parts of China. Still, outbreaks in Beijing and the far west in recent months have spooked the country’s leaders, who worry that lockdowns could disrupt the economic recovery. Chinese public health experts are also concerned that the arrival of winter and the need to keep people indoors might usher in another outbreak.

A senior Chinese official said this month that a vaccine could be made available to the public as early as November. That same day, a spokeswoman for the United Arab Emirates’ Foreign Ministry said on Twitter that the government had authorized the Sinopharm vaccine to be given to its frontline workers after successful Phase 3 trials in the Emirates.

Image

Credit…Tingshu Wang/Reuters

Raina MacIntyre, who heads the biosecurity program at the Kirby Institute of the University of New South Wales in Sydney, Australia, said she would not recommend the emergency use of vaccines before the conclusion of Phase 3 trials. AstraZeneca, the British-Swedish company, halted late-stage testing in the United States on a vaccine candidate this month after one volunteer fell seriously ill for unknown reasons.

Flawed vaccines can cause significant health problems. In 2017, children who were injected with Sanofi’s dengue vaccine became sicker. Children vaccinated against respiratory syncytial virus, or R.S.V., in the 1960s also suffered side effects, resulting in trials being scrapped.

Broad inoculation campaigns also increase the risk of getting multiple vaccines, which could have adverse effects on a person’s immune response.

“It may be three to six months before we get Phase 3 trial results — it’s not that long to wait,” Dr. MacIntyre said. “You are potentially muddying the waters for the time when we do have Phase 3 trial data for the best possible vaccine.”

Still, China may not want to wait.

In an interview with China Central Television, the state broadcaster, Mr. Zheng, the health official, said that when cold weather arrived, the government might consider expanding the scope of who qualified for emergency use, adding people who work in markets, transportation and the service industry.

“The goal is to first establish an immune barrier among special populations, so that the operations of the entire cities will have a stable guarantee,” Mr. Zheng said.

The vaccine makers and local governments stress that participation is voluntary, and many people who take the vaccines pay a considerable amount to do so. According to government notices, the vaccines would cost about $148, putting them out of reach for many in a country where 600 million people make that much in a month.

It is not clear whether recipients have been fully warned about the risks of taking an unapproved vaccine.

Dr. Mulholland, of the Murdoch institute, said he would give an experimental coronavirus vaccine only to health care workers, especially in places like Brazil, which has one of the world’s highest case counts, and continue monitoring them. “They can be educated on the potential risks,” he said.

Image

Credit…Nicolas Asfouri/Agence France-Presse — Getty Images

Jerome Kim, head of the International Vaccine Institute, said he would like to know whether the Chinese authorities were following up on the vaccine recipients. He worries that people might engage in risky behavior if they believe they are protected by a vaccine of unknown efficacy.

“That has all sorts of negative consequences,” Dr. Kim said. “They could be infected and not know it, or they could be spreading the infection because they are relatively asymptomatic if the vaccine partially works.”

That possibility seems not to have fazed many in China.

On a recent Tuesday, Chen Deming, a former commerce minister, boasted to a trade and investment forum in Beijing that he did not need to wear a mask because he had taken a vaccine in Phase 3 trials. “Everybody, please relax,” he said, drawing laughter and applause from the audience.

Later, in an interview on the sidelines of the event, Mr. Chen, who turns 71 this year, said that his vaccine was developed by Sinopharm and that he had developed antibodies to protect against the coronavirus. He said a third of the Commerce Ministry’s staff had joined him in applying to receive the inoculation.

“Because I go abroad sometimes, I applied to take it,” Mr. Chen told a New York Times reporter. Later, he added: “Do you want a shot, too?”

Keith Bradsher contributed reporting. Amber Wang, Claire Fu and Liu Yi contributed research.

Posted on

U.S. Places Restrictions on China’s Leading Chip Maker

WASHINGTON — The Trump administration has placed new restrictions on exports to Semiconductor Manufacturing International Corporation, China’s most advanced maker of computer chips, a measure that could deepen the technology conflict between China and the United States.

In a letter on Friday, the Department of Commerce told American companies in the chip industry that they must first acquire a license to sell technology to SMIC and its subsidiaries. The department said it was taking the action after a review in which it determined that the Chinese company “may pose an unacceptable risk of diversion to a military end use in the People’s Republic of China.”

The measure, which could cut SMIC off from the American software and other technology it needs to make its products, comes as the Trump administration takes a harsher stance against Chinese technology companies that it has deemed a national security threat. The administration has clamped down on shipments to the Chinese tech giant Huawei, restricted exports to dozens of other Chinese companies by placing them on a blacklist this year and moved to ban the Chinese-owned social media services WeChat and TikTok.

The Commerce Department did not immediately reply to requests for comment. The letter was first reported by The Financial Times.

The Pentagon, in particular, has expressed concerns that SMIC, whose major shareholders include several Chinese state entities, has ties with the Chinese military.

A SMIC spokeswoman said on Saturday that the company had no relationship with the Chinese armed forces and that it produced chips solely for commercial and civilian use. She added that the company had not received any official notice from the Commerce Department regarding new export restrictions.

Factories in China churn out a huge share of the world’s cellphones, computers and internet equipment. But the silicon brains of that gear are often shipped in from overseas.

Last year, mainland China imported more than $300 billion in computer chips, more than it spent on crude oil. The country’s leader, Xi Jinping, has put enormous resources toward making China more self-reliant in semiconductors and other advanced technologies.

But state support has only taken Chinese chip companies so far. Though SMIC is China’s most technologically advanced chip maker, its manufacturing processes are years behind those of industry leaders like Samsung and Taiwan Semiconductor Manufacturing Company in terms of the number of transistors they can squeeze onto a piece of silicon. That means SMIC cannot make the intricate chips that best support the latest, most demanding applications.

Even to produce its less sophisticated semiconductors, SMIC relies on software and machines from American companies. Analysts at the investment bank Jefferies estimate that up to half of SMIC’s equipment currently comes from U.S. suppliers. SMIC could struggle to stay in business if those partners cannot service and upgrade the company’s manufacturing equipment.

SMIC’s business has already been hit this year by the Trump administration’s curbs on Huawei. In recent months, the Commerce Department has curtailed the Chinese tech giant’s ability to buy semiconductors anywhere in the world, including from SMIC. Huawei’s chip unit accounted for nearly one-fifth of SMIC’s sales last year, according to estimates by Credit Suisse analysts. Qualcomm, the American chip giant, is another customer of SMIC’s.

Ana Swanson reported from Washington, and Raymond Zhong from Taipei, Taiwan.

Posted on

China Is on a Building Binge, and the Global Economy Could Benefit

The coronavirus pandemic forced China to bring industrial activity to a halt earlier this year, but the country is revving its engines again — and global prices of metals are reflecting that renewed appetite for growth.

China consumes roughly half of the world’s industrial metals, according to analysts. As the country emerged from the worst of the pandemic in March, the Chinese government unleashed a program of enormous fiscal stimulus aimed at building bridges, roads, utilities, broadband and railroads across the country. As a result, the prices of iron ore, nickel, copper, zinc and other metals used to build infrastructure have surged in recent months.

Since late March, prices of iron ore — the key ingredient in steel — have risen more than 40 percent. Nickel, needed for stainless steel, and zinc, used to galvanize metal, are up more than 25 percent. Copper, which is used in wiring for power transmission, construction and car manufacturing, and has long been seen as a barometer for the world’s industrial economy, is also up, around 35 percent.

“China, as usual, went the investment route and is massively investing in metals-intensive infrastructure,” said Caroline Bain, a commodities market analyst with Capital Economics in London. “So there’s been a very strong pickup in China’s demand for metals.”

Last month, China’s state railway operator announced plans to double the size of its high-speed rail network over the next 15 years. In July, investment from China’s state-owned enterprises, including giants such as China National Offshore Oil Corporation and China Mobile, surged 14 percent from a year earlier, according to Standard & Poor’s analysts. (Private companies, by comparison, bolstered investment by just 3 percent.)

Image
Credit…Agence France-Presse — Getty Images

In Guangdong, the country’s most populous province, regional officials plan to spend some 700 billion yuan — about $100 billion — this year on public medical facilities, 5G networking and transportation infrastructure.

In February, the coronavirus outbreak prompted a lockdown of much of the country’s economy, the second largest in the world after that of the United States. From January to March, China’s economy contracted 6.8 percent, the first decline the country has acknowledged in roughly half a century.

Industrial activity stopped, causing metal prices to plunge. Copper and aluminum prices all dived roughly 20 percent in that period, while iron ore fell about 15 percent. The sudden pause in demand from such a big buyer immediately strained several countries that have built large parts of their economy around digging ore out of the ground and shipping it to China.

[embedded content]

Australia’s exports to China — mostly iron ore and coal — tumbled roughly 20 percent, as the country fell into its first recession in nearly 30 years. Metal exports from Brazil, Chile and Peru also slumped, driven by cratering demand from China and declines in mining production, but also because miners were forced to halt operations as the coronavirus spread locally. The share prices of global mining giants, which get large portions of their revenue from China, cratered. In local currency terms, Vale in Brazil and the Anglo-Australian giant Rio Tinto both tumbled roughly 40 percent from January to March.

But the response of the authoritarian government in China — its state-led model that gives Beijing significant influence over the direction of the economy — was enormous, helping China post one of the fastest recoveries of any of the world’s largest economies in recent months.

Goldman Sachs’s estimates of Chinese budget deficits — a measure that includes both official budget deficit numbers and a variety of off-balance-sheet government support that is common in China — ballooned to 20 percent of gross domestic product in the first half of 2020 from about 10 percent at the end of 2019, as the country pumped money into the economy.

Image

Credit…Jerome Favre/EPA, via Shutterstock

Recent economic reports from China show where that government money has flowed. August data on industrial production revealed 5.6 percent growth over the same month last year, firmly establishing a V-shaped recovery for the sector. Industrial production in sectors tied to infrastructure, such as cement, steel and iron, all posted strong gains. Other official data on investment showed growth in utilities, road and rail construction.

Economists at the Organization for Economic Cooperation and Development expect that China’s G.D.P. will grow 1.8 percent this year, making it the only member of the Group of 20 nations that will not suffer a recession this year. That’s the best expected performance of any of the countries the organization tracked in its latest economic update.

“The recovery in G.D.P. is much faster and stronger than elsewhere,” said Ms. Bain of Capital Economics.

That’s not only good news for metals markets, but could also herald better times for the global economy. Analysts have studied the prices of some metals as a leading indicator of global economic growth, even referring to copper as “Dr. Copper” because of its supposed ability to predict the direction of the economy as well as any economist with a Ph.D.

“People’s perception of the economy is how weakened it is, yet all the industrial metals are telling you a very different story,” said Chris Verrone, an analyst and partner at Strategas Research in New York. “We think copper is the market trying to tell us that the economy is stronger than we expect.”

Read More

Posted on

China Is on a Building Binge, and Metal Prices Are Surging

The coronavirus pandemic forced China to bring industrial activity to a halt earlier this year, but the country is revving its engines again — and global prices of metals are reflecting that renewed appetite for growth.

China consumes roughly half of the world’s industrial metals, according to analysts. As the country emerged from the worst of the pandemic in March, the Chinese government unleashed a program of enormous fiscal stimulus aimed at building bridges, roads, utilities, broadband and railroads across the country. As a result, the prices of iron ore, nickel, copper, zinc and other metals used to build infrastructure have surged in recent months.

Since late March, prices of iron ore — the key ingredient in steel — have risen more than 40 percent. Nickel, needed for stainless steel, and zinc, used to galvanize metal, are up more than 25 percent. Copper, which is used in wiring for power transmission, construction and car manufacturing, and has long been seen as a barometer for the world’s industrial economy, is also up around 35 percent.

“China, as usual, went the investment route and is massively investing in metals-intensive infrastructure,” said Caroline Bain, a commodities market analyst with Capital Economics in London. “So there’s been a very strong pick up in China’s demand for metals.”

Last month, China’s state railway operator announced plans to double the size of its high-speed rail network over the next 15 years. In July, investment from China’s state-owned enterprises, including giants such as China National Offshore Oil Corporation and China Mobile, surged by 14 percent compared with the prior year, according to Standard & Poor’s analysts. (Private companies, by comparison, bolstered investment by just 3 percent.)

Image
Credit…Agence France-Presse — Getty Images

In Guangdong, the country’s most populous province, regional officials plan to spend some 700 billion yuan — about $100 billion — this year on public medical facilities, 5G networking and transportation infrastructure.

In February, the coronavirus outbreak prompted a lockdown of much of the country’s economy, the second largest in the world’s after that of the United States. From January to March, China’s economy contracted by 6.8 percent, the first decline the country has acknowledged in roughly half a century. Industrial activity stopped, causing metal prices to plunge. Copper and aluminum prices all dove roughly 20 percent in that period, while iron ore fell about 15 percent. The sudden pause in demand from such a big buyer immediately strained several countries that have built large parts of their economy around digging ore out of the ground and shipping it to China.

[embedded content]

Australia’s exports to China — mostly iron ore and coal — tumbled roughly 20 percent, as the country fell into its first recession in nearly 30 years. Metal exports from Brazil, Chile and Peru also slumped, driven by cratering demand from China and declines in mining production, but also because miners were forced to halt operations as the coronavirus spread locally. The share prices of global mining giants, which get large portions of their revenue from China, cratered. In local currency terms, Vale in Brazil and the Anglo-Australian giant Rio Tinto both tumbled roughly 40 percent from January to March.

But the response of the authoritarian government in China — its state-led model that gives Beijing significant influence over the direction of the economy — was enormous, helping China post one of the fastest recoveries of any of the world’s largest economies in recent months.

Goldman Sachs’s estimates of Chinese budget deficits — a measure that includes both official budget deficit numbers and a variety of off-balance sheet government support that is common in China — ballooned to 20 percent of gross domestic product in the first half of 2020 from about 10 percent at the end of 2019, as the country pumped money into the economy.

Image

Credit…Jerome Favre/EPA, via Shutterstock

Recent economic reports from China show where that government money has flowed. August data on industrial production revealed 5.6 percent growth over the same month last year, firmly establishing a V-shaped recovery for the sector. Industrial production in sectors tied to infrastructure, such as cement, steel and iron, all posted strong gains. Other official data on investment showed growth in utilities, road and rail construction.

Economists at the Organization for Economic Cooperation and Development expect that China’s G.D.P. will actually grow by 1.8 percent this year, making it the only member of the Group of 20 nations that will not suffer a recession this year. That’s the best expected performance of any of the countries the organization tracked in its latest economic update.

“The recovery in G.D.P. is much faster and stronger than elsewhere,” said Ms. Bain of Capital Economics.

That’s good news not only for metals markets, but could also herald better times for the global economy. Analysts have studied the prices of some metals as a leading indicator of global economic growth, even referring to copper as “Dr. Copper” because of its supposed ability to predict the direction of the economy as well as any economist with a Ph.D.

“People’s perception of the economy is how weakened it is, yet all the industrial metals are telling you a very different story,” said Chris Verrone, an analyst and partner at Strategas Research in New York. “We think copper is the market trying to tell us that the economy is stronger than we expect.”

Read More