Volkswagen doubles down on a China turnaround
If you can’t beat them, join them, as the saying goes. Volkswagen is taking that mantra to heart with its 700 million USD investment in Chinese EV startup Xpeng for a 4.99% stake. The two will jointly new EVs using Xpeng’s platform. Meanwhile, the German group’s Audi subsidiary will work more closely with its long-term state-owned partner, SAIC.
The quid pro quo seems straightforward: Volkswagen can try to turn around its sliding sales in China by leveraging Xpeng’s EV expertise, while Xpeng can tap Volkswagen’s scale and global network for its overseas expansion. The question: who will have the upper hand in this transaction? Xpeng’s shares certainly jumped a lot more on the news.
Japan’s Toyota is taking another approach: it’s beating a retreat in China amid plunging sales there, and this week laid off 1,000 workers at its joint venture with state-owned Guangzhou Automobile Group.
And if Volkswagen is embracing the competitive threat, then Nissan and Renault are doing the opposite: the Japanese and French car makers said they will reboot their troubled alliance to address the “wake-up call” ringing from the rise of Chinese EVs.
Year-to-date percent changes in Xpeng and Volkswagen share prices
The US and Europe inch towards outbound investment screening
The US Senate overwhelmingly approved new rules on outbound investments into China, requiring US investors to notify the Treasury when taking stakes in Chinese companies in strategic sectors like AI, advanced semiconductors, and quantum computing.
But the notification requirement falls far short of actually restricting—or even reviewing—outbound investments over national security concerns. For more clarity on that, we’ll have to watch for president Joe Biden’s long-anticipated executive order on outbound investment screening.
Across the Atlantic, Germany’s recently unveiled China strategy gave a supportive nod to the risks associated with certain outbound investments, while the EU said it aims to propose an outbound investment screening mechanism by the end of the year.
China is making a desperate bid to prop up its economy…
Beijing is rolling out more measures in its attempt to restart the economic engine. This week, the government promised to “adjust and optimize” policies for its ailing property sector. Asian shares rallied on the news.
The move follows Beijing’s bid last week to woo the private sector. And it comes in tandem with authorities’ attempts to get businesses investing in local government projects—widely known to be unprofitable undertakings. As China Beige Book notes with sarcasm: “What a wonderful investment opportunity.”
…while the US economy is proving resilient
The American economy unexpectedly grew by 2.4% in the second quarter from the previous quarter, above the 1.7% annual rate economists had forecast. Robust consumer spending, which increased at a 1.6% rate, powered the bulk of the growth. But business investment is also on the rise: it grew at an annual rate of 7.7% in the second quarter, up from 0.6% in the previous period.
The economy, at least for now, appears to be steering well clear of a recession. But the Fed isn’t done with its tightening campaign yet: on Wednesday, it raised rates to their highest level in over 22 years, and didn’t signal whether it would hike again in September.