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China-Made Cars Are Taking Over the World

The country is poised to become the No. 2 exporter of passenger vehicles, surpassing the US and South Korea and risking new tensions with trading partners and rivals.

Car made in ChinaBy Tom Hancock
2023.1.26

When Andreas Tatt, a manager at a greeting card company in Canterbury, UK, was interested in buying a new car, he knew he’d go electric. But after considering a Tesla Model 3 and the Porsche Taycan, he settled on a less familiar choice: a yellow-gold, battery-powered Polestar 2 manufactured by Volvo and its Chinese parent Zhejiang Geely Holding Group Co.

“It turns a lot of heads, partly due to its color, partly due to people not knowing what it is,” says Tatt, who waited four months for the vehicle to be shipped from Luqiao in eastern China. “I did have some concerns that the build quality may not be the best,” he says. “Upon test driving, any doubt of quality issues was put to rest.”

As China’s auto brands woo more and more foreign customers like Tatt, the nation is poised to become the world’s No. 2 exporter of passenger vehicles, a milestone that could reshape the global auto industry and spark new tensions with trading partners and rivals.

Overseas shipments of cars made in China have tripled since 2020 to reach more than 2.5 million last year, according to data from the China Passenger Car Association. That’s only a whisker (about 60,000 units) behind Germany, whose exports have fallen in recent years. China’s numbers, behind Japan but ahead of the US and South Korea, herald the emergence of a formidable rival to the established auto giants.

Chinese brands are now market leaders in the Middle East and Latin America. In Europe, the China-made vehicles sold are mostly electric models from Tesla Inc. and Chinese-owned former European brands such as Volvo and MG, and European brands like Dacia Spring or the BMW iX3, which is produced exclusively in China. A raft of homegrown marques like BYD Co. and Nio Inc. are ascending as well, with ambitions to dominate the world of new-energy vehicles. Backed by Warren Buffett’s Berkshire Hathaway Inc., BYD is already charming EV buyers in developed countries such as Australia.

The Tesla Gigafactory in Shanghai.

The Tesla Gigafactory in Shanghai.

It’s just the beginning, according to Xu Haidong, deputy chief engineer at the state-backed China Association of Automobile Manufacturers. The target is to sell 8 million passenger vehicles overseas by 2030—more than twice Japan’s current shipments, he says.

The trend underscores that China has moved beyond being the “world’s factory” for low-cost consumer electronic devices, appliances and Christmas toys. By shifting to more complex and sophisticated products for competitive, highly regulated markets, Chinese companies are moving up the value chain in manufacturing—a key driver of growth that transformed the once-struggling communist economy into today’s quasi-capitalist $18 trillion juggernaut. Indeed, the Economic Complexity Index compiled by the Growth Lab at Harvard University, which analyzes the range of products a country exports, ranks China 17th in the world, a rise from 24th a decade ago.

“We have to have them on the radar screen, without counting out the usual suspects,” Mercedes-Benz Group AG Chief Executive Officer Ola Kallenius said during the Paris Motor Show in October. “The competitive intensity is increasing. It’s the most fun time to work in automotive since 1886”—the year that Carl Benz, the father of the automobile, rolled out the first car powered by a gas engine—“but it’s also the most uncertain time.”

The surge in car exports has largely gone unnoticed in the US, partly because it happened during the coronavirus pandemic and partly because Chinese carmakers are mostly focused on Europe, Asia and Latin America. General Motors Co. did sell about 40,000 of its China-made Buick Envision compact SUVs in the US in 2021, but political tensions, the continuation of Trump-era tariffs and subsidies aimed at boosting domestic EV production have diminished the appeal of that market.

Entry into Europe had long been a goal for Chinese companies, which started exhibiting at motor shows on the continent in the early 2000s. A series of failed safety tests around 2007 dashed those hopes. “Frankly, I thought that was it, forever,” says Jochen Siebert at JSC Automotive, a car consulting firm in Singapore.

BYD’s exhibit at the 2023 Brussels Motor Show.100th European Motor Show
BYD’s exhibit at the 2023 Brussels Motor Show.

But thanks to increasing automation and resulting standardization— Goldman Sachs Group Inc. says new auto plants in China have the highest levels of robot usage in the world—those concerns are now history. As quality improved over the past decade, Chinese cars started acing European safety tests. China’s tough curbs on air pollution have also helped most of its cars meet European emissions standards.

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

In a watershed year for China-made cars, exports to the European Union surged 156% in 2021, to 435,000 units, according to Eurostat. But the rapid rise in EV shipments from the country risks provoking a political backlash in the European Union, according to Agatha Kratz, a director at Rhodium Group. “Part of this is just Chinese companies are getting better, but some of it is overcapacity in China,” she says. “This is going to be a pain point. It could generate a really strong reaction in Europe in terms of trade protections.”

The premium-priced Polestar that Tatt purchased is an exception: China tends to export relatively cheap cars. At around $13,700, the average price of an exported China-made passenger vehicle was about one-third that of a German car in 2021, and about 30% less expensive than a Japanese make, according to data provided by UN Comtrade. That means Chinese cars are most likely to pose a threat to cheaper Japanese and South Korean models, rather than to German marques.

Domestically-manufactured cars to be exported are lined up in a terminal at the Port of Lianyungang in Lianyungang City, east China’s Jiangsu Province

Domestically manufactured cars lined up for export at China’s Port of Lianyungang.Domestically manufactured cars lined up for export at China’s Port of Lianyungang.

Authorities in Beijing aren’t too concerned, at least for now. “It’s been proved that the strength of one country’s auto industry will be finally tested by the international market,” says Gao Yang, a director of foreign investment at the Ministry of Commerce. She added that the government will encourage Chinese automakers to acquire foreign companies.

Having demonstrated that it’s a reliable manufacturing hub for industry majors, China has been leading the charge on the next frontier: EVs. Local carmakers have found the electric platform relatively easy to master compared with the complex internal combustion engine.

“The switch to battery means the motor is no longer a differentiator,” says Alexander Klose, executive vice president for overseas operations at Aiways Automobiles Co., a pure-Chinese EV maker, which has sold several thousand vehicles in Europe. Technologically, “it’s created a level playing field,” he says.

A global push to cut carbon emissions and save the planet has prompted Beijing to encourage EV makers and buyers with subsidies, while a robust local supply chain has made it cheaper to make an EV in China than in any other place. Tesla’s Shanghai factory produced almost 711,000 cars last year and accounted for 52% of the company’s worldwide output. The measures have also spawned dozens of domestic manufacturers like Aiways. Many have barely made a dent, but BYD, Nio and XPeng Inc. are among standouts with potential to shine on the global stage.

BYD, which also makes its own batteries and chips, is the biggest EV producer at home. It has ambitions of becoming the Toyota of EVs for the world’s budget buyer, and it’s betting its own cells and semiconductors will help it reach that goal.

Tesla Inc.’s biggest competitor is likely to be a Chinese company, Chief Executive Officer Elon Musk said on a call with analysts following the electric-vehicle maker’s quarterly earnings.

Asked about Chinese car companies, Musk said they “work the hardest, and they work the smartest,” describing them as the most competitive in the world. “If I were to guess,” he said, “probably some company out of China is the most likely to be second to Tesla.”

“We’re not hiding the fact that we are Chinese and Europeans are slowly getting used to the fact that products from China are high quality,” says Alan Visser, the global head of Lynk & Co., a Geely-owned EV brand that says it has more than 180,000 registered users in Europe for its rental services. Geely said its total exports were 190,000 vehicles in 2022 and the target is 600,000 a year by 2025.

From selling just a few thousand cars in the mid-1980s, China’s carmakers have come a long way. Up until 2018, when Tesla was allowed to fully own its China plant, foreign carmakers had to form partnerships with local companies to manufacture in China. While foreign companies guarded their most advanced technology, local players became competitive by learning processes from their partners and via acquisitions of brands such as Volvo and Lotus. A rapid pace of growth in domestic demand made China the world’s biggest auto market in 2009.

In 2018 domestic sales fell for the first time in nearly three decades, just as locally made vehicles were getting competitive in international markets.

“Chinese automakers saw that and said, ‘This fast-expansion period is coming to an end,’ so many of them said, ‘let’s try other markets,’” says Stephen Dyer, managing director of consultant AlixPartners in Shanghai and a former Ford Motor Co. executive.

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.” —With Chunying Zhang, Selina Xu, Craig Trudell, Albertina Torsoli and Wilfried Eckl-Dorna

America’s China Policy Is Not Working — The Dangers of a Broad Decoupling

By Henry M. Paulson, Jr.
January 26, 2023

US China policyFor all the talk of how we have entered a new global era, the last year bears a striking resemblance to 2008. That year, Russia invaded its neighbor, Georgia. Tensions with Iran and North Korea were perennially high. And the world faced severe global economic challenges.

One notable difference, however, is the state of Chinese-U.S. relations. At that time, self-interested cooperation was possible even amid political and ideological differences, clashing security interests, and divergent views about the global economy, including China’s currency valuation and its industrial subsidies. As Treasury secretary, I worked with Chinese leaders during the 2008 financial crisis to forestall contagion, mitigate the worst effects of the crisis, and restore macroeconomic stability.

Today, such cooperation is inconceivable. Unlike during the financial crisis, the COVID-19 pandemic failed to spark Chinese-U.S. cooperation and only intensified deepening antagonism. China and the United States jab accusatory fingers at each other, blame each other for bad policies, and trade barbs about a global economic downturn from which both countries and the world have yet to recover.

The world has clearly changed. China has very different and more assertive leadership. It has more than tripled the size of its economy since 2008 and now has stronger capabilities to pursue adversarial policies. At the same time, it has done far less to open its economy to foreign competition than many in the West have advocated and expected. Meanwhile, U.S. attitudes toward China have turned sharply negative, as have the politics in Washington. What has not changed, however, is the fact that without a stable relationship between the United States and China, where cooperation on shared interests is possible, the world will be a very dangerous and less prosperous place.

In 2023, unlike 2008, nearly every aspect of Chinese-U.S. relations is viewed by both sides through the prism of national security, even matters that were once regarded as positive, such as job-creating investments or co-innovation in breakthrough technologies. Beijing regards U.S. export controls aimed at protecting the United States’ technologies as a threat to China’s future growth; Washington views anything that could advance China’s technological capability as enabling the rise of a strategic competitor and aiding Beijing’s aggressive military buildup.

China and the United States are in a headlong descent from a competitive but sometimes cooperative relationship to one that is confrontational in nearly every respect. As a result, the United States faces the prospect of putting its companies at a disadvantage relative to its allies, limiting its ability to commercialize innovations. It could lose market share in third countries. For those who fear the United States is losing the competitive race with China, U.S. actions threaten to ensure that fear is realized.

COALITION OF THE WILLING
The United States is attempting to organize a coalition of like-minded countries, especially the democracies of Asia and Europe, to counterbalance and pressure China. But this strategy is not working; it hurts the United States as well as China; and over the long term, is likely to hurt Americans more than Chinese people. It is also clearly in Washington’s interest to cooperate or work in complementary ways with China in certain areas and to maintain a beneficial economic relationship with the world’s second-largest economy.

Although many countries share Washington’s antipathy to China’s policies, practices, and conduct, no country is emulating Washington’s playbook for addressing these concerns. It is true that nearly every major U.S. partner is tightening up its export controls on sensitive technologies, scrutinizing and often blocking Chinese investments, and calling out Beijing’s coercive economic policies and military pressure. But even Washington’s closest strategic partners are not prepared to confront, attempt to contain, or economically deintegrate China as broadly as the United States is.

In fact, many countries are doing the opposite of what the hardest-line voices in Washington seek. Instead of decoupling or deintegrating economically, many countries are instead deepening trade with China even as they hedge against potential Chinese pressure by diversifying business operations, building new supply chains in third countries, and reducing exposure in the most sensitive areas. Perhaps that is why, in 2020, despite years of American warnings, China overtook the United States as the European Union’s largest trading partner. Both EU exports to and imports from China grew in 2022. And Asian and European leaders, spurred by the November 2022 visit to Beijing by German Chancellor Olaf Scholz, now look set to beat a path to Chinese President Xi Jinping’s door, with trips by Philippine President Ferdinand Marcos, Jr., French President Emmanuel Macron, and Italian Prime Minister Giorgia Meloni likely to drive a broader trend.

Washington risks pushing against economic gravity.
Washington’s “less of China” approach is faring even worse in the global South. Chinese-African trade reached a historic high in 2021, rising by 35 percent from 2020. An intensive U.S. campaign to push Chinese technology firms like Huawei out of backbone telecommunications architecture has fared comparatively well in Europe and India but poorly nearly everywhere else. Just take Saudi Arabia. Its largest trading partner is China, and its Vision 2030 reform plan leans heavily on hoped-for collaboration with Chinese tech firms, including Alibaba and Huawei, even in the sensitive areas that are squarely in Washington’s crosshairs, such as artificial intelligence and cloud services. Indonesia, a huge Asian democracy that Washington has courted to counterbalance Chinese influence, has actually made Huawei its partner of choice for cybersecurity solutions, and even for government systems.

These U.S. efforts are likely to be even less successful now that China is reopening. Beijing is matching Washington’s “less of China” strategy with its own “more of everyone but America” strategy.

Beijing is reversing its restrictive COVID-19 policies, reopening its borders, courting foreign leaders, and seeking foreign capital and investment to reboot its economy. Last year, Xi made his first foreign trips since the outbreak of the pandemic to Central Asia and the Middle East, underlining his strategy to increase China’s global connectivity. With Xi now traveling the world again after a three-year hiatus, scattering renewed pledges of Chinese investment, infrastructure, and trade at every stop, it is Washington, not Beijing, that may soon find itself frustrated.

Trade rules are a good example. In 2017, U.S. President Donald Trump withdrew from the Trans-Pacific Partnership (TPP), and six years later, Washington clearly has no intention of rejoining it. Yet Beijing has applied to join the pact, now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). China has also ratified the Regional Comprehensive Economic Partnership in Asia, applied to join the Digital Economy Partnership Agreement, and upgraded or initiated new free trade agreements with countries from Ecuador to New Zealand. China is now the world’s largest trading nation. Nearly two-thirds of all countries trade more with China than with the United States.

Competition with China begins at home.
Meanwhile, the United States is pursuing a “worker-centric” trade policy that looks very much like protectionism. And Washington’s Indo-Pacific Economic Framework looks timid by comparison. The framework is struggling, not least because it denies new market access to the very countries that have joined the pacts that Washington has shunned.

Washington risks pushing against economic gravity. The United States has succeeded in controlling the most sensitive technologies, including advanced semiconductors. But it will have less success with a strategy premised on promoting broader technology deintegration with China because most countries are not following its lead and may, eventually, find ways to adjust.

These efforts to shut out China will certainly hurt China, but they hurt the United States, too. American businesses are put at a huge competitive disadvantage, and U.S. consumers pay the price. One sensible step to correct this problem would be to limit tariffs on imports of Chinese consumer goods, which make them more expensive for U.S. consumers. These are politically popular but economically nonsensical. They hurt China but hurt U.S. job creators, as well, including ordinary companies that depend on Chinese suppliers, have few workarounds, and have been crushed under the weight of inflation and high energy bills. But these should not be lifted without getting something in return. For example, Washington should push China to live up to the terms of the 2020 Phase One trade agreement, including by buying more U.S. agricultural products. China also should be required to open its markets to more U.S. goods.

TALK IT OUT
Ultimately, competition with China begins at home. The United States and China have very different political systems. The United States’ is superior, but it must be demonstrated through results. This means sticking to the principles that made the U.S. economy the envy of the world and underpin U.S. national security. It also means demonstrating economic leadership abroad.

It is critically important that Washington win the race to develop technologies and attract talent. Economic success will be driven to a large extent by technological superiority. This requires the United States not just to develop those technologies of the future but to commercialize them and not hoard them. It demands the United States set global standards rather than ceding the playing field to China. And the United States should be leading on trade, not withdrawing from the very pacts China has applied to join and cutting U.S. workers off from export opportunities.

To be sure, security tensions are baked into the relationship, and Xi’s China is a formidable competitor with which the United States must take a very tough-minded approach. Beijing is pursuing policies inimical to U.S. interests in many areas, and it is unlikely to adjust anytime soon. Washington needs to be tough-minded but fair, open to dialogue but not for its own sake, and prepared for a tough, long slog in pursuing self-interested coordination with China.

Such cooperation has been meaningful in the past. At the height of the financial crisis of 2008, China was a huge holder of corporate, banking, and Fannie Mae and Freddie Mac securities. The close coordination established with Chinese leaders during the Strategic Economic Dialogue helped Washington convince Beijing not to sell U.S. securities, which was critical to avoiding another Great Depression. The Chinese stimulus package that followed the first G-20 in 2008 also helped to counteract the effects of the crisis and assist the global economic recovery.

Xi’s China is a formidable competitor.
Financial crises are inevitable, and they will be much easier to manage in ways that limit the economic hardship in both countries and the world if the two largest economies and drivers of economic growth are able to communicate and coordinate to anticipate and forestall economic disruption, as well as to mitigate its impact. And it is in China and the United States’ shared interests to do just that. But this requires U.S. Treasury Secretary Janet Yellen and her colleagues to have a regular dialogue with their Chinese counterparts where they discuss and monitor global and domestic macroeconomic and financial risks.

A shock in the real economy can move quickly to the financial system, and financial excesses can wreak havoc on people’s lives if left unaddressed. Modern finance, where money can move around the world with the speed of light, makes the world seem like an increasingly small place. The Chinese economy is so large and integrated globally that disruptions there in 2015 and 2021 immediately rippled through global financial markets. And, of course, the primary and secondary economic and financial linkages between China and the United States are so broad and deep they cannot be wished away, which makes it particularly important that the two states share views on macroeconomic risks. China is the second-largest holder of U.S. Treasury bonds and a large investor in other U.S. securities, so it is in both countries’ interests for China to have an understanding of U.S. economic policy and confidence in U.S. policymakers, particularly when Congress is wrangling over the debt limit. The lack of transparency around China’s lending to some very troubled economies and the large amount of U.S. business investment in the Chinese economy, which can seem like a black box to outside analysts and where abrupt policy changes can take the market by surprise, mean it is critical to both states that U.S. policymakers have a better understanding of China’s economic policies and challenges.

The United States needs to solidify the floor that the Biden administration has tried to put under the freefall. This is essential because the allies and partners Washington hopes to enlist to pressure China expect a good-faith effort to seek cooperation with it, where possible. And that is one reason that U.S. President Joe Biden, in his meeting with Xi in Indonesia last November, sought to establish guardrails around a deteriorating relationship.

To improve coordination, Chinese and U.S. decision-makers should meet more frequently and talk much more candidly. Friendship is no prerequisite for such coordination. And obvious political, security, and ideological tensions do not preclude self-interested cooperation on issues such as macroeconomic stability, pandemic preparedness, climate change, combating terrorism, nuclear nonproliferation, and firewalling the global financial system against future crisis and contagion. U.S. Secretary of State Antony Blinken’s upcoming meeting with Chinese State Councilor Wang Yi is a good starting point. Yellen should be talking regularly to China’s new economic czar, He Lifeng. Federal Reserve Chair Jerome Powell should also be speaking with China’s top central banker.

Washington should negotiate aggressively with Beijing to win opportunities for Americans in its market.
And Beijing should not hold hostage cooperation on global issues such as climate change because it is upset about unrelated issues. Linking different foreign policy issues undermines China’s effort to present itself as a constructive global problem solver.

The United States also needs to carefully distinguish what it must have from its allies from what is merely nice to have. Controlling weapons-related technologies and dual- and multiple-use technologies, and more intensively screening Chinese investments and mergers and acquisitions with global tech companies are a must. But Washington does not need to encourage deintegration in areas that are not central to national security or the competitiveness of the world’s democracies at the technological bleeding edge.

Some level of decoupling is inevitable. In the case of high technologies, some targeted decoupling will be absolutely necessary. But wholesale decoupling makes no sense. Americans benefit from access to the world, and China will remain a huge market that Americans can either partake in or abandon to competitors. China is the world’s second-largest economy, its largest manufacturer, and its largest trader. It will be a big part of the global financial picture for decades to come. Instead of fatalistically accepting the descent of an economic iron curtain, Washington should negotiate aggressively with China to win opportunities for Americans in its market. Administration officials should have serious discussions with Chinese leadership about how to manage the decoupling in a way that allows for mutually beneficial trade. Right now, the two countries are mostly trading charges and countercharges while doing nothing to expand mutually beneficial economic opportunities.

Chinese-U.S. security tensions cannot be wished away, and Americans are rightly concerned, especially after the brutal Russian invasion of Ukraine, that Beijing will throw its weight around, not least by coercing Taiwan. Bolstering deterrence is a big part of the answer. So are improved relations with allies. But U.S. allies and partners have made no secret of their desire not to isolate or contain Beijing. That is one message Washington should take away from the world’s refusal to disengage with China—and from China’s effort to drive wedges between Washington and everyone else.

The political winds are strong and the desire to punish China even at the United States’ expense is driving many in Congress. Biden will need a lot of courage to be smart and bold in the face of these challenges.

Shanghai hosts one-third of AI talent pool nationwide

Shanghai is home to one-third of the artificial intelligence professionals nationwide, drawing firms and organizations to the city to tap the talent pool and potential AI development, a top city government official said today.

Besides the talent pool, Shanghai has an advanced capital market and a huge volume of tradable data, which account for half of the national level, Wu Qing, the city’s vice mayor, said during a meeting with visitors from Massachusetts Institute of Technology and SenseTime, one of the leading AI firms in China.

Wu, however, didn’t mention the detailed figures of AI professionals the city hosts.

But China suffers from an AI talent shortfall of 5 million professionals which include 500,000 core engineers who master programming and related technologies, dajie.com, an online recruitment firm, has said previously.

SenseTime, which plans to invest 6 billion yuan (U.S.$938 million) in Shanghai, signed cooperation agreements with state-owned giants Shanghai Lingang Group and Shanghai Inesa to develop AI. SenseTime will set up a headquarters for global research, intelligent car, smart chip and smart education in Shanghai, said Tang Xiao’ou, founder of SenseTime, who is also a professor at the Chinese University of Hong Kong.

Airline giants post strong annual profits

Carriers face competition from booming railway industry, fuel costs

China’s major airlines recently released their annual profits for 2017, with all reporting a jump in profit due to soaring travel demand.

Air China said on Tuesday that its net profit in 2017 rose 6.3 percent to 7.24 billion yuan ($1.15 billion), its strongest profit increase since 2011. Meanwhile, China Southern Airlines Co posted a 17 percent jump in profit and Hainan Airlines reported a net profit of 3.3 billion yuan, up 6 percent compared to its net income of 3.1 billion yuan in 2016.

China Eastern Airlines had not released its financial report as of press time.

Those numbers mean that the three airline giants contributed substantially to the overall robust growth of the domestic aviation market witnessed in 2017.

Air China said that the level of outbound travel in the industry is continuously increasing, causing the demand for international flights to soar. At the same time, its cargo sector has witnessed a recovery due to an increase in global demand, with the airline noting that its cargo revenue jumped 23.5 percent in 2017 alone.

China Southern, which is based in Guangzhou, South China’s Guangdong Province, said that the number of transfer passengers traveling through its main hub at Guangzhou Baiyun International Airport grew by 24.2 percent year-on-year while its transfer revenue grew 22.6 percent year-on-year.

According to the Civil Aviation Administration of China (CAAC), in 2017, China remained the world’s second-largest aviation market, with a total annual freight transport turnover of 108.31 billion ton-kilometers, representing a year-on-year growth rate of 12.5 percent.

In detail, the number of domestic and regional passengers reached 500 million, representing a year-on-year growth rate of 13.7 percent. The number of international passengers reached 55.442 million, representing a year-on-year growth rate of 7.4 percent. Meanwhile, the total domestic aviation freight volume reached 7.058 million tons, representing a year-on-year growth rate of 5.7 percent.

CAAC has predicted that 2018 could see the high demand trend continue, forecasting a passenger growth rate of more than 10 percent for the year.

Looming challenges

However, despite the strong forecasts and 2017’s climb in growth, numerous factors, including a pickup in fuel prices, a boom in high-speed rail travel, the prospect of interest rate hikes and fluctuations in exchange rates, are posing challenges and bringing uncertainties to the industry.

The three airlines said that each of their fuel costs are now at more than 28 percent, with Air China in particular noting that its fuel costs now stand at 29.2 percent, or 6.42 billion yuan, the highest fuel cost rate among the three giants.

Air China also said that currency fluctuations remain a risk as a 1 percent change in the yuan against the dollar could lead to a 279 million yuan shift in net profit.

All three companies have pointed out that the rapid development of China’s high-speed railway system could pose a big threat to their performances in the future, as the train network has almost completed the construction of four horizontal and four vertical transportation arteries spanning the entire country.

The National Development and Reform Commission said earlier that the country’s entire railway system could extend by as much as 150,000 kilometers by 2020, with that number including a 30,000 kilometer high-speed railway line increase. However, since Air China does not operate as many domestic short- and medium-haul routes as its peers, which are challenged by train journeys of a similar length, the impact of railway expansion on the airline’s overall performance will be limited.

Future strategy

As for future development, competition over slots at major domestic airports is becoming increasingly tense and it is getting ever more difficult for carriers to tap airports in first- and second-tier cities.

Because more carriers have been placing an increasing number of planes at domestic airports, competition has even been spreading as far as third- and fourth-tier cities.

Air China noted that since domestic airlines operating with wide-body aircraft are actively involved in the development of remote, second-tier markets, it has brought about a kind of diversion effect from its hub operations in first-tier cities.

In 2009, there were only three second-tier airports operating long-haul international routes longer than 5,000 kilometers. By December 2017, however, such flights were being operated in 21 second-tier airports across the nation, Air China said, adding that those airports have developed so much in recent years that they now have destinations across Europe, the Americas, Australia and Africa. This demonstrates the recent exponential growth of second-tier markets.

Despite the fierce competition, the three airline giants are nevertheless still holding on to the strategy of accelerating intercontinental routes as their main form of expansion.

Hainan Airlines, for example, said it will amplify its intercontinental route network in second-tier cities while China Southern said it is expecting a more prominent position in its Guangzhou hub, attempting to expand in Beijing and establishing more routes connecting China with overseas destinations. face competition from booming railway industry, fuel costs

International investors setting their eyes on China’s future global cities

China’s top tier cities may elevate themselves from regional centers to future global metropolises, with advantages in sectors such as smart cities and artificial intelligence.

International investors from global giants like Boeing, Merck and Siemens shared this view at the Annual Investment Conference in south China’s Guangzhou on Wednesday.

The conference is a major event aimed at promoting the city to potential investors and listening to their comments on its business environment. Over 1,800 enterprises from around the world attended the conference.

Many investors stated that China is now more than just a large market for them.

This year China is celebrating the 40th anniversary of its reform and opening-up.

Merck, a world leading company in health care, life science and performance materials, has been operating in China for over 80 years. As well as its existing research and development centers and labs in Beijing and Shanghai, the company established a new China Innovation Center in Shanghai in February.

“The opening-up of China has made a great difference to our business and it allowed us to advance business sectors liquid crystal and pigments,” said Allan Gabor, managing director of Merck China.

“When Merck looks at China, we see China as much more than a large business market, we see it actually as an enabler of our global strategy,” Gabor added.

Similarly, John Bruns, vice president of Boeing International, said China is now “a source of innovation” from the company’s perspective.

The American aviation giant will soon open its first finishing and delivering center for 737 planes outside the United States in east China near Shanghai, and recently signed an agreement with China Southern Airlines to initiate a 737 converted freight project in Guangzhou, and to include a local maintenance company in its 787 global care program.

Cities like Beijing, Shanghai, Guangzhou and Shenzhen, and the Greater Bay Area of Guangdong, Hong Kong and Macao, are becoming the key players in investors’ global strategies.

These cities have mature urban infrastructure, advanced industries and are renewing their focus on development to be in line with the information revolution and an international lifestyle.

Guangzhou, for example, is focusing on the new generation of information technology, artificial intelligence, bio-pharmaceuticals, as well as new energy and new materials.

The output of its new generation internet technology and panel display industries have both exceeded 100 billion yuan. It is also ambitious in becoming a smart city, by teaming up with global giants like Cisco and Siemens.

New York and London are indisputably global cities now, but what will global cities of the future look like?

“A future global city should be leading in smart mobility and smart energy distribution and future technology like A.I. I think Guangzhou is on a very good way to that,” said Jens Hildebrandt, chief representative of Delegation of German Industry and Commerce Guangzhou.

But investors also pointed out that Chinese cities still need to tackle a series of challenges before they become global cities, including IPR protection, environmental protection, further opening-up and continuous innovation, as well as self promotion.

These are also the areas where huge opportunities lie.

Three months ago, SHV Energy, the world’s largest distributor of LPG energy solutions, signed an memorandum of understanding with Guangdong Province, to build a LPG terminal in the city’s Nansha District.

“With the strong focus of the Chinese government to improve air quality and reduce emissions, you see a higher need for clean energy solutions.” said Maarten Bijl, global vice president of the company.

He added that SHV is also innovating its business model and looking for cleaner energy solutions in which it can cooperate with the Chinese cities. “We’re in discussion to see how we can work with the city of Guangzhou, and we can get hydrogen mobility solutions here, which is the next step.”

Aside from the top tier cities, China as a whole is putting every effort to further open up. Earlier this month, the government pledged to continue to streamline administration and delegate power to improve the business environment and further stimulate market vitality.

Industrial profits rise 16.1% in first 2 months

Policy support to reduce costs, higher sales help boost growth

The nation’s industrial profits grew significantly in the first two months of the year, thanks to policy support to lower costs and higher sales offsetting weaker price rises.

Industrial profits increased by 16.1 percent to 968.9 billion yuan ($154.6 billion) in the January-February period compared to the same period last year, up from the 10.8 percent growth in December, data from the National Bureau of Statistics showed on Tuesday.

Profit growth in sectors such as oil and natural gas extraction and pharmaceutical manufacturing helped drive up the overall profit growth, according to the NBS.

Better than expected demand in the first two months led to stronger growth of industrial product sales, which helped offset the downward pressure from slower price rises, according to Liang Jing, an analyst with the research institute of Bank of China.

In the first two months, the industrial added value increased by 7.2 percent year-on-year, up 1 percentage point compared to December.

Revenue from companies’ major businesses increased by 10 percent year-on-year in the first two months, which is 1.2 percentage points higher than that in December.

Looking ahead, analysts expect slower profit growth in the near future due to the high base effect in the past several months, but they expect relative strong growth in the medium-to-long run as the growth momentum persists.

Gao Ming, an analyst with China Merchants Securities, said government support implemented since last year, such as efforts to lower production costs and tax cuts, will continue to help increase the efficiency of industrial production.

He expected industrial profit growth will increase by around 13.2 percent in 2018.

While many manufacturing sectors failed to see major improvement in profit growth in the first two months due to cyclical factors, government support to lower enterprises’ debt levels will encourage enterprises to restructure to achieve more sustainable profit growth in the long run, according to Gao.

The overall debt level of State-owned enterprises has been declining steadily as the government implements measures to help enterprises to improve asset quality.

Some promising signs can be found in enterprises’ financial performance, reflected by improved cash flows, higher investment returns and improved performances of inventories, according to a research note by China International Capital Corporation.

The profitability of consumer-related manufacturing enterprises is expected to see continued improvement, including food and consumption upgrade related industries, according to CICC.

Tencent listed as China’s most valuable brand

New analysis from market observation firms Kantar Millward Brown and Wire & Plastic Products Group now lists Tencent as China’s most valuable brand.

The analysis is part of the group’s “2018 BrandZ Top 100 Most Valuable Chinese Brands” ranking and report.

The report says the total value of the Top 100 Chinese brands has come in at $683.9 billion to start this year. This would represent 23% growth compared with the start of last year.

With a brand value of $132.2 billion, Tencent tops the list for the 4th year in a row.

E-commerce giant Alibaba now has an estimated brand value of $88.6 billion, a 53% year-on-year rise.

Other noteworthy sectors performing well are education, logistics and technology.

“Chinese customers pay increasing attention to brands, and top brands affect purchasing to a great extent,” said Wang Xing with Kantar Millward Brown.

The 2018 BrandZ China Top 100 is based on interviews with over 400,000 Chinese customers, as well as analysis of financial data, market evaluation and risk prediction.

Pony Ma: Tencent mulling A-share listing

Pony Ma Huateng, chairman and CEO of Chinese internet giant Tencent, indicated his support for the company’s listing both in Hong Kong and the Chinese mainland, and said he has discussed Tencent’s A-share flotation during the two sessions, which concluded last week.

Ma made the remarks at the China (Shenzhen) IT Summit on Sunday, according to a transcript from financial news outlet wallstreetcn, which broke the Hong Kong-listed company’s silence on returning to the mainland stock market.

Chinese business magazine Caixin earlier reported Tencent has been singled out as one of eight companies in the first batch to issue Chinese Depository Receipts — similar instruments to American depositary receipts, which are certificates that allow investors to hold shares listed across borders.

The other seven are Baidu, Alibaba, JD, Ctrip, Weibo, NetEase and Sunny Optical, which will go back to the A-share market via the CDR.

In Tencent’s 2017 Fourth Quarter and Annual Results announcement Wednesday, Ma also said the company will consider issuing CDRs if conditions permit, the Paper reported.

To woo tech giants home, China’s regulators have been working hard. Yan Qingmin, the deputy head of the China Securities Regulatory Commission confirmed to Securities Times on the sidelines of the two sessions that CDRs will be released very soon, and the instrument is an effective measure for enabling Chinese enterprises listed elsewhere to return to the mainland’s A-share market.

China’s investment bank China International Capital Corporation Limited predicted China will release a draft on CDR rules after the two sessions.

For years, China’s capital market was dominated by traditional industries such as property development, finance and industrial materials.

Innovative firms, tech startups in particular, face legal and technical barriers to list on the A-share market, including restrictions on weighted voting rights, or dual-class shares, and mandatory requirements on IPO applicants’ profitability.

Tech firms have declared support for the China-based listings. China’s search engine giant Baidu Inc, Chinese game developer NetEase Inc, Chinese search engine Sogou Inc and major online marketplace operator 58.com are among a host of firms interested in a secondary listing at home.

If CDR rules are released soon, China’s high-tech titans Alibaba and JD will probably issue CDRs in June, Caixin reported, citing a person familiar with the matter.

Report: Top Chinese real estate companies hold half of market in 2017

Market share of the Chinese top 100 real estate companies reached about 50 percent in 2017, up 7.9 percentage points year-on-year, suggesting a trend for concentration in the domestic property industry, report said.

Total sales of those companies grew 32.8 percent to surpass 6.37 trillion yuan ($1 trillion) last year, with a 23.7 percent increase in sales area, showing an overall positive performance, according to a report released Thursday by the China Index Academy, the Development Research Center of the State Council and Tsinghua University.

“Since 2003, the Chinese property industry has undergone a 15-year golden era as one of the pillar industries in the Chinese economy and an engine of urbanization,” the report said.

Gross assets and sales of the top 100 real estate operators have seen fiftyfold growth amid the period, showing a steady and quick development, the report showed.

In 2017, those companies strengthened cost controls to improve the quality of operations, whose average revenue and net profit increased 28.5 percent and 30 percent respectively, it said.

They also helped to provide houses for low-income families and construct eco-friendly and energy-saving buildings, as part of the effort to realize corporate social responsibility, according to the report.

However, the average asset-liability ratio of the top 100 property developers reached 78.9 percent, up 2.2 percentage points over 2016, suggesting greater pressure from debt.

In the future, the report suggested those companies should not buy too many parcels of expensive land in hot cities to prevent the risk of overstock.

Besides, they need to attach more importance to the safety of cash flow to avoid capital risk, it said.

Minimum salaries on the rise in China

China’s Ministry of Human Resources and Social Security announced the country’s 2017 monthly minimum salary standard and hourly minimum salary standard among 32 provinces and cities.

According to the data, Shanghai’s monthly minimum salary was top in the country last year, with its full-time workers at least earning 2,300 yuan ($364), and Beijing’s part-time workers earned the highest hourly minimum salary at 22 yuan.

Monthly minimum salaries in Shanghai, Shenzhen, Zhejiang, Tianjin and Beijing have broken 2,000 yuan, and Beijing, Tianjin and Shanghai’s hourly minimum salary has also reached more than 20 yuan.

Last year, 20 provinces and cities increased minimum salary standards, with an average increase of 11 percent from 2016.

This year, many other regions in China, including Jiangxi, Liaoning, Tibet and Guangxi, have all enhanced their minimum salary. Guangxi increased its minimum by 20 percent.

Shanghai announced it will increase its monthly minimum salary standard by 5 percent to 2,420 yuan per month starting April 1.