Firms in China remain wary despite US trade deal

As Chinese Vice Premier Liu He travels to Washington to sign a preliminary trade agreement, manufacturers and suppliers say they fear the deal could be upended even after it is signed. (Shutterstock)
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Updated 13 January 2020

Firms in China remain wary despite US trade deal

  • Companies forging ahead with contingency plans in case the tariff war resumes between Beijing and Washington

BEIJING: Washington and Beijing may be ready to sign a preliminary trade agreement, but companies in China are not taking any chances, forging ahead with contingency plans in case the tariff war resumes.

As Chinese Vice Premier Liu He travels to Washington from Monday to Wednesday to seal the deal, manufacturers and suppliers said that they fear the agreement could be upended even after it is signed.

Rather than focusing on the agreement, they are planning for the worst — seeking new markets abroad, increasing their presence at home or moving production overseas.

The “Phase One” deal signaled a de-escalation in a trade conflict pitting the world’s two most powerful economies against each other for nearly two years.

But even as the US held off last month from a further escalation in tariffs, firms continue bearing the brunt of existing levies as well as suffering a lower volume of orders amid simmering trade tensions.

Washington maintains 25 percent tariffs on about $250 billion worth of Chinese imports.

“Even if they signed the Phase One deal, we don’t know if things will change at a later stage,” said Alfred Wong, CEO of D&S Products Manufactory, which is headquartered in Hong Kong and has a factory in the southern trade hub of Shenzhen.

Wong’s company, which makes child safety products and greeting cards, has moved almost a third of its production to Sri Lanka since last September, even though it has not been hit hard by existing tariffs.

Wong said that clients were unlikely to give it new deals if it did not adopt a “China plus one” strategy of diversifying operations outside the country. He added that orders for products had fallen last year, much of it due to uncertainty over potential escalations in tariffs.

“Even if President Donald Trump were not in office, the US could still take action against China,” said Wong. “Things are unlikely to return to the way they were before the trade war.”

Jason Lee, CEO of metal parts manufacturer Shanghai EverSkill M&E, said the US market made up about 60 percent of his company’s sales before the trade war, but this has dropped to around 40 percent.

He is now looking for more clients outside the US. “In the long run, as a Chinese supplier, we can only improve on our products and ensure they are better compared with those from elsewhere. That is the most fundamental solution,” Lee said.

Instead of looking abroad, Silver Star, a robot vacuum-cleaner maker headquartered in Shenzhen, is now seeking to increase its market share within China, particularly via e-commerce.

“Macroeconomic policies are not within the control of small business owners like us,” said company CEO Ludwig Ye.

Some companies are also doing less research and development for new products. Kim Ng, managing director of kitchen gadgets producer Ko Fung, said this has had a knock-on effect on business for the rest of the year as the production of new goods typically comes after research and development.

Ng added that the potential cut in tariffs in the Phase One deal is only from 15 percent to 7.5 percent on around $120 billion of Chinese imports.

“President Trump is attacking China to boost his popularity, and it is (a US presidential) election year. I expect the further stages of negotiations will be more difficult,” he said.

Iris Pang, Greater China economist at ING, said the rollback on tariffs is likely to benefit only “a very small group of exporters”.

UOB bank’s head of research Suan Teck Kin said that while the deal suggests that trade tensions have stopped escalating, it does not address other sources of strain such as China’s subsidies to state-owned enterprises.

Analysts also remain divided on whether China is likely to raise its purchase of US agricultural goods to at least $40 billion annually over two years, a figure invoked by US officials.

China has not confirmed the numbers, but Suan said it was not impossible to achieve.

If US farm-product purchases hit around $40 billion by 2021, it would likely represent about 23 percent of China’s agricultural imports. At its 2015 peak, US farm products made up nearly 25 percent of China’s imports, he said.

Tensions also remain on other fronts, especially in technology, with the US having imposed sanctions on Chinese telecom champion Huawei.

“There seems to be an escalation of the tech war between China and the US, and between China and the rest of the world,” said Pang.

“It seems that it’s not only a trade war now, it’s an overall resistance towards China’s development of advanced technologies.”


Big oil feels the heat on climate as industry leader promises: ‘We will be different’

Updated 22 January 2020

Big oil feels the heat on climate as industry leader promises: ‘We will be different’

  • Trump singles out ‘prophets of doom’ for attack
  • Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal

LONDON: Teenage environmental activist Greta Thunberg slammed inaction over climate change as the global oil industry found itself under intense scrutiny on the opening day of the World Economic Forum in Davos.

The teenage campaigner went head to head with US President Donald Trump, who dismissed climate “prophets of doom” in his speech.
She in turn shrugged off the US president’s pledge to join the economic forum’s initiative to plant 1 trillion trees to help capture carbon dioxide.
“Planting trees is good, of course, but it’s nowhere near enough,” Thunberg said. “It cannot replace mitigation. We need to start listening to the science and treat this crisis with the importance it deserves,” the 17-year-old said.
The 50th meeting of the World Economic Forum was dominated by the global threat posed by climate change and the carbon economy.
The environmental focus of Davos 2020 caps a year when carbon emissions from fossil fuels hit a record high, and the devastating effects of bushfires in Australia and other climate disasters dominated the news.
Oil company executives from the Gulf and elsewhere are in the spotlight at this year’s Davos meeting as they come under increased pressure to demonstrate how they are reducing their carbon footprint.
“We are not only fighting for our industry’s life but fighting for people to understand the things that we are doing,” said Vicki Hollub, CEO of Occidental, the US-based oil giant with extensive oil operations in the Gulf. “As an industry when we could be different — we will be different.”

‘Planting trees is good, but nowhere near enough,’ activist Greta Thunberg told Davos. (Shutterstock)

She said the company was getting close to being able to sequester significant volumes of CO2 in the US Permian Basin, the heartland of the American shale oil industry which is increasingly in competition with the conventional oil producers of the Arabian Gulf.
“The Permian Basin has the capacity to store 150 gigatons of CO2. That would be 28 years of emissions in the US. That’s the prize for us and that’s the opportunity. People say if you’re sequestering in an oil reservoir then you are producing more oil, but the reality is that it takes more CO2 to inject into a reservoir than the barrel of oil that it makes come out,” Hollub said.
The challenge Occidental and other oil companies face is to make investors understand what is happening in this area of carbon sequesteration, she added.
The investment community at Davos is also looking hard at the oil industry in the face of mounting investor concerns.
Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal. It accused some of these groups of failing to live up to the World Economic Forum goal of “improving the state of the world.”