California contract with China = $1 billion

[Douglas Buckland + 6,308]

Newsom's office refuses records request on 'murky' $1B mask deal with Chinese company

https://www.foxnews.com/politics/newsoms-office-refuses-records-request-on-murky-1b-mask-deal-with-chinese-company

I wonder how Newsom is going to spin his way out of this one? When will the feds cut aid to California?

Edited May 5, 2020 by Douglas Buckland
Typo

[Marcin2 + 724]

56 minutes ago, Douglas Buckland said:

Newsom's office refuses records request on 'murky' $1B mask deal with Chinese company

https://www.foxnews.com/politics/newsoms-office-refuses-records-request-on-murky-1b-mask-deal-with-chinese-company

I wonder how Newsom is going to spin his way out of this one? When will the feds cut aid to California?

“Publishing the agreement now – before performance under the contract is complete – would introduce substantial and unnecessary risk to the State’s ability to secure necessary supplies,” Ryan Gronsky, an attorney with the Governor’s Office of Emergency Services, wrote to the Times.

So the answer is above and it is really simple:

There is a great reputational and supply chain risk for BYD to export anything to the United States, even protective masks.

This is a large contact for BYD, that is why BYD entered into it.

When the contract and background documentation is revealed before the contract execution the risk probably rises a lot.

In the current self-damage for short-term political gains situation in the United States many other problems could arise: California governor could be under pressure to not pay for delivered masks, or to stop further deliveries of the masks, cause BYD is military led entity, or other nonsense that could be manufactured on demand.

(If you do not agree please consider that there were voices in Trump administration to default on Chinese held Treasuries. Only traitors could propose such damaging ideas. This would be the greatest present for Chinese communists ever)

In short: probably Newsom and California want to get these masks, and they are afraid that revealing the contract details NOW, before delivery, could cause BYD to stop contract execution. There could be even such clause in the contract.

There was already similar situation in UK, reported by Guardian.

I

Edited May 5, 2020 by Marcin2
typo

[Douglas Buckland + 6,308]

19 minutes ago, Marcin2 said:

“Publishing the agreement now – before performance under the contract is complete – would introduce substantial and unnecessary risk to the State’s ability to secure necessary supplies,” Ryan Gronsky, an attorney with the Governor’s Office of Emergency Services, wrote to the Times.

So the answer is above and it is really simple:

There is a great reputational and supply chain risk for BYD to export anything to the United States, even protective masks.

This is a large contact for BYD, that is why BYD entered into it.

When the contract and background documentation is revealed before the contract execution the risk probably rises a lot.

In the current self-damage for short-term political gains situation in the United States many other problems could arise: California governor could be under pressure to not pay for delivered masks, or to stop further deliveries of the masks, cause BYD is military led entity, or other nonsense that could be manufactured on demand.

(If you do not agree please consider that there were voices in Trump administration to default on Chinese held Treasuries. Only traitors could propose such damaging ideas. This would be the greatest present for Chinese communists ever)

In short: probably Newsom and California want to get these masks, and they are afraid that revealing the contract details NOW, before delivery, could cause BYD to stop contract execution. There could be even such clause in the contract.

There was already similar situation in UK, reported by Guardian.

I

You may be correct to a point, but international trade, especially a contract worth a billion dollars, is the arena of international trade and must be vetted by the FEDERAL government.

”As a nation-state, with the capacity to write a check for hundreds of millions, no billions, of dollars, we’re in a position to do something bold and big,” Newsom told reporters the next day.”

California is not, and has never been a “nation-state” (whatever that is) and cannot act unilaterally in regards to international trade.

Furthermore, where is California going to get a billion dollars, I thought that the state was broke....especially after this extended lockdown.

Lastly, many of the masks coming out of China recently do not meet standards. Who will be doing the QA/QC for this deal?

[Dan Warnick + 6,100]

16 minutes ago, Douglas Buckland said:

California is not, and has never been a “nation-state” (whatever that is) and cannot act unilaterally in regards to international trade.

It's another one of Gov. Newsom's delusional fantasies.  He, and is wife for that matter, believe that they embody the core wishes of everyone in their state, to the extent that they are essentially separate from the Federalist United States.  Classic!  What's the problem?

[Dan Warnick + 6,100]

1 hour ago, Douglas Buckland said:

Newsom's office refuses records request on 'murky' $1B mask deal with Chinese company

https://www.foxnews.com/politics/newsoms-office-refuses-records-request-on-murky-1b-mask-deal-with-chinese-company

I wonder how Newsom is going to spin his way out of this one? When will the feds cut aid to California?

LOL!  Where to begin?

1. If I made a deal on 1/2 a BILLION paper masks, you can bet your ass I would be getting them for less than a $1 a mask!  $2 seems a tad pricey.

2. Can/will the Chinese car company deliver?

3. Was there an advance payment? (See item 2.)

4. Were samples given/tested?

5. Where was the money to pay for this contract diverted from?  (Might be important to the VOTERS who will lose those funds)

I wouldn't tell anyone either.  

[Marcin2 + 724]

Douglas & Dan

I do not know much about specifics of US domestics politics, like who Newsom is or what is the internal state vs federal regulations or what is budget situation in California. You both sound to me a little bit partisan, maybe you are Republicans and California is Democratic state ?

What I think I understand in this case is that  large Chinese company that has a lot of international exposure, also in North America is entangled in both international US vs China and domestic Rep vs Dem political struggles. The best situation for BYD would be to not sell DIRECTLY any products or services to any US entities or do it only through intermediaries. Maybe it was greed on BYD side- they did not want to lose part of profit, or maybe the contract was signed earlier, maybe 2 months ago when the climate for Chinese business in US was not that bad.

My opinion is that unfortunately US loses more in this situation, not China. China is allegedly all for free trade, and US gagged WTO so that US effectively self-isolated itself in global trade. It is of course half true. Both US exports and US imports from China would diminish a lot in 2020 and future years. A lot of Chinese companies think that it is just not worth the risk to co-operate with US entities, especially as a vital supplier. All Chinese companies are doubling down on efforts to de-Americanize their supply chains, due to large political risk. This process already has its own momentum, it already does not depend on real US policies.

About trade deal US-China. China will only purchase from US goods that have very liquid market in substitutes: raw materials, crude oil, food.

After 28 April 2020 export sanctions it is even too dangerous for Chinese airlines to buy Boeing planes.

The airlines risk that these planes will not be serviced, spare parts available if Chinese airlines will be deemed as co-operating with Chinese military. In light of current regulation it is probable. Think about the airlines having half of their fleet grounded.

[Ward Smith + 6,615]

5 hours ago, Marcin2 said:

A lot of American companies think that it is just not worth the risk to co-operate with US entities, especially as a vital supplier. All American companies are doubling down on efforts to de-Chinese their supply chains, due to large political risk. This process already has its own momentum, it already does not depend on real CCP policies.

There, fixed it for you

[Dan Warnick + 6,100]

29 minutes ago, Ward Smith said:

5 hours ago, Marcin2 said:

A lot of American companies think that it is just not worth the risk to co-operate with Chinese entities, especially as a vital supplier. All American companies are doubling down on efforts to de-Chinese their supply chains, due to large political risk. This process already has its own momentum, it already does not depend on real CCP policies.

There, fixed it for you

There, fixed it for you.

[Dan Warnick + 6,100]

31 minutes ago, Ward Smith said:

There, fixed it for you

And don't worry too much about Marcin.  He still thinks we need rubber dog shit from China more than China needs food from us.  Oh, and and he doesn't get that everything around those two things is just fluff that can be bought by the U.S. elsewhere.  The U.S. has been switching to the next greatest cheap labor markets for many decades before China became the latest source.  Who's next?  Who wants to make our rubber dog shit now?  Small town USA?  Okay, there you go.  Winner winner chicken dinner!  Mexico?  Here you go, thank you very much (let's talk oil, okay?  See you next week.)  Next? 

[pisstol + 48]

If the masks are defective, Gov. Newsom might need to ask Trump to bail him out.

Somebody has touched on this, but many countries have been getting defective medical equipment needed for the corona virus from China. This includes bad masks. Here are just two of many articles:

https://www.bbc.com/news/world-europe-52092395

https://www.latimes.com/world-nation/story/2020-04-10/china-beijing-supply-world-coronavirus-fight-quality-control

Defective Chinese medical equipment is a worldwide scandal.

[Dan Warnick + 6,100]

10 minutes ago, pisstol said:

If the masks are defective, Gov. Newsom might need to ask Trump to bail him out.

Somebody has touched on this, but many countries have been getting defective medical equipment needed for the corona virus from China. This includes bad masks. Here are just two of many articles:

https://www.bbc.com/news/world-europe-52092395

https://www.latimes.com/world-nation/story/2020-04-10/china-beijing-supply-world-coronavirus-fight-quality-control

Defective Chinese medical equipment is a worldwide scandal.

Perhaps Gov. Newsom has seen those two articles since making his Nation-State order.

[0R0 + 6,251]

4 hours ago, Marcin2 said:

My opinion is that unfortunately US loses more in this situation, not China. China is allegedly all for free trade, and US gagged WTO so that US effectively self-isolated itself in global trade. It is of course half true. Both US exports and US imports from China would diminish a lot in 2020 and future years. A lot of Chinese companies think that it is just not worth the risk to co-operate with US entities, especially as a vital supplier. All Chinese companies are doubling down on efforts to de-Americanize their supply chains, due to large political risk. This process already has its own momentum, it already does not depend on real US policies.

 

While that is true for many Chinese companies with their business anchored to China markets, those who have largely outside markets are doing the exact opposite. The balance, according to an industrial and corporate operations relocation company in China, has shifted from 70-80% going into China through 2014, to 60% incoming in 2017,  to 80% leaving since 2018. The balance of companies making money in China vs. making money abroad is lopsided. China is a large volume low margin market. Exports are a smaller volume large profit margin business, even more so for foreign operators in China. 

The typical China export has 55% foreign parts content out of its export price. Marketing transport insurance and wholesaling and retailing to the target market takes up 60% of the final price without taxation. The net to China is 45% of 40% of the price, or 18%. High tech products produce a higher margin as the export chain out of the port takes a smaller margin, as low as 20%. but the Chinese content is just as small or smaller, typically 65% is foreign parts. So they have 35% of 80% of the final pre tax consumer price, or 28%. And this is where they are most productive, and where incomes are close to Western standards. 

Chinese operations are easier to skirt because materials and component costs outside of China are falling relative to interior Chinese costs. Even pharmaceutical active ingredients and specialty chemicals that China subsidized its way into a monopoly of up to 90%, can be made more cheaply in the US in so far as materials costs go. Chinese manufacturers are looking to relocate to NAFTA in order to obtain that pricing. Their main problem is the regulatory burden and lack of subsidy in the US. I think  that these costs will be much reduced going forward and subsidies are coming just as in Japan and Europe. Capital costs are similar. 

So while you are right about the Chinese looking internally decoupling from US technology, the exporters are looking to decouple from China. A trend that started long before the trade war and has gained momentum. 

The Chinese technology decoupling from the US is much smaller than the global supply chain decoupling from China. 

The Chinese "market" is not all Chinese. It is still a re-export market to a large extent. 

 

You are talking about this (see URL below) kind of displacement of US technology by people trying to avoid the heavy accounting and trade costs for their use of US sourced restricted components, just as had been the case for American Defense goods.

https://www.defensenews.com/opinion/commentary/2020/01/22/a-slippery-slope-will-foreign-companies-start-ditching-american-dual-use-tech/

This is the past. It was true while China was advancing in a big way and was a huge and growing market when looking forward. It is not an issue if China is a stagnant morass with trailing incomes, and its export industries are leaving, thus reducing local incomes and China's attraction as a global end market. 

 

Post CV19, The openness of the West to Chinese products and of Western business to Chinese supply chains has fallen essentially to 0. They WANT NOT TO BE THERE. Everyone is looking for options to China. "Not made in China, 2025" is the likely outcome. 

 

Since China's agricultural productivity hit a plateau in 2015, Rural incomes have increased at 10% excess to GDP (growing at 1.1 X GDP growth). While migrant worker incomes were at a 40% discount to GDP (growing at 0.6 X GDP growth), and local industrial workers were at a 20% discount to GDP growth  

https://chinadashboard.asiasociety.org/winter-2020/page/labor

This constriction of China by its failing agriculture sector is only going to get worse. There will soon enough be no migrant workforce. It also means that migration to the inland Tier 2 and 3 cities where so much unoccupied real estate was built at a cost of 16% of GDP for a decade (the unoccupied portion cost 5-6% of GDP annually since 2015) will only be sold to newcomers at either much lower prices, or not at all. Those are looking more like White Elephants. The 500 million rural residents are going to stay there. Some urbanites might consider moving out to the country too. The only wa to buy your child a decent high school education is to live in the high end CCP neighborhoods, which would cost you >40X average income and more. With parents and grandparents working, that means 5.6X Income while the grandparents still need to live somewhere. Meaning that if you can't get a good education for your kid in the central city, why would you move there?

Had China focused on providing free high school education of quality to the entire country, then their future may have been different, but they focused instead on creating one super university and put the rest into excess airports, high speed rail duplicating prior projects, and military expansion and subsidies for uncompetitive industries, and into supporting the CCP membership's incomes. 

 

EU export restrictions from China include re-exported goods and Chinese components in supply chains. This is from a customs company consulting for German industry.

https://www.awor-customs.com/en/china-re-export/