Donald Trump is about to start his second time period within the White Home surrounded by China hawks.
His decide for secretary of state, Marco Rubio, has campaigned in opposition to Chinese language affect and championed crackdowns on tech teams equivalent to Huawei. Michael Waltz, the incoming nationwide safety adviser, calls China an “existential menace”.
Nevertheless, one of many president-elect’s closest advisers has a way more sophisticated relationship with China: Elon Musk.
The South Africa-born billionaire and self-styled “first buddy” to Trump has emerged as a doubtlessly vital but unpredictable participant within the relationship between the world’s two superpowers.
Musk’s enterprise empire sits throughout a minefield of attainable 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 get together leaders, and is in the course of lobbying Beijing over vital choices for his $1tn electrical automobile enterprise, Tesla.
Tesla has acquired billions of {dollars} in low cost loans, subsidies and tax breaks from the Chinese language authorities. The carmaker is very depending on its Shanghai manufacturing facility, the most important in its international community, for not solely promoting to the nation of 1.4bn folks but additionally exporting its China-made automobiles to different components of the world. Musk’s Chinese language suppliers, particularly in batteries, are additionally essential to the corporate’s international manufacturing operations, together with within the US.
However the administration Musk is to hitch as effectivity tsar appears able to observe by way of on Trump’s marketing campaign menace of a pointy improve in tariffs on all Chinese language imports into the US, a choice that might dramatically impression Tesla’s enterprise.
Musk might doubtlessly present a “essential 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 might lengthen to America’s relations overseas, equivalent to his presence on a post-election cellphone name between Trump and Ukrainian chief Volodymyr Zelenskyy.
Given the stakes for Tesla, the entrepreneur is likely to be anticipated to behave as a “moderating affect” on Trump’s deliberate tariffs, Houchois provides — and “how a lot or [for] how lengthy markets ignore potential conflicts of pursuits starting from political tasks to governance and compensation, is unclear”.
There’s clear proof of political strain 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 stress between the US and China. SpaceX, his industrial 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 area. 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 get together line, she warns.
“Musk isn’t solely susceptible to Beijing’s strain given his in depth enterprise pursuits in China, he additionally appears to genuinely get pleasure from shut relationships with China’s authoritarian leaders,” she says. “This dynamic creates ample alternatives for the CCP to affect Trump’s China coverage.”
5 years in the past, Musk secured funding for what was on the time Tesla’s most formidable venture, a manufacturing facility 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 Data Know-how, one in all Tesla’s regulators in Beijing, to be added to the checklist of accredited 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.
Ultimately, loans totalling almost $1.4bn got here from a consortium of a few of the nation’s largest state-owned lenders: China Building Financial institution, Agricultural Financial institution of China, Industrial and Industrial Financial institution of China and Shanghai Pudong Growth 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 normally supply to their greatest purchasers, nearly at all times different Chinese language teams.
The particular remedy went additional. Musk efficiently satisfied CCP leaders together with Li Qiang, then the Shanghai get together 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.
“Everyone knew it was the primary venture for Shanghai, even for China, that 12 months,” says a Shanghai-based credit score officer concerned within the deal. “With full assist from the federal government, there’s no approach for us to report any losses. No offers are higher than that.”
The land for Tesla’s manufacturing facility 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), effectively beneath market costs on the time. In accordance with Tesla, the corporate has met necessities set by Shanghai to spend Rmb14bn on the plant by 2023 and acquired further grant funding of $76mn from town authorities the 12 months 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 useful.
For Musk, the Shanghai manufacturing facility is Tesla’s largest, producing tens of millions of automobiles 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 facility, constructing battery packs for electrical energy storage, is on observe to start out manufacturing within the first quarter of 2025.
“He’s very pro-China, at all times has been,” says one former senior Tesla govt who labored carefully with Musk for greater than a decade. “The notion that China is making an attempt to screw the US, that’s not shared by Tesla.”
For China, the venture delivers a whole bunch of tens of millions in taxes yearly, at a time of slowing financial development. Tesla additionally paid again its chief mortgage in 2021.
However extra importantly to Xi Jinping’s financial planners, the speedy supply of Tesla’s high-tech manufacturing facility helped turbocharge the nation’s nascent electrical automobile trade, each by way of 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 level was Tesla’s launch in Shanghai”, says Invoice Russo, the previous head of Chrysler in China and founding father of Shanghai-based consultancy Automobility.
“Identical to the iPhone unleashed a bunch of Chinese language smartphone firms, the Tesla Mannequin 3, initially, unleashed the Chinese language EV wave,” Russo says.
Over the previous 5 years, Tesla’s international 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 huge 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 facility in Mexico, which might partly make automobiles 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 facility are Chinese language and when Tesla builds factories abroad these suppliers more and more “exit” with Tesla. In accordance with Mexican officers, dozens of Tesla suppliers have arrange operations in Mexico, together with Chinese language teams. Musk can be working with its Chinese language battery provider CATL for expertise at Tesla’s Nevada battery manufacturing facility.
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 considerations amongst Chinese language regulators over the nationwide safety danger posed by automobiles that gather 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.
“What number of US firms have succeeded in getting bans rescinded? These guys, whether or not it’s Musk or his working workforce, anyone will get the system. As a result of that, in my expertise, is fairly uncommon and memorable,” 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 might enhance Tesla’s market valuation as excessive as $5tn, 5 instances larger than in the present day. 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 keeping with auto trade insiders, is whether or not Beijing might use Tesla as leverage when negotiating with Trump — each by way of Tesla’s FSD approvals and entry to provides of key parts.
“Tesla is on the lookout for an answer on FSD in order that might be a part of the discussions on tariffs: we offer 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 massively depending on China for profitability and Musk has direct contact with the CCP management. It’s inevitable that he will probably be a bit of the puzzle.”
Amongst Chinese language shoppers, Tesla’s speedy international 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, no less than twice.
Maye Musk, the billionaire’s modelling mom, has additionally constructed a robust 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, putting Musk in battle with absolutely the precedence of Xi and his management.
A January commentary printed by two authors from the Folks’s Liberation Military’s premier analysis group, the Academy of Navy Sciences’ Conflict Analysis Institute, described SpaceX as having “a transparent navy focus” and “strategic intentions” that may assist the US achieve a aggressive edge within the area arms race.
“Its high-density deployment severely threatens the safety of different international locations’ area belongings and impacts the traditional operation of their satellites,” they stated.
The researchers added: “Starshield satellites might undertake kamikaze-style assaults on spacecraft and be geared up with weapons payloads to hold out area strikes, posing threats to area safety,” referring to the model of the Starlink satellite tv for pc community that’s dedicated to American nationwide safety functions.
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’ll come some extent within the not too distant future the place China’s navy power in that area far exceeds US navy power in that area,” Musk advised the All-In Summit held in Los Angeles final 12 months.
“And if one is to take China’s coverage actually, and doubtless one ought to, then power will probably be used to include Taiwan into China. That is what they’ve stated. If there’s not a diplomatic answer, there will probably be an answer by power,” he stated on the time.
Musk, in keeping with the previous Tesla govt, is making an attempt to cut back tensions between international locations and never inflame them additional, however “on the identical time” has to guard his enterprise.
Tesla is extra fearful about Taiwan than tariffs, the previous govt says, including that Musk has been working to “mitigate” the impression of an embargo on China by rejigging his firm’s provide chain away from Taiwan.
“That has been true because it turned clear to Elon that Taiwan to China is like Ukraine is to Russia and [there is] nothing you are able to do to cease that inevitable consequence. Possibly that’s cynical, however that may be a geopolitical actuality.”
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 “full sham” by his acceptance of Chinese language censorship and assaults on critics.
She provides that regardless of “all the issues” with X, the platform continues to be utilized by folks inside China as a method to circumvent the Chinese language state’s draconian censorship and web controls.
“It’s unclear whether or not the Chinese language authorities has requested account data of X customers who specific essential views of the CCP and whether or not X has handed over such data. Given Musk’s cosiness with Beijing, his lack of precept on free speech and privateness rights, his penchant for authoritarian rule, this could actually be a priority,” 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 optimistic.
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 “making ready for the worst” there stays hope that Trump, with the assist of American billionaires like Musk, could be “extra pragmatic” and US-China tensions could be dialled again.
Musk may need to navigate strain on his personal China hyperlinks from different corners of Washington. Rubio, for instance, in August co-signed a letter alleging that CATL, Tesla’s most important 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 terms of influencing Trump on China there will probably 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 Road titans and tech leaders who’re seen as Beijing-friendly and “don’t wish to rock the boat with China”. And however, there are hawks, equivalent to Rubio, who “are ideologically anti-China and wish to hammer China on all fronts”.
After which there’s Musk. “People will matter,” Gilholm says. “Musk is a wild card — his pursuits battle.”
Extra reporting by Ding Wenjie and Joe Leahy in Beijing
