SHANGHAI (Reuters) – China’s senior diplomat Wang Yi told U.S. Secretary of State Mike Pompeo on Saturday that recent U.S. words and actions had harmed the interests of China and its enterprises, and that Washington should show restraint, China’s foreign ministry said.
Chinese Foreign Minister Wang Yi (R) meets Iranian Foreign Minister Mohammad Javad Zarif (not pictured) at Diaoyutai State Guesthouse in Beijing, China, May 17, 2019. REUTERS/Thomas Peter/Pool
Speaking to Pompeo by telephone, Wang said the United States should not go “too far” in the current trade dispute between the two sides, adding that China was still willing to resolve differences through negotiations, but they should be on an equal footing.
On Iran, Wang said China hoped all parties will exercise restraint and act with caution to avoid escalating tensions.
U.S. State Department spokeswoman Morgan Ortagus said in a statement that Pompeo spoke with Wang and discussed bilateral issues and U.S. concerns about Iran, but gave no other details.
Tensions between Washington and Tehran have increased in recent days, raising concerns about a potential U.S.-Iran conflict. Earlier this week the United States pulled some diplomatic staff from its Baghdad embassy following attacks on oil tankers in the Gulf.
China struck a more aggressive tone in its trade war with the United States on Friday, suggesting a resumption of talks between the world’s two largest economies would be meaningless unless Washington changed course.
The tough talk capped a week that saw Beijing unveil fresh retaliatory tariffs, U.S. officials accuse China of backtracking on promises made during months of talks, and the Trump administration level a potentially crippling blow against one of China’s biggest and most successful companies.
The United States announced on Thursday it was putting Huawei Technologies Co Ltd, the world’s largest telecoms equipment maker, on a blacklist that could make it extremely hard to do business with U.S. companies.
The U.S. Commerce Department then said on Friday it may soon scale back restrictions on Huawei. It said it was considering issuing a temporary general license to “prevent the interruption of existing network operations and equipment.”
Potential beneficiaries of this license could, for example, include telecoms providers in thinly populated parts of U.S. states such as Wyoming and Oregon that purchased network equipment from Huawei in recent years.On Friday, Chinese foreign ministry spokesman Lu Kang, asked about state media reports suggesting there would be no more trade negotiations, said China always encouraged resolving disputes with the United States through dialogue and consultations.
Reporting by Twinnie Siu in HONG KONG, David Stanway in SHANGHAI and David Brunnstrom and Nadita Bose in Washington; Editing by Daniel Wallis
Andrew Zolty, the co-founder and head of design at Breakfast, says tariffs are becoming a problem. He and his team build large-scale installations that are often placed in museums, building lobbies, or wherever cool, connected art can go. The commissioned pieces come together by hand, typically in Breakfast’s Brooklyn, New York, office where the team imports aluminum, steel, and printed circuit boards from China and uses those parts to build their art. With the recent tariffs imposed on all of those materials, Zolty says costs are increasing, and the team is going to have to raise their prices.
“It’s been a bit of a wake-up call,” he says. “Even us, we were watching in the news, we weren’t really thinking about it until we got the bill. We’re just like, ‘Alright we have to up our cost because we can’t just eat that stuff.’”
Zolty says nearly every part his team relies on to build products has a tariff on it. But while they’re costing him money, the higher prices don’t encourage him to move manufacturing Stateside. The aluminum and steel come from China regardless, he says, so tariffs still have to be paid even on a product that’s ultimately assembled in the US.
The team’s considering moving additional manufacturing abroad, in fact, to avoid having to import taxed goods. Just this past week, President Trump raised import taxes to 25 percent on billions of dollars’ worth of Chinese goods while China retaliated with additional tariffs on $60 billion worth of US imports to China. The trade war between the two countries is continuing, seemingly without a deal in sight.
Independent gadget makers who build their products Stateside are among the people most affected. Big tech companies, like Apple, have avoided the brunt of tariffs and also have enough cash on hand to absorb the added cost. Small creators are the ones who can least afford an extra tax, and they’re the ones paying the price. Soon, consumers might start paying it, too.
Baidu, heralded as the Google of China, felt the heat from its continued spending on artificial intelligence and other next-gen technologies that have yet to reach the mass market as it unveiled troubled first-quarter financials on Thursday.
The company logged a net loss attributable to shareholders of $49 million in the quarter ended March 31, marking the first quarterly loss since it went public in 2005. That compares to net income of 6.69 billion yuan ($970 million) a year before. Content costs surged 47% to $917 million on account of continued investments in Baidu’s Netflix-like video streamer iQiyi, while research and development expenses stood at $621 million, up 26%.
In a letter to staff today, founder and CEO Robin Li acknowledged that Baidu faces a “grim situation” and reiterated the firm’s strategy to “invest in return for growth.”
Baidu remains as the largest search service in China, with a 67% market share per data from research firm StatCounter. It’s reaped huge rewards from search ads in the PC era, but as consumers allocate attention to new forms of mobile services — notably recommendation-based apps — to discover content, Baidu is losing its appeal.
A new era of recommendations
In an effort to stay relevant, Baidu added a personalized news feed to its search app in 2016. Instead of inputting what they look for, users can now wait passively for Baidu algorithms to display content based on their past habits, a model pioneered by TikTok’s parent firm ByteDance that has propelled Baidu, Alibaba and Tencent — collectively known as the “BAT” for their internet dominance in China — to follow suit.
Tencent, for instance, introduced the Tiantian Kuaibao (天天快报) app four years ago in what many saw as its catch-up with ByteDance’s customized news aggregator Jinri Toutiao (今日头条). Next door at Alibaba, the e-commerce leader reconfigured its Taobao shopping app to emphasize product recommendations, a new driver for conversion rates.
Advertisers are also responding. The market for feed-based ads ballooned from a meager 5.2 billion yuan ($750 million) in 2014 to 166.2 billion yuan in 2019, according to estimates from research firm Analysys.
Baidu’s new two-legged strategy means feed is now of equal, if not more, weight alongside search as the company better embraces the mobile age. Indeed, Baidu officially renamed its “search business” to “mobile business” this quarter. Xiang Hailong, senior vice president of the search business and one of Li’s closest lieutenants, resigned for “personal reasons” after 14 years with Baidu, the company announced today. At its peak, Baidu’s search-focused ad business accounted for more than 90% of revenue.
Baidu promoted Shen Dou to senior vice president, overseeing Baidu’s mobile business, previously known as the search business (Photo: Baidu)
Shen Dou, who previously oversaw mini apps, short videos and other mobile-first products at Baidu, took up the reins of the newly minted mobile business.
Baidu reached 174 million daily active users on its two-in-one app for search and feed in Q1, a 28% year-over-year growth. Its revenue for the period rose slightly to 24.1 billion yuan ($3.5 billion), up 15% year-over-year.
That revenue beat analyst expectations of 91.5 billion RMB, according to Barons, and net income came in at 23.38 billion RMB, or $3.48 billion.
Alibaba positions itself as the gateway to Chinese consumers, and it continues to grow. The company said its mobile monthly users — a metric it uses to measure shoppers — reached 721 million in March, an increase of 22 million in three months and 104 million over the last year. Annual active users were up 18% to 654 million and the company’s Chinese marketplaces saw GMV — the value of total goods sold — rise by 19% year-on-year in its fiscal 2018.
Speaking on a call with analysts, executive chairman Joe Tsai claimed Alibaba is ideally placed to capitalize on China’s switch from an export economy to domestic consumption, despite the ongoing U.S.-China trade war.
“China is opening its markets to more foreign businesses to satisfy the demands of Chinese consumers,” he said. “We have the reach and deep insights… our scale and access to Chinese consumers is simply unrivaled.”
On the earnings call, CEO Daniel Zhang explained that the impressive results were because of improved conversion rates — thanks to a new app interface featuring more recommendations and video content, an increase in retailer product launches and general user/shopper growth.
A big part of that growth focus is on consumers in more rural areas. Indeed, over the past year, more than 70% of the increase in annual active consumers was from less developed cities, Tsai said, adding that spending in tier-three, four and five cities is projected to triple to $7 trillion in the coming years. Alibaba clearly believes it can take a large bite of this, despite rivals including Pinduoduo focusing intensely on rural Chinese consumers.
The user growth also arises from Alibaba’s hold on its range of businesses and its ability to channel traffic between them. For example, its online e-commerce app Taobao and e-wallet Alipay brought about 30% of total orders to Ele.me, the food delivery service competing head-on with Tencent-backed Meituan Dianping.
Outside of China, Lazada in Southeast Asia and internationally-focused Aliexpress clocked a cumulative 120 million shoppers over the past year although Alibaba is, again, not giving many more details on either service.
Cloud has been a major growth vertical for Alibaba, and once again that proved true, although growth is tapering as the business grows larger. Alibaba Cloud, which is ranked as China’s top cloud service with 42.9% market share according to IDC, grew by 76% annual to hit 7.73 billion RMB, or $1.15 billion. Alibaba claimed the cloud business services over half of China’s A-listed companies.
Outside its core online retail business, Alibaba continues its big bet on brick-and-mortar retail. Its own supermarket chain, Freshhippo (formerly Hema), reached 135 stores, dwarfing its rival JD.com’s counterpart 7Fresh, which operates fewer than 15 locations. Digital entertainment is another cash-guzzling business for Alibaba, although the firm once again refrained from revealing user numbers for its video streaming service Youku, once a pioneer in the industry.
Amazon has finally given up the fight with Chinese online shopping giants to capture the domestic market. On Thursday, the Seattle-based e-commerce company announced it will shut down its marketplace on Amazon.cn, which connects mainland Chinese buyers and sellers, while other units of its local venture will stay intact.
“We are working closely with our sellers to ensure a smooth transition and to continue to deliver the best customer experience possible,” an Amazon spokesperson told TechCrunch, adding that this segment of the business will end on July 18.
The partial retreat, first reported by Reuters and Bloomberg, is indicative of the relentless e-commerce race in China where Alibaba and JD.com dominate, with newcomer Pinduoduo closing on the incumbents’ heels.
But this is hardly the end of Amazon’s China story. The American giant has over the years attracted waves of cross-border sellers, many of whom have hailed from China’s traditional export industry looking to sell cheaply manufactured goods to consumers around the world for lucrative margins. To date, Chinese export suppliers are able to sell to 12 countries that include India, Japan, Australia, Canada, the United States and five Western European countries.
Other global e-commerce players also have their eyes set on the massive raft of goods flowing out of China, though each comes with a different geographic focus. Alibaba-backed Lazada, for example, is the bridge between Chinese merchants and Southeast Asian shoppers, while Jumia, which just listed in the U.S., exports from China to Africa.
“The biggest appeal [of exporting through Amazon] is the low costs because we are close to a lot of supply chain resources,” a Shenzhen-based vendor selling water-resistant placemats on Amazon told TechCrunch.
In the meantime, China has developed a big craving for imported goods as middle-class consumers now demand higher-quality products. Amazon is in the import business, too, although it lags far behind more entrenched players such as Alibaba, of which Tmall Global takes the lead with 29 percent market share in the cross-border e-commerce space, according to data from iResearch, dwarfing Amazon’s 6 percent.
That could change if Amazon finds a prominent local partner. Rumors have swirled for months that Amazon was reportedly in talks to merge its import unit with Kaola, the cross-border shopping business run by Chinese internet giant NetEase with a 22.6 percent market share.
Not to be forgotten, Amazon also offers cloud computing services to Chinese enterprises, although, in this space, it’s again in a direct face-off with Alibaba Cloud, the dominant player in China. Lastly, China remains the largest market for Kindle, so pivotal that the e-reader launched a localized model just for China.
“Over the past few years, we have been evolving our China online retail business to increasingly emphasize cross-border sales, and in return we’ve seen very strong response from Chinese customers,” said the Amazon spokesperson. “Amazon’s commitment to China remains strong—we have built a solid foundation here in a number of successful businesses and we will continue to invest and grow in China across Amazon Global Store, Global Selling, AWS, Kindle devices and content.”
Whichever theory you ascribe to, Apple’s second quarter 2019 financial report is yet another weak showing for the iPhone brand. A Q2 2019 report released on Tuesday stated that the company’s quarterly revenue of $58 billion, down five percent from the same time period last year, included $31 billion in iPhone sales—down from $37.5 billion in iPhone sales the same quarter in 2018, per Ars Technica.
However, Apple’s other units did fairly well: iPad sales increased from $4 billion in Q2 2018 to $4.8 billion in Q2 2019, while its wearables, home, and accessories division went from $3.9 billion to $5.1 billion. Per the Verge, the company brought in “an all-time high” of about $11.5 billion from its services division. In general, Apple came out on the high end of its $55-59 billion projection for the quarter, a notable upgrade from its disappointing Q1 2019 results.
Apple also cited strong showings in its revamped trade-in and financing programs, per Ars Technica, with the company claiming “four times the trade-in volume than it did in March 2018” after it rolled out new programs in the U.S., Spain, Italy, the UK, China, and Australia. However, its real emphasis was on the number of existing Apple customers that could provide revenue, rather than hardware sales volume:
At the end of last year, Apple explained that it would not report iPhone unit sales per quarter, a decision that frustrated some but makes sense for Apple’s bottom-line. Instead, the company disclosed on its Q1 2019 earnings call that its global install base includes 900 million iPhones—and today’s earnings report shows that the company’s install base is comprised of 1.4 billion devices. Rather than focusing on how many new iPhones it has sold, Apple wants to now focus on how many iPhones are out in the world to show how vast its services business could be.
Sales of the iPhone, long the biggest driver of its business, fell 17% to about $31 billion—an accelerated decline for a product that has been hobbled by smartphone owners holding on to devices longer and by competition from rivals in China offering lower-price, feature-rich handsets.
iPhone sales slumped from about 61 percent of Apple’s revenue quarterly revenue in Q2 2018 to 54 percent in Q2 2019. In Greater China, where the company has had difficulty pushing phones (in large part due to cheaper competitors like Huawei), Apple posted $10.2 billion in sales, down from the Q2 2018 tally of $13 billion. CEO Tim Cook Cook, however, said Apple saw “better year-over-year performance [in China] in the last weeks of the quarter.”
However, Apple also posted a strong showing globally in the wearables division (including products like Apple Watch and AirPods) in particular, which CNBC reported was up nearly 50 percent year over year. The Mac division came in at $5.5 billion, under a projected $5.85 billion, but Cook said it was a temporary blip due to “processor constraints” that does not indicate a projected dip in long-term revenue, per Ars Technica.
As TechCrunch noted, the math works out to Apple posting 16.1 percent of its Q2 2018 revenue from the services category, but nearly 20 percent in the Q2 2019—an affirmation that the company really is slowly but surely pivoting away from its historic reliance on the iPhone line. Apple chief financial officer Luca Maestri said the company now derives about one third of its net profit from services, TechCrunch wrote, while Cook said Apple was up to 390 million subscribers across all its services (30 million more than last quarter). Apple also estimated it will surpass half a billion subscribers by 2020, likely based on its projections for its forthcoming streaming video and gaming services.
Apple’s 2019 Worldwide Developers Conference is also slated for June, when it will have the opportunity to try and get consumers re-invested in iPhones, possible reinvigorate its Mac lineup, and further promote its wearables and accessories businesses.
According to CNBC, investors seemed largely happy with this report, with stock spiking over four percent and the company re-approaching its $1 trillion market value in extended trading.
China’s Huawei is making a serious foray into the enterprise business market after it unveiled a new database management product on Wednesday, putting it in direct competition with entrenched vendors like IBM, Oracle and Microsoft.
The Shenzhen-based company, best known for making smartphones and telecom equipment, claims its newly minted database uses artificial intelligence capabilities to improve tuning performance, a process that traditionally involves human administrators, by more than 60%.
Called the GaussDB, the database works both locally as well as on public and private clouds. When running on Huawei’s own cloud, GaussDB provides data warehouse services for customers across the board, from financial, logistics and education to automotive industries.
The database launch was first reported by The Information on Tuesday, citing sources saying it is designed by the company’s secretive database research group called Gauss and will initially focus on the Chinese market.
The announcement comes at a time when Huawei’s core telecom business is drawing scrutiny in the West over the company’s alleged ties to the Chinese government. That segment accounted for 40.8% of Huawei’s total revenues in 2018, according to financial details released by the privately held firm.
Huawei’s consumer unit, which is driven by its fast-growing smartphone and device sales, made up almost half of the company’s annual revenues. Enterprise businesses made up less than a quarter of earnings, but Huawei’s new push into database management is set to add new fuel to the segment.
Meanwhile, at Oracle, more than 900 employees, most of whom worked for its 1,600-staff research and development center in China, were recently let go amid a major company restructuring, multiple media outlets reported earlier this month.
Data provided to TechCrunch by Boss Zhipin offers clues to the layoff: The Chinese recruiting platform has recently seen a surge in newly registered users who work at Oracle China. But the door is still open for new candidates as the American giant is currently recruiting for more than 100 positions through Boss, including many related to cloud computing.
Asia Pacific|Havoc in Hong Kong Legislature Over Extradition Bill
HONG KONG — Anger over a proposal that would let people suspected of crimes be extradited to mainland China led to pandemonium in Hong Kong’s legislature on Saturday, as lawmakers scuffled and at least one was carried out of the chamber on a stretcher.
Both sides of the dispute agree that the man should face trial. But opposition lawmakers, rights groups, lawyers’ associations, foreign governments and prominent voices in Hong Kong’s powerful business community have expressed concern that the extradition bill would subject people in the city to the mainland Chinese legal system, which is opaque and heavily influenced by the governing Communist Party.
The chaos erupted on Saturday as two committees tried to meet simultaneously to consider the bill — one led by the opposition and the other by pro-Beijing lawmakers, each claiming that the other was illegitimate. Gary Fan, a member of the opposition camp, was taken out of the legislature on a stretcher after he fell while trying to take a microphone away from another politician. His office said later that he was conscious and awaiting treatment at a hospital.
The government has said it needs the bill’s broad authorization for extraditions to keep the city from becoming a haven for criminal suspects. But opponents say opening up extraditions to mainland China would further erode the unique legal status of Hong Kong, a former British colony that returned to China in 1997 under a framework called “one country, two systems.” That arrangement allows the city its own government and legal and economic systems, as well as far better protection of civil liberties than on the mainland.
Mainland China has long been excluded from Hong Kong’s extradition agreements. On Thursday, the city’s top official, Carrie Lam, denied that that was because of concerns about the quality of its judicial system. Several opposition lawmakers were removed from that meeting for interrupting Ms. Lam and calling her a liar.
After business groups raised concerns this year that the bill could put people at risk of being sent to the mainland over financial disputes, the government dropped nine economic crimes from the list of offenses that could lead to extradition.
But that did not mollify all the bill’s critics. The Hong Kong Bar Association asked last month why, if mainland courts could not be trusted to deal with economic crimes, they should be trusted with handling other criminal cases.
This past week, a United States congressional commission sharply criticized the extradition proposal, saying it “would diminish Hong Kong’s reputation as a safe place for U.S. and international business operations, and could pose increased risks for U.S. citizens and port calls in the territory.”
The report also said the bill could violate provisions of the U.S.-Hong Kong Policy Act of 1992, which outlines American policy toward the city. Under that legislation, if Hong Kong is deemed to be insufficiently autonomous from China, the president can suspend agreements with the city on trade, investment, visas and extraditions.
Edward Yau, Hong Kong’s commerce secretary, said the questions raised by the American commission’s report showed why Hong Kong lawmakers needed to examine the proposal “so that we can make the bill workable and we can allow different views to be expressed.”
Taiwan officials have asked the Hong Kong authorities for help in extraditing Chan Tong-kai, the man suspected of killing his girlfriend. But they have also raised objections to the legislation. China considers self-governing Taiwan to be part of its territory, and Taiwan has said it will oppose any agreement that undermines its sovereignty.
A spokesman for Taiwan’s Mainland Affairs Council said on Thursday that Taiwan would not pursue the extradition of Mr. Chan if the extradition legislation put Taiwanese visitors and residents in Hong Kong at risk of being sent to mainland China. Opposition lawmakers say that undermines the government’s claim that the bill must be passed now.
Mr. Chan was convicted in Hong Kong last month of money laundering in connection with the possession of his dead girlfriend’s cash and valuables, and he was sentenced to 29 months in prison. With time served and good behavior, he could be released in October, said John Lee, Hong Kong’s secretary for security.
Local officials have said they fear Mr. Chan could flee the city after his release unless an extradition arrangement with Taiwan is reached first.