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 towards Chinese language affect and championed crackdowns on tech teams corresponding to Huawei. Michael Waltz, the incoming nationwide safety adviser, calls China an “existential menace”.
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 potential 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 necessary selections for his $1tn electrical car 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 largest in its international community, for not solely promoting to the nation of 1.4bn folks but in addition 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 on Trump’s marketing campaign menace of a pointy improve in tariffs on all Chinese language imports into the US, a call that would dramatically affect Tesla’s enterprise.
Musk might probably present a “vital 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 prolong 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 could 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 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 appearing as center males between Beijing and Washington, few, if any, have had extra at stake than Musk. Different components of his empire run instantly into factors of stress 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 enlargement 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 develop into “very deft” at manipulating international enterprise leaders — together with leveraging their corporations’ entry to the nation — to compel them to “toe” the Communist celebration line, she warns.
“Musk just isn’t solely susceptible to Beijing’s stress 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 autos in a particular free commerce zone on Shanghai’s japanese outskirts.
The prospect of facilitating the mortgage sparked fierce competitors amongst Chinese language banks. Some lobbied the Ministry of Trade and Info Expertise, 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, but it surely was additionally a possibility to show alignment with Beijing’s supportive inexperienced industrial coverage.
Ultimately, loans totalling practically $1.4bn got here from a consortium of a few of the nation’s greatest state-owned lenders: China Development Financial institution, Agricultural Financial institution of China, Industrial and Business 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 often supply to their greatest shoppers, nearly all the time different Chinese language teams.
The particular remedy 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 all the time required joint ventures between international and native Chinese language carmakers.
“All people 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 help from the federal government, there’s no means for us to document 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), properly under market costs on the time. In line with Tesla, the corporate has met necessities set by Shanghai to spend Rmb14bn on the plant by 2023 and acquired extra grant funding of $76mn from the town authorities the 12 months earlier than.
One Beijing-based authorities coverage adviser described Tesla to the Monetary Occasions 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 facility is Tesla’s greatest, producing hundreds of thousands 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 monitor to begin manufacturing within the first quarter of 2025.
“He’s very pro-China, all the time has been,” says one former senior Tesla government who labored carefully with Musk for greater than a decade. “The notion that China is making an attempt to screw the US, that isn’t shared by Tesla.”
For China, the venture delivers tons of of hundreds of thousands 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 fast supply of Tesla’s high-tech manufacturing facility helped turbocharge the nation’s nascent electrical car 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 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 number of Chinese language smartphone corporations, 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 develop into world-leading.
With Trump warning of large tariffs towards 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 line 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 threat posed by automobiles that accumulate and course of information 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 the usage of Teslas on Chinese language authorities properties.
“What number of US corporations have succeeded in getting bans rescinded? These guys, whether or not it’s Musk or his working group, someone 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 increase Tesla’s market valuation as excessive as $5tn, 5 instances greater than right now. However he’s additionally racing towards a clutch of rival Chinese language carmakers and tech teams, from BYD, Xpeng and Nio to Baidu, Xiaomi and Huawei, who’re all growing related 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 when it comes to Tesla’s FSD approvals and entry to provides of key parts.
“Tesla is in search of an answer on FSD in order that may very well be a part of the discussions on tariffs: we provide you with FSD, you negotiate on tariffs,” says one analyst at a US brokerage, who requested to not be named.
An government at a rival automaker provides: “Tesla is vastly depending on China for profitability and Musk has direct contact with the CCP management. It’s inevitable that he can be a chunk of the puzzle.”
Amongst Chinese language shoppers, Tesla’s fast 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, at the very least twice.
Maye Musk, the billionaire’s modelling mom, has additionally constructed a robust public profile in China with greater than half 1,000,000 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 revealed by two authors from the Individuals’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 will 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 conventional 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 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 more durable towards Beijing’s elevated navy assertiveness, together with over Taiwan.
In speeches and interviews over current 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 energy in that area far exceeds US navy energy 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 possibly one ought to, then drive can be used to include Taiwan into China. That is what they’ve stated. If there may be not a diplomatic resolution, there can be an answer by drive,” he stated on the time.
Musk, in keeping with the previous Tesla government, is making an attempt to scale back tensions between international locations and never inflame them additional, however “on the identical time” has to guard his enterprise.
Tesla is extra anxious about Taiwan than tariffs, the previous government 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 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 remains to be utilized by folks inside China as a solution 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 categorical vital 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 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 “making ready for the worst” there stays hope that Trump, with the help of American billionaires like Musk, might be “extra pragmatic” and US-China tensions might be dialled again.
Musk may need to 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 major 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, with regards to 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 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, corresponding to Rubio, who “are ideologically anti-China and wish to hammer China on all fronts”.
After which there may be Musk. “People will matter,” Gilholm says. “Musk is a wild card — his pursuits battle.”
Extra reporting by Ding Wenjie and Joe Leahy in Beijing