Shanghai Merger Takes on Wall Street 🏦 Mercedes Invests $2B in China 🚗 China Outspends the World on Chips 💻

2024-09-09 | subscribe | homepage

Welcome back to this week’s edition of the China Insights Weekly Newsletter!

Some of the key takeaways this week:

• $2B Investment: Mercedes-Benz invests $2 billion to expand EV production in China.

• 1M (N)EVs Sold: China hits a record with over 1 million new energy vehicles sold in August.

• $25B in Chips: China outspent rivals on chipmaking equipment with $25 billion in 2024.

• $1B Railway Deal: China signs a $1 billion deal to revive the TAZARA railway in East Africa.

Dive deeper into these stories and more by clicking the headlines below. We value your feedback—let us know your thoughts or suggestions on LinkedIn, X or Facebook.

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🚀 Headlines

Mercedes-Benz increases investment in China to expand local product lineup (link)

German luxury carmaker Mercedes-Benz has announced plans to invest more than RMB 14 billion ($2 billion) in China with local partners to diversify further its localized product lineup of passenger cars and light commercial vehicles. From 2025 onwards, Mercedes-Benz will gradually put into production a new all-electric long-wheelbase CLA model exclusive to China, a new long-wheelbase GLE SUV (sport utility vehicle), and a new luxury all-electric MPV (multi-purpose vehicle) based on the VAN.EA platform. The Chinese team will lead the new long-wheelbase GLE SUV for the first time and will offer China-specific comfort and intelligent technology.

China's new energy vehicles hit 53%, retail sales exceeded 1 million for 1st time ever in August (link)

In August, retail sales of passenger New Energy Vehicles (NEVs) that include electric and hybrids in China totaled 1.015 million units, up 42% from the same month last year and up 16% from July. This is the first time retail sales figure for passenger NEVs has exceeded the 1 million mark, surpassing the previous record of 947,347 units in December 2023. So far this year, cumulative retail sales of China's passenger NEVs stood at 6,004,000 units, up 35% year-on-year. So far this year, cumulative retail sales of all passenger vehicles in China totaled 13.477 million units, up 2% year-on-year. This means that retail penetration of NEVs in China was 53.14% in August and 44.55% year-to-date.

China spent more on chipmaking equipment than South Korea, Taiwan, and the US combined in 1st half of 2024 (link)

China became the leading spender on chipmaking equipment this year, as Chinese semiconductor producers invested a remarkable USD25 billion in the first half of 2024. This spending exceeds the combined investments of South Korea, Taiwan, and the US, indicating China’s aggressive efforts to localize chip production and reduce reliance on foreign suppliers. China is expected to spend USD50 billion on semiconductor equipment in 2024. This level of spending indicates Chinese chipmakers’ expectations for future market demand and the overall health of the semiconductor industry. China’s investment is driven by a need to secure a stable supply of chips critical to various industries, which is why over a dozen Chinese fabs are coming online in 2024 and 2025. China is the only major market that has increased its spending on fab tools compared to the previous year.

Shanghai firms to merge and create China’s largest brokerage to take on the Wall Street (link)

China is combining two of its largest state-backed brokerages to create a new behemoth as it seeks to consolidate the USD1.7 trillion sector and build stronger investment banks to compete with overseas financial firms. Guotai Junan Securities will merge with smaller rival Haitong Securities through a share swap. The combination of the firms, both partly owned by Shanghai’s state assets administrator, will create a new entity with assets of 1.6 trillion yuan (USD230 billion), topping Citic Securities as the largest brokerage. Guotai Junan has about 15,000 employees, while Haitong Securities employs more than 13,600 including 1,645 in investment banking. The nation’s securities watchdog has voiced its support for consolidation, intending to have two to three investment banks compete globally by 2035. China had about 145 securities firms at the end of 2023.

China opens more manufacturing, healthcare to foreign investment (link)

Beijing will remove the last remaining limits on investments from other countries in the manufacturing sector from November 1st and cut its list of areas that are restricted for foreign investors, such as requirements for Chinese majority control of printing factories and a prohibition on investment in production of Chinese herbal medication. Foreign capital will be allowed to flow into the development and application of technologies covering stem cells, gene diagnosis, and treatment in the pilot free trade zones in Beijing, Shanghai, Guangdong, and Hainan. The government will also allow the setup of wholly foreign-owned hospitals in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and Hainan Island.

Zambia, Tanzania sign USD 1 billion deal with China to revive TAZARA railway operations (link)

At the triannual FOCAC (Forum on China-Africa Cooperation) held in Beijing with 53 African country heads of state, China, Tanzania, and Zambia signed an initial agreement to rehabilitate a decades-old railway aimed at improving the rail-sea transportation in resource-rich East Africa. President Xi Jinping witnessed the signing of the memorandum of understanding on refurbishing the 1,860 km (1,156 miles) Tanzania-Zambia Railway Authority (TAZARA) railway with the Tanzanian and Zambian presidents. The single-track TAZARA railway was built between 1970 and 1975 through an interest-free loan from China, offering a cargo transport route from Zambia’s copper and cobalt mines. China plans to spend USD1 billion to rehabilitate the rail line through a public-private partnership model.

China to give zero-tariff treatment to 33 least developed countries in Africa (link)

China will offer tariff-free treatment to the 33 African nations designated as least developed countries to promote its trade prosperity with Africa. China will give zero-tariff treatment for 100 percent tariff lines. China had implemented zero tariffs on 98 percent of products imported from 27 of the least developed countries in Africa as of June 30. China ranked as Africa's largest trading partner for 15 straight years, with bilateral trade between the two reaching a record high of USD282.1 billion last year. China's imports and exports to Africa rose 5.5 percent to a record of CNY1.19 trillion (USD168 billion) in the seven months ended July 31 from a year earlier.

Nvidia’s best AI chips are 40% cheaper to rent in China than US showing trade restrictions do not work (link)

The cost of renting cloud services using Nvidia’s leading artificial intelligence chips is lower in China than in the US, a sign that the advanced processors are easily reaching the Chinese market despite Washington’s export restrictions. Four small-scale Chinese cloud providers charge local tech groups roughly USD6 an hour to use a server with eight Nvidia A100 processors in a base configuration. Small cloud vendors in the US charge about USD10 an hour for the same set-up. The A100 and H100, which are also readily available, are among Nvidia’s most powerful AI accelerators and are used to train large language models. The Silicon Valley company has been banned from shipping the A100 to China since autumn 2022 and has never been allowed to sell the H100 in the country.

🎁 Bonus Stories

How Walmart dominates China’s retail industry (link)

USA’s Walmart has emerged as the leader in the crowded Chinese retail industry aided by the strength of its wholesale membership business Sam's Club. Since 2016 Walmart tapped into the local expertise, technology, and logistics network of JD.com. It recently offloaded its stake in JD for approximately USD3.6 billion. Walmart’s China operations represent a combination of physical and digital strategies. In physical space, Walmart has adapted to China by offering smaller stores that focus on fresh food. This has seen membership-only bulk retailer Sam’s Club perform extremely well. Walmart China's second-quarter revenue increase of 17.7% was mirrored by a remarkable 13.8% increase in comparable store sales. Today, Sam's Club is the leader in this space in China, with the company operating 47 stores in 25 cities at the end of last year.

Walmart's success in China is due to several key reasons including 1) Strategic partnerships with local partners to gain an understanding of the market, 2) Catering the shopping experience - both physical and digital - to address the unique requirements and expectations of the local consumer, 3) Avoiding investments in small, unprofitable local businesses just for the sake of gaining exposure to the local market, 4) Prioritizing the service quality and offering seasonal discounts that appeal to the local market, rather than trying to replicate strategies that have been successful in the United States.

More Malaysian students head to China for higher education (link)

More Malaysian students are heading to China for further studies, drawn by affordable costs, the growing prestige of its top universities, and the availability of scholarships. About 1,800 Malaysian students studied in China in 2007. By 2019, that figure had risen to around 9,500, and an estimated 10,000 in 2023. China’s universities have been climbing in global rankings, with Tsinghua University in Beijing moving to 12th place from 23rd in the Times Higher Education’s World University Rankings between 2020 and 2024. Peking University was ranked 14th, and seven mainland Chinese universities made it to the world’s top 100 universities list this year, compared to three in 2020. The Malaysian government has approached Tsinghua and Shanghai Fudan universities to establish branch campuses in Malaysia. In 2016, Xiamen University became the first Chinese university to set up an international branch campus in the Malaysian state Selangor.

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