Tag Archives: China

Hope for the Best and Plan for the Worst in 2018

Courtesy of Iecs.

The world economy has been booming.  Bloomberg says the world economy is approaching its best year since 2011.

On the other hand, there are always things that can go wrong. Here are a few possible events that could put the brakes on continued, unencumbered growth.

Korea

Though all-out war seems unlikely, other tension can exert serious negative pressure on world economy, mostly because South Korea makes up 2% of the entire world’s gross domestic product.

China

Rapidly rising debt and slow economic growth forced credit rating agencies to downgrade China as an investment opportunity, for the first time in 30 years. The country did announce economic reforms for the coming year, but analysts feel that if the reforms come too late, there could be serious de-stabilization in the Chinese economy.

US Protectionism

Donald Trump’s “America First” policies could backfire and cause our biggest trade partners, especially China to retaliate with some “protectionism” of their own. This could then lead to an unpredictable global business climate and unstable operating costs.

NAFTA

The uncertainty caused by President Trump’s threat to pull out of the North American Trade Agreement, which has been operational since 1994, could disrupt markets, reduce credit growth, and have many other dire consequences to our best trading partners, Mexico and Canada.

European Union

The EU had more economic growth in 2017 than the US, but that is not a guarantee that such a state of affairs will continue. The rise of the far-right in the East, Brexit, immigrants and more can all lead to destabilization and uncertainty in the Eurozone marketplace.

Trump Brings Business Back from China

Courtesy of Iecs.

Several companies announced business deals worth $250 billion between the United States and China in conjunction with President Donald Trump’s recent Asia tour.

One of the more prominent deals was forged with Boeing. The aerospace giant forged a deal worth $37 billion in sales of planes to the communist behemoth. It was not made clear if this deal is part of a previous announcement from Boeing to sell hundreds of jets to yet unrevealed buyers.

General Electric was also able to forge three separate deals in China valued at a total of $3.5 billion. In addition, Qualcomm was in discussions with Xiaomi, Oppo and Vivo to purchase about $12 billion worth of semiconductors. Ford Motor Company will be investing $756 million in a joint venture with its Chinese partner Anhui Zotye Automobil to manufacture electric cars. This deal was already announced in August this year.
Some of the deals announced on Thursday have been in negotiations for a while, while other deals are only in the early stages, and the outcomes are far from assured.

Other deals in the works with China and US business include:

• A $83.7 billion investment by the China Energy Investment Corporation Limited in several shale gas and chemical manufacturing projects in West Virginia.
• Chinese state-run oil producer Sinopec has agreed to help develop Alaska’s liquefied natural gas sector. The deal, worth about $43 billion, is between Sinopec, the Bank of China and the China Investment Corp. It is estimated that about 12,000 jobs will be created during the construction of project.
• Chinese importers agreed to buy $5 billion worth of soybeans from US producers during 2018.
• Chinese e-commerce company JD.com said it will purchase $2 billion in food and agriculture products over the coming three years from the US, including $1.2 billion in Montana beef and Smithfield Foods pork.

Intellectual Property Theft Costing US $600 Billion Each Year

NKIE & McDnoald’s [sic] sandals in China. Photo by Stephen Woolverton.
According to private watchdog group, the Commission on the Theft of American Intellectual Property, annual losses of intellectual property range from around $225 billion to as much as $600 billion. The breakdown is as follows:

  • Theft of Trade Secrets: between $180 billion and $540 billion.
  • Counterfeit Goods: between $29 billion and $41 billion.
  • Pirated Software: $18 billion.

China, including Hong Kong, is the biggest culprit, says the commission, accounting for about 87 percent of the counterfeit goods which are confiscated at the border. The report issued by the commission states that Chinese authorities actually encourage the theft of intellectual property.

The commission is headed by former governor of Utah and Republican presidential candidate Jon Huntsman, who was also a US ambassador to China; and a former director of US national intelligence, Admiral Dennis Blair.

“The vast, illicit transfer of American innovation is one of the most significant economic issues impacting U.S. competitiveness that the nation has not fully addressed,” Huntsman said. “It looks to be, must be, a top priority of the new administration.”

Seven Billion Dollar Deal Could Bring 50,000 Jobs to US

The top and side of an iPhone 5S, externally identical to the iPhone 5. Photo courtesy of Calerusnak

Two high tech giants, Foxconn and Apple, are considering a deal to build a panel factory in the United States at a cost of about $7 billion and could create between 30,000 and 50,000 jobs. Chairman Terry Gou of Foxconn said that an investment by Foxconn’s Sharp division will depend on the terms negotiated for the deal at the state and federal levels.

The announcement of the deal comes close on the heels of President Donald Trump’s inaugural address in which the new president promised to make “America First” as the backbone of his policies leading the nation. Trump stated in his speech: “We will follow two simple rules: buy American and hire American.”

One of Trump’s campaign promises was to try and persuade Apple to bring the manufacture of iPhones to US shores. Trump said that he was optimistic that Tim Cook, CEO of Apple, had his “eyes open” to the possibility. Foxconn is the biggest producer of iPhones.

Gou said that Trump-style protectionism was inevitable, but he is unsure how Americans will feel about spending hundreds of dollars more for a phone that does not work any better than a less expensive model that was made overseas.

Gou vowed to increase his investments in China. Apple is also dependent on China, not just for production, but also for sales. Last year China made up 22 percent of Apple’s total revenue, some $46.4 billion.

All the ‘Coffee’ in China: Starbucks Moving East

Starbucks, the giant coffee purveyor, is planning on adding an additional 12,000 stores to their existing 25,000 within the next five years. Luckily for people who like to see other stores besides those that sell coffee, not all of the additional 12,000 are going to be in Manhattan. As a matter of fact, only half are going to be built in either the US or China.

But if you really do like coffee and were even slightly worried that you might need to walk more than 30 seconds from wherever you may be to get your mandatory Caramel Brulée Latte, you can rest at ease now. As CEO Howard Schultz puts it:

“These are the early days of the growth and development of the company. If Starbucks was a 20-chapter book, I still think we’re in chapter 4 or 5.”

“Demand is there, and our ability to deploy capital and get the return on invested capital is very strong,” Starbucks President and COO Kevin Johnson said.

The fabulously successful company discussed their business plans at an investor day even in New York City last week. Schultz reassured his shareholders that:

“Our core business has never been stronger in the U.S. and around the world.”

Starbucks has its eye on the enormous potential market in China.

“Not only will China one day be bigger than the U.S., but our business in China will demonstrate that we will be one of the…most significant winners in terms of a Western consumer brand,” he said.