Good evening, listeners! Welcome to “Melody Hour.” I’m Melody. Today is February 4, 2025, Tuesday. What major events have occurred?
Today’s focus: Symbolism outweighs substance? Beijing unveils four tariff retaliation measures against the United States, criticized for being weak; the United States cancels the parcel “small exemption,” mainland e-commerce platforms such as Temu and Shein may be heavily impacted; under state control, can Vanke be rescued? Experts reveal the details of mixed ownership.
On Tuesday afternoon, February 4, the United States officially implemented a 10% tariff policy on Chinese goods. Beijing quickly retaliated by introducing four countermeasures one after another. However, it is widely believed that Beijing’s retaliation is not strong and may even be considered weak, thus unlikely to be effective.
The countermeasures announced by the Beijing authorities include:
1. Imposing tariffs of 10% to 15% on some imported goods from the United States, with coal and liquefied natural gas being taxed at 15%; while crude oil, agricultural machinery, high-displacement cars, and pickups are taxed at 10%.
2. Conducting an antitrust investigation against Google. However, it is worth noting that the announcement did not specify Google’s illegal activities. Moreover, Google withdrew from the Chinese market many years ago, so how could it be accused of monopolizing? Hence, this measure has been questioned.
3. Adding the parent companies of American fashion brands Tommy Hilfiger and Calvin Klein, as well as the genetic sequencing company Illumina, to the “unreliable entity list,” accusing these two American companies of “violating normal market transaction principles, disrupting normal transactions with Chinese companies, taking discriminatory measures against Chinese companies, and seriously damaging the legitimate rights and interests of Chinese companies.”
In fact, this is not the first time Beijing has accused the parent company of these brands. Back on September 24th last year, the Ministry of Commerce of the Chinese Communist Party initiated an investigation into the alleged “unreliable entity list” against the parent company, accusing it of discrimination against cotton enterprises in Xinjiang.
4. Implementing export controls on five key metals including tungsten, tellurium, bismuth, molybdenum, and indium. These metals are widely used in technology and military industries, especially in semiconductors and new energy sectors.
These measures by the Beijing authorities have received praise from some online commentators, but some netizens believe that the retaliatory force is quite weak, if not entirely fabricated.
One netizen commented, “It’s truly unbelievable that Google could monopolize operations in China? I wonder which aspects of Google’s business the authorities are targeting in their investigation – search, advertising, cloud services, or Android?”
According to Voice of America reports, observers generally believe that the symbolic significance of these countermeasures outweighs their practical implications.
Senior researcher Hu Yishan from the Singapore Institute of International Affairs pointed out that Beijing’s response this time is quite conservative, even lackluster. For instance, in the automotive and agricultural machinery sectors, China is already a manufacturing giant and does not rely on imports from the United States, hence the effect of tariffs is minimal. However, China has a significant demand for energy, and levying tariffs will increase the procurement costs of domestic enterprises, affecting the domestic economy. This move could be described as “hurting oneself to hurt the enemy.” Therefore, these kind of countermeasures may not achieve the desired effect.
Executive director of the Taipei Asia Pacific Business and Commerce Association, Qiu Dasheng, mentioned that compared to the US imposing a 10% tariff, China’s retaliatory measures appear more of a “selective strike,” indicating limited impact. He believes that before Xi Jinping’s dialogue with Trump, the implementation of retaliatory tariffs was more about demonstrating strength and avoiding the perception that China was forced into negotiations.
According to Reuters, Beijing’s response to the US tariff measures has been limited, highlighting Beijing’s willingness to negotiate with Trump to avoid a full-blown trade war.
Richard Prechard, head of Capital Economics in the UK, remarked that these measures are relatively moderate, indicating adjustments made to convey a message to the US.
In contrast, the US tariff policy has had a significant impact on certain Chinese companies. Following the implementation of tariffs, international banks have warned investors to adopt a cautious approach towards Chinese stocks.
Morgan Stanley has listed Alibaba, BYD Electronics, Midea Group, and 29 other Chinese companies on a watch list, cautioning investors against potential risks if they invest in these companies.
Wang Tao, chief China economist at UBS, pointed out that the taxation measures could lead to a 0.3% to 0.4% decline in China’s economic growth. Due to pressures on exports and softening consumer and investment activities, inflation rates may fall by another 0.2%.
Goldman Sachs report predicts that with increasing tariffs, the Renminbi will depreciate, and the exchange rate with the US dollar is likely to gradually rise to between 7.4 and 7.5 Renminbi to the dollar, ultimately depreciating to 7.5 Renminbi.
The actions taken by the United States against Beijing are multifaceted. Apart from tariff hikes, they have also revoked the small exemption for parcels. This move has particularly devastated cross-border e-commerce platforms. Let’s delve into more details:
On the 4th, the US revoked the “small exemption” clause, which means goods valued under $800 entering the US will no longer enjoy tax-free treatment. This measure severely impacts mainland e-commerce platforms that have rapidly expanded relying on low-priced parcels.
According to data released by US Customs and Border Protection (CBP), the number of goods entering the US under the “small exemption” policy has significantly increased over the past decade. In the 2015 fiscal year, approximately 1.39 billion “small exemption” parcels entered the US, and by the 2024 fiscal year, this number had risen to 13.6 billion.
According to Central News Agency, platforms like Temu, Shein, AliExpress, etc., ship millions of parcels to the US daily, with many items priced at just a few dollars, such as $3 sneakers or $15 smartwatches. These e-commerce platforms attract a large number of American consumers with extremely low prices.
Under the US “small exemption” policy, these e-commerce platforms have gained rapid growth in the US, significantly impacting the American market. With the cancellation of this policy, it’s like a “severe blow” to the mainland e-commerce industry, weakening their global competitiveness.
Alright, that’s all about the “small exemption.” Now, let’s shift our focus to the mainland real estate market:
In recent years, the mainland real estate industry has collapsed. Privately-owned company Vanke is facing a crisis and has recently been intervened by state assets, leading to a change in top management. People are curious whether this change can help Vanke overcome its crisis? Industry insiders bluntly say it’s unlikely. What’s the full story behind this?
On January 27, dramatic changes occurred in the Vanke board of directors, with Chairman Yu Liang and CEO Zhu Jiusheng resigning, and the new chairman of the board is Xin Jie, the largest shareholder of Vanke and chairman of the Shenzhen Metro Group.
Shenzhen Metro Group is a state-owned subway operator directly overseen by the Shenzhen State-owned Assets Supervision and Administration Commission, which now holds nearly half of the seats in Vanke’s top management.
The Wall Street Journal stated that as private and local developers frequently face difficulties, more state assets are entering the real estate industry, gradually replacing the former private giants. This marks a significant shift for the mainland real estate industry.
Although Vanke is considered a private enterprise, it has always been closely intertwined with state assets. Established as a state-owned enterprise in 1984, Vanke later transformed into a joint-stock company and listed on the Shenzhen Stock Exchange.
Vanke insists that it is a “mixed ownership enterprise,” with its largest shareholder always being state-owned assets.
In the past, Vanke has generated massive wealth. However, it is now engulfed in a liquidity crisis, expecting a loss of 45 billion yuan in 2024, with 33 billion yuan in bonds maturing this year. Faced with such financial challenges, can state assets intervene and rescue Vanke?
Industry insiders believe that Vanke’s predicament is not sudden but rather a concentrated outbreak of the downsides of mixed ownership. The main culprit for its current situation is this system.
Renowned real estate blogger “Miss Wen” stated that when China Resources, as Vanke’s largest shareholder, refrained from interfering in Vanke’s operations, allowing top management to make autonomous decisions, Vanke leveraged China Resources’ commercial real estate experience to expand rapidly, with profit capabilities scary enough to become a model for all mixed-ownership companies. However, in 2017, after Shenzhen Metro became Vanke’s largest shareholder, the supervision by Shenzhen’s state assets transformed Vanke’s management structure significantly. Shenzhen Metro assigned three directors, accounting for one-third of the board’s seats. This elongated the decision-making process and increased project approval time. Such a shift has been fatal for Vanke, a company that values efficiency.
This online influencer mentioned, the Vanke led by Shenzhen Metro overly focused on “public transport-oriented development” projects. For example, sales of projects over Shenzhen Pingshan Metro were dismal; the returns on Shenzhen Talent Apartments, a project “obliged” to be undertaken, were as low as four points but consumed three billion in funds. They also missed the 2020 Shanghai land auction window, resulting in a significant drop in land reserves that year. Moreover, Vanke was even requested to participate in the construction of 5G base stations in Shenzhen, ventures that were not part of their core business and diverted the attention of the entire management team. Additionally, Vanke’s prideful co-investment system was restricted by state asset supervision, resulting in lower profits for the management, leading to significant staff turnover.
Currently burdened with massive debt, worries mount that Vanke may struggle to meet its debt obligations as scheduled. In response, the newly appointed chairman of the board of directors, Xin Jie, emphasized that Shenzhen Metro would fully support Vanke and has arranged for debt repayment in the first quarter of this year. However, some experts are skeptical about this assurance.
Miss Wen stated that solely relying on capital injections is not feasible as Shenzhen Metro itself has limited capital injections. So how can they salvage themselves? She believes reaching a consensus among different systems is challenging. Mixed ownership fundamentally has contradictions; private and state-owned forces cannot blend entirely. State shareholders have very low risk tolerance, limiting Vanke’s ability to implement radical self-rescue measures. For example, the two parties are at odds on selling projects. Therefore, self-rescue seems challenging.
Commentator Wang Jian pointed out that Shenzhen Metro itself is facing losses and may struggle to cope, further diminishing funds available to rescue Vanke. Ultimately, Vanke might follow in the footsteps of Evergrande, becoming a “zombie company.”
The Wall Street Journal also acknowledged that local governments are usually unwilling to take on debts of developers in distress. Their primary concern seems to lie in completing and delivering unfinished projects rather than fully assisting developers.
Data shows that by 2024, the Chinese real estate market had accumulated 90 million vacant houses. Nomura Securities’ chief economist, Lu Ting, reported that there are as many as 20 million unfinished homes in China.
So far, that’s the update on Vanke. We will keep an eye on how things unfold in the future.
Alright, time always flies by. Thank you for joining us during this segment of “Melody Hour.” If you enjoyed our program, don’t forget to like, comment, and share it with more friends! We will meet again at the same time tomorrow. See you then!