Donald Trump is ready to start his second time period within the White Home surrounded by China hawks.
His choose for secretary of state, Marco Rubio, has campaigned in opposition to Chinese language affect and championed crackdowns on tech teams corresponding to Huawei. Michael Waltz, the incoming nationwide safety adviser, calls China an “existential threat”.
Nonetheless, one of many president-elect’s closest advisers has a way more difficult relationship with China: Elon Musk.
The South Africa-born billionaire and self-styled “first buddy” to Trump has emerged as a probably vital but unpredictable participant within the relationship between the world’s two superpowers.
Musk’s enterprise empire sits throughout a minefield of doable conflicts on problems with nationwide safety, tech competitors, provide chains and free speech, in addition to the way forward for Taiwan.
The world’s richest man has deep connections to high Chinese language Communist celebration leaders, and is in the midst of lobbying Beijing over essential choices for his $1tn electrical automobile enterprise, Tesla.
Tesla has obtained billions of {dollars} in low cost loans, subsidies and tax breaks from the Chinese language authorities. The carmaker is extremely depending on its Shanghai manufacturing unit, the largest in its world community, for not solely promoting to the nation of 1.4bn folks but in addition exporting its China-made vehicles to different components of the world. Musk’s Chinese language suppliers, particularly in batteries, are additionally essential to the corporate’s world manufacturing operations, together with within the US.
However the administration Musk is to hitch as effectivity tsar appears able to observe via on Trump’s marketing campaign risk of a pointy enhance in tariffs on all Chinese language imports into the US, a call that might dramatically affect Tesla’s enterprise.
Musk may probably present a “critical bridge” between China and the Trump administration, says Philippe Houchois, an analyst with US funding financial institution Jefferies.
There are already indicators that Musk’s affect could lengthen to America’s relations overseas, corresponding to his presence on a post-election telephone name between Trump and Ukrainian chief Volodymyr Zelenskyy.
Given the stakes for Tesla, the entrepreneur is perhaps anticipated to behave as a “moderating influence” on Trump’s deliberate tariffs, Houchois provides — and “how much or [for] how long markets ignore potential conflicts of interests ranging from political responsibilities to governance and compensation, is unclear”.
There may be clear proof of political stress over Musk’s potential conflicts. Two Democratic senators have sought a federal investigation into Musk’s reported communication with Russian chief Vladimir Putin, elevating concern over Musk’s high-level safety clearances and billions of {dollars} in US authorities funding.
Whereas there’s a lengthy historical past of businessmen performing as center males between Beijing and Washington, few, if any, have had extra at stake than Musk. Different components of his empire run straight into factors of pressure between the US and China. SpaceX, his business rocket and satellite tv for pc enterprise, has drawn sharp criticism from Chinese language navy analysts who see the corporate and its huge community of Starlink satellites as a part of the American navy’s growth into house. And X, the social media platform, is banned in China.
Yaqiu Wang, analysis director for China at Freedom Home, a US-based advocacy group, warns that Beijing has turn out to be “very deft” at manipulating international enterprise leaders — together with leveraging their firms’ entry to the nation — to compel them to “toe” the Communist celebration line, she warns.
“Musk is not only vulnerable to Beijing’s pressure given his extensive business interests in China, he also seems to genuinely enjoy close relationships with China’s authoritarian leaders,” she says. “This dynamic creates ample opportunities for the CCP to influence Trump’s China policy.”
5 years in the past, Musk secured funding for what was on the time Tesla’s most bold challenge, a manufacturing unit constructing electrical automobiles in a particular free commerce zone on Shanghai’s jap outskirts.
The prospect of facilitating the mortgage sparked fierce competitors amongst Chinese language banks. Some lobbied the Ministry of Trade and Info Know-how, considered one of Tesla’s regulators in Beijing, to be added to the record of accepted lenders. From the bankers’ perspective, the deal was not solely financially failproof, however it was additionally a chance to show alignment with Beijing’s supportive inexperienced industrial coverage.
In the long run, loans totalling practically $1.4bn got here from a consortium of among the nation’s largest state-owned lenders: China Development Financial institution, Agricultural Financial institution of China, Industrial and Business Financial institution of China and Shanghai Pudong Improvement Financial institution. The rate of interest on the debt was pegged at 90 per cent of China’s one-year benchmark rate of interest, a reduction that state lenders often provide to their finest shoppers, nearly at all times different Chinese language teams.
The particular therapy went additional. Musk efficiently satisfied CCP leaders together with Li Qiang, then the Shanghai celebration boss and now China’s premier and quantity two ranked chief, that Tesla wanted to personal its China enterprise outright. For the auto trade this marked an unprecedented change from Beijing, which had at all times required joint ventures between international and native Chinese language carmakers.
“Everybody knew it was the number one project for Shanghai, even for China, that year,” says a Shanghai-based credit score officer concerned within the deal. “With full support from the government, there’s no way for us to record any losses. No deals are better than that.”
The land for Tesla’s manufacturing unit has been leased from the Shanghai authorities for 50 years. The corporate, which didn’t reply to questions from the FT, has not disclosed the value tag. In 2018, the Shanghai Municipal Bureau of Planning and Land Assets stated a plot of land was leased for Rmb973mn ($145mn), properly beneath market costs on the time. In response to Tesla, the corporate has met necessities set by Shanghai to spend Rmb14bn on the plant by 2023 and obtained further grant funding of $76mn from town authorities the yr earlier than.
One Beijing-based authorities coverage adviser described Tesla to the Monetary Instances as in all probability nonetheless one of many “most subsidised EV makers in China”.
The connection has been mutually helpful.
For Musk, the Shanghai manufacturing unit is Tesla’s largest, producing thousands and thousands of vehicles and delivering revenues of $54bn over the previous three years — accounting for 23 per cent of its whole gross sales. Tesla has additionally stated its new adjoining manufacturing unit, constructing battery packs for electrical energy storage, is on observe to start out manufacturing within the first quarter of 2025.
“He is very pro-China, always has been,” says one former senior Tesla govt who labored carefully with Musk for greater than a decade. “The perception that China is trying to screw the US, that is not shared by Tesla.”
For China, the challenge delivers a whole bunch of thousands and thousands in taxes yearly, at a time of slowing financial progress. Tesla additionally paid again its chief mortgage in 2021.
However extra importantly to Xi Jinping’s financial planners, the fast supply of Tesla’s high-tech manufacturing unit helped turbocharge the nation’s nascent electrical automobile trade, each when it comes to the native provide chain and popularising the EV amongst retail shoppers.
Chinese language policymakers had “dreamed for 20 years” of a home auto trade however the “inflection point was Tesla’s launch in Shanghai”, says Invoice Russo, the previous head of Chrysler in China and founding father of Shanghai-based consultancy Automobility.
“Just like the iPhone unleashed a host of Chinese smartphone companies, the Tesla Model 3, initially, unleashed the Chinese EV wave,” Russo says.
Over the previous 5 years, Tesla’s world operations have deepened their reliance on Chinese language suppliers, whose scale, effectivity and ranges of automation have turn out to be world-leading.
With Trump warning of large tariffs in opposition to imports from Mexico and all of America’s buying and selling companions, Musk has already moved rapidly to guard Tesla by ramping up manufacturing within the US and pausing plans to construct a manufacturing unit in Mexico, which might partly make vehicles for the US market. However even then his firm stays deeply uncovered to American protectionism.
Tina Hou, who leads China auto analysis for Goldman Sachs, estimates that greater than 90 per cent of Tesla’s suppliers for the Shanghai manufacturing unit are Chinese language and when Tesla builds factories abroad these suppliers more and more “go out” with Tesla. In response to Mexican officers, dozens of Tesla suppliers have arrange operations in Mexico, together with Chinese language teams. Musk can also be working with its Chinese language battery provider CATL for expertise at Tesla’s Nevada battery manufacturing unit.
In late April, Musk made his most up-to-date China go to, assembly Premier Li and different leaders in Beijing, as a part of an effort to ease issues amongst Chinese language regulators over the nationwide safety threat posed by vehicles that accumulate and course of knowledge associated to Chinese language drivers and their environment.
Steve Orlins, president of the Nationwide Committee on US-China Relations, says one measure of Musk’s robust understanding of the Chinese language system is the choice — following Musk’s April journey — to overturn a ban on using Teslas on Chinese language authorities properties.
“How many US companies have succeeded in getting bans rescinded? Those guys, whether it’s Musk or his operating team, somebody gets the system. Because that, in my experience, is pretty rare and remarkable,” says Orlins.
Nonetheless, the long run success of Musk’s enterprise in China hinges on acquiring — and sustaining — regulatory approval for his FSD platform, the corporate’s semi-autonomous driving software program.
Musk believes his pivot to autonomous driving and synthetic intelligence may increase Tesla’s market valuation as excessive as $5tn, 5 instances increased than right this moment. However he’s additionally racing in opposition to a clutch of rival Chinese language carmakers and tech teams, from BYD, Xpeng and Nio to Baidu, Xiaomi and Huawei, who’re all growing comparable applied sciences.
Now, given Musk’s newfound entry to the White Home, a key query, in accordance with auto trade insiders, is whether or not Beijing may use Tesla as leverage when negotiating with Trump — each when it comes to Tesla’s FSD approvals and entry to provides of key elements.
“Tesla is looking for a solution on FSD so that could be part of the discussions on tariffs: we give you FSD, you negotiate on tariffs,” says one analyst at a US brokerage, who requested to not be named.
An govt at a rival automaker provides: “Tesla is hugely dependent on China for profitability and Musk has direct contact with the CCP leadership. It’s inevitable that he will be a piece of the puzzle.”
Amongst Chinese language shoppers, Tesla’s fast world success coupled with an admiration for maverick entrepreneurship has garnered Musk a cult following, and the nickname “the Silicon Valley ironman”. He has met Xi, the highly effective Chinese language chief, not less than twice.
Maye Musk, the billionaire’s modelling mom, has additionally constructed a powerful public profile in China with greater than half one million followers on Xiaohongshu, China’s Instagram-like platform.
And but amongst defence officers in Beijing, Musk’s enterprise empire poses a number of questions of nationwide safety, inserting Musk in battle with absolutely the precedence of Xi and his management.
A January commentary revealed by two authors from the Folks’s Liberation Military’s premier analysis group, the Academy of Army Sciences’ Warfare Analysis Institute, described SpaceX as having “a clear military focus” and “strategic intentions” that will assist the US acquire a aggressive edge within the house arms race.
“Its high-density deployment severely threatens the security of other countries’ space assets and affects the normal operation of their satellites,” they stated.
The researchers added: “Starshield satellites could undertake kamikaze-style attacks on spacecraft and be equipped with weapons payloads to carry out space strikes, posing threats to space security,” referring to the model of the Starlink satellite tv for pc community that’s dedicated to American nationwide safety purposes.
Musk advised the FT in an interview in 2022 that Beijing has made clear its disapproval of his deployment of the Starlink community to assist fortify the Ukrainian web after the 2022 full-scale invasion.
There are additionally indicators that Musk’s private views conflict with others in Trump’s shut orbit who need the US to push again tougher in opposition to Beijing’s elevated navy assertiveness, together with over Taiwan.
In speeches and interviews over latest years Musk has talked about his robust understanding of Chinese language coverage and his expectation of looming battle over democratic Taiwan, which the CCP claims as a part of China.
“There will come a point in the not too distant future where China’s military strength in that region far exceeds US military strength in that region,” Musk advised the All-In Summit held in Los Angeles final yr.
“And if one is to take China’s policy literally, and probably one should, then force will be used to incorporate Taiwan into China. This is what they’ve said. If there is not a diplomatic solution, there will be a solution by force,” he stated on the time.
Musk, in accordance with the previous Tesla govt, is making an attempt to cut back tensions between international locations and never inflame them additional, however “at the same time” has to guard his enterprise.
Tesla is extra nervous about Taiwan than tariffs, the previous govt says, including that Musk has been working to “mitigate” the affect of an embargo on China by rejigging his firm’s provide chain away from Taiwan.
“That has been true since it became clear to Elon that Taiwan to China is like Ukraine is to Russia and [there is] nothing you can do to stop that inevitable outcome. Maybe that is cynical, but that is a geopolitical reality.”
Musk’s possession of social media platform X raises additional questions over the billionaire’s interactions with China and inconsistency on free speech.
Wang, of Freedom Home, says that Musk’s declare that he’s a “free speech absolutist”, made when he purchased the social media platform in 2022, has been proved a “complete sham” by his acceptance of Chinese language censorship and assaults on critics.
She provides that regardless of “all the problems” with X, the platform continues to be utilized by folks inside China as a option to circumvent the Chinese language state’s draconian censorship and web controls.
“It’s unclear whether the Chinese government has requested account information of X users who express critical views of the CCP and whether X has handed over such information. Given Musk’s cosiness with Beijing, his lack of principle on free speech and privacy rights, his penchant for authoritarian rule, this should really be a concern,” Wang says.
For Beijing, after years of ties with Washington at a historic low, the prospect of getting an ally like Musk influencing the White Home is a particular constructive.
Henry Huiyao Wang, a former senior authorities official and the founder and president of the Beijing-based Middle for China and Globalization, says that whereas Beijing is “preparing for the worst” there stays hope that Trump, with the assist of American billionaires like Musk, may be “more pragmatic” and US-China tensions may be dialled again.
Musk may must navigate stress on his personal China hyperlinks from different corners of Washington. Rubio, for instance, in August co-signed a letter alleging that CATL, Tesla’s predominant battery provider in China and with whom it’s working within the US, has “deep ties” to the CCP and the PLA and was actively concerned in bolstering Beijing’s navy ambitions — accusations that CATL has denied.
In the end, in the case of influencing Trump on China there can be a “jumble” of views competing for the president’s ear, says Andrew Gilholm, head of China evaluation at consultancy Management Dangers.
On the one hand, there’ll nonetheless be conventional Wall Avenue titans and tech leaders who’re seen as Beijing-friendly and “don’t want to rock the boat with China”. And then again, there are hawks, corresponding to Rubio, who “are ideologically anti-China and want to hammer China on all fronts”.
After which there may be Musk. “Individuals will matter,” Gilholm says. “Musk is a wild card — his interests conflict.”
Further reporting by Ding Wenjie and Joe Leahy in Beijing
