Germany’s China strategy
The German government unveiled its first ever strategy on China, which it described as being simultaneously a “partner, competitor and systemic rival.” Berlin’s aims are clear: “de-risking is urgently needed,” the strategy said, noting that Germany must “change [its] approach to China” because “China has changed.”
How Berlin intends to achieve those goals, and what trade-offs it’s willing to make and on what timescale, less so. It will also need buy-in from Germany Inc., which currently isn’t convinced by the de-risking agenda: the Mercedes-Benz CEO said in May that cutting ties with China would be “unthinkable for almost all of German industry.”
While short on explicit policy measures, Germany’s new China strategy does explicitly reckon with Beijing’s asymmetric strategy: “China’s economic strategy aims to make it less dependent on other countries, while making international production chains more dependent on China,” it said. Recognizing that asymmetry is step one. Step two is devising a plan to counter it.
Foxconn dumps India’s Vedanta…
India’s semiconductor ambitions were dealt a setback this week after Foxconn pulled out of a 19.5 billion USD joint venture with Indian metals-to-oil conglomerate Vedanta. The Taiwanese contract manufacturing giant, best known for assembling iPhones and which has been pushing to expand into the semiconductor business, didn’t give reasons for bailing on the partnership. Vedanta says it can turn to other partners to establish India’s first foundry.
India’s technology minister sounded an upbeat note, saying the Foxconn-Vedanta split “doesn’t affect India’s semiconductor program.” Plus, major US companies have invested in India’s chip industry recently: last month, both Micron and Applied Materials said they build major facilities in the country. And Foxconn is still in talks with India to potentially build a semiconductor plant in Gujarat state, according to Reuters.
…while BYD and Tesla wants to make EVs in India
The world’s two largest electric vehicle makers are both eyeing India as the next manufacturing and export base for EVs.
China’s BYD, which last year overtook Tesla in terms of total sales of battery electric and plug-in hybrids, has submitted a 1 billion USD investment proposal to build a EV and batteries factory in joint venture with a local company. BYD’s push into India would give the company a foothold in all major global auto markets other than the US (where it’s taking a slow and cautious approach).
Rival Tesla, which still leads global sales in pure electric vehicles, is meanwhile in talks with the Indian government to set up a factory to produce half a million EVs in India annually.
Cooling inflation, looming deflation
US consumer inflation is finally cooling down. Prices rose 3% in June year-on-year, the smallest increase since March 2021 and down significantly from 4% in May. A caveat, however: month to month, the CPI ticked up 0.2% last month versus 0.1% the month prior.
In any case, signs of slowing inflation have traders betting that the Fed will make this month’s rate hike the last one in a while. Inflation’s easing has also sent the dollar tumbling. That could potentially help cool prices in Europe and elsewhere as dollar-dominated energy, commodity, and food prices get cheaper as a result.
Over in China, risks of deflation keep growing. Consumer inflation fell to 0% in June from a year earlier, hitting a 28-month low. Meanwhile, producer prices feel at their fastest rate since December 2015, sinking 5.4%.
China CPI and PPI, year-on-year change