In the News: Economic Contraction; Renault Exit; and Blockchain Standards
April 20, 2020 | BY
Vincent ChowChina's pandemic-hit economy contracts for first time in decades in Q1; Renault exits China joint-venture amid weak sales and worsening outlook; new national blockchain committee launched with several tech giants involved
Chinese economy shrinks for first time due to coronavirus
China's economy has contracted for the first time since quarterly gross domestic product figures were first reported in 1992. The National Bureau of Statistics (NBS) released data on Apr. 17 showing a 6.8% drop in Q1 from a year earlier and a 9.8% drop from the last three months of 2019. The NBS data also showed a 10.2% drop in manufacturing and a 15.8% drop in retail sales.
The outbreak of the novel coronavirus peaked in China in early February, when most of the country was put under strict lockdown. Since then, restrictions on work and travel have been gradually lifted, but some still remain including quarantine measures for inbound travellers to prevent a second wave of imported cases from abroad. The NBS has said that the government will unveil more measures to support economic recovery. Earlier in April, the State Council announced the establishment of 46 new integrated pilot zones for cross-border e-commerce with favorable tax exemptions and rates for exporters.
Even though China is gradually returning to normal business as it has largely succeeded in controlling the spread of the virus, economists are still pessimistic about the outlook for its economy in 2020 due to the global nature of the pandemic, with many of China's major trading partners under lockdown. On Apr. 14, China's customs administration revealed that exports fell by 6.6% in March year-on-year. The previous week, the Ministry of Commerce said that trade had improved in March but the outlook for trade in the coming months remains unfavorable. The International Monetary Fund recently estimated that the pandemic will usher in the worst global economic downturn since the Great Depression of the 1930s.
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Renault exits China JV due to struggling sales
Renault is pulling out of its main China joint-venture (JV) following the three-month closure of its plant in Wuhan, Hubei province. The French carmaker said on Apr. 14 that it had reached an agreement with its Chinese partner Dongfeng Motor Group for the local company to take full control of the joint venture, Dongfeng Renault Automotive Company. The JV is currently evenly owned by the two partners.
According to Renault's chairman for China, the carmaker will now focus on making electric vehicles and light commercial vehicles for the Chinese market through its other local JVs with Brilliance China and Jiangling Motors. The company, which counts the French state as its biggest shareholder, has struggled to make a mark in China since it launched its JV with Dongfeng in 2013. In 2019, the JV sold around 19,000 cars, far less than its capacity of 110,000 cars per year, and reported a loss of over 1.5 billion yuan ($212 million). The JV only made 14 cars during the first three months of 2020 due to the pandemic.
In 2018, the National Development and Reform Commission announced that foreign ownership limits on carmakers would be phased out over a five-year period. Moreover, the authorities in recent years have been streamlining administrative approval procedures for carmakers according to Hogan Lovells partners Lu Zhou and Roy Zou. An important measure in place since January 2019 are new rules allowing new manufacturing plants to be established without the need for approval by the authorities. However, several international carmakers have been struggling in the Chinese market. Peugeot maker PSA Group announced in November that it was exiting its China JV due to declining sales, capping off a miserable year in which the French carmaker suffered 700 million euros ($760 million) in losses in China. Although China is the world's largest vehicle market, car sales fell in China in 2019 for the first time in over two decades due to the combined effects of the trade war and a slowing domestic economy.
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Huawei, Tencent join new national blockchain standards committee
China has launched a national committee for developing the nation's blockchain standards, which will see the involvement of several tech giants including telecoms maker Huawei, WeChat developer Tencent, and Alibaba affiliate Ant Financial. On Apr. 13, the Ministry of Industry and Information Technology (MIIT) released its proposal for the new "National Blockchain and Distributed Accounting Technology Standardization Technical Committee," which will be open for public comment until May. 12. The statement did not specifically say what the committee will do.
Other tech giants listed as committee members include the search engine provider Baidu and e-commerce giant JD.com. In addition to private enterprises, the committee will also include MIIT researchers, think tanks, local governments and academics. The People's Bank of China Digital Currency Institute is also involved, which has been working to release the world's first sovereign digital currency after more than five years of development.
In October 2019, President Xi Jinping threw his support behind the development of blockchain in China, saying that the country must "seize the opportunities." Since then, many private enterprises have commenced projects with a blockchain element, while the regulators have tried to keep up with the technology by issuing new regulations and standards. In the same month that President Xi made his remarks on blockchain, China established a national blockchain service network to support the development of new blockchain industries and enterprises through the unified underlying blockchain infrastructure. Earlier in April, the MIIT published a set of standards relating to the security of blockchain applications for public comment.
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