From China to Europe & much more
This week, we do a deep dive into China with developments that have a long-term impact. Then we move on to the EU, before exploring how corporate money is entering India's sports business.
How China’s is going past the tariff barriers set up by US
A Financial Times analysis of trade data reveals China is increasingly shipping goods to the United States via Mexico, circumventing hefty tariffs imposed by the US administration.
This trend coincides with Mexico surpassing China as the top exporter to the US in 2023 and a surge in truck shipments crossing the US-Mexico border.
The data further indicates a rise in Chinese-owned companies operating in Mexico exporting auto parts to the US. According to Mexico's auto parts suppliers' trade body, shipments from these companies to the US reached $1.1 billion in 2023, up from $711 million in 2021.
Notably, Mexico imports nearly $9 billion worth of vehicle parts from China annually.
This strategy leverages the lower tariffs (0% to 6%) on assembled vehicles and parts in Mexico compared to the 25% additional levy on direct imports from China.
China's tactic extends beyond Mexico. The country also enjoys trade surpluses with Vietnam, Singapore, and the Philippines, which in turn hold growing surpluses with the US.
This suggests Chinese manufacturers are indirectly accessing the US market and profiting from American consumer demand despite the tariffs.
Trade experts remain skeptical about the effectiveness of tariffs and existing trade rules in preventing goods from China, the world's largest manufacturer, from reaching the US, the largest consumer market.
China’s state-owned enterprises building their own “army”
State-owned enterprises (SOEs) in China are reviving a practice from the Mao era by establishing in-house reserve military units, known as People's Armed Forces Departments (PAFDs).
This development coincides with the country's economic slowdown, leading analysts to believe it reflects growing government concerns about potential social and political instability.
Dozens of SOEs have set up PAFDs in recent months. These units typically conduct civil defense activities and support the People's Liberation Army (PLA) through recruitment, promotion, and training initiatives.
The resurgence of PAFDs is likely linked to President Xi Jinping's emphasis on national security and anxieties surrounding social unrest as China's economic growth dips to its lowest level in decades.
Entities that announced PAFD formations in 2023 include local government groups and state-owned corporations. These include the Shanghai Municipal Investment Group, Wuhan Urban Construction Investment & Development Group, PowerChina Equipment Group, Wuhan Metro, Huizhou Water, and Huizhou Transport Investment Group, as well as Haian Urban Construction Development Investment Group.
Notably, private company Yili Group became the first non-SOE to establish a PAFD in Inner Mongolia late last year.
A member of a PAFD in Zhejiang province, speaking on condition of anonymity, disclosed that their primary focus is on military training, recruitment activities, and occasional educational sessions on military topics for schools.
Policy U-turns in Germany leading to trust deficit within the EU
Once considered a bastion of stability and predictability within the European Union, Germany's recent decisions on key legislative proposals have raised concerns among its partners.
The latest instance involves the EU's proposed Corporate Sustainability Due Diligence Directive, aimed at promoting environmental and human rights responsibility throughout supply chains.
After initially appearing to support the landmark law, the German government abruptly withdrew its backing, sending shockwaves through Brussels.
This last-minute U-turn triggered a domino effect, with countries like Italy, Bulgaria, and Austria following suit by abstaining or opposing the proposal.
This follows a similar situation last February, where Germany ultimately withdrew its support for a ban on new internal combustion engine vehicles after 2035.
These sudden shifts in position have left other EU member states wary of negotiating compromise agreements with Germany, fearing last-minute changes that undermine established negotiating positions.
The evolving approach raises questions about the future of intra-EU collaboration on critical economic and environmental initiatives, highlighting the need for greater consistency and transparency in Germany's decision-making processes.
How corporate money is flowing into the sports business in India
Corporate Giants Drive Sports Growth:
Reliance Foundation, Tata Steel, and JSW Sports are leading the charge in Indian sports, with significant investments across various disciplines. Reliance has pumped in ₹3,500 crore in the past five years, while Tata Steel and JSW Sports have committed substantial resources over the past decade.
This focus extends to professional leagues, with the RPSG Group acquiring the Lucknow Super Giants for a record-breaking ₹7,090 crore, making it the costliest IPL team purchase.
IPL Reigns Supreme as a Global Sporting Powerhouse:
The Indian Premier League (IPL) continues to dominate the global sporting landscape, holding the fifth position in the world with a valuation of a staggering ₹95,000 crore. This success is further solidified by a recent report showing the league's current value at $11.1 billion.
Notably, eight out of the ten IPL franchises are already profitable ventures.
Media rights play a crucial role in IPL's financial success. Around 80% of a franchise's revenue stems from the central pool of media and title sponsorship rights.
Bidding for the 2023-2027 editions witnessed a threefold increase compared to the 2017 Disney-Star deal, generating ₹48,390 crore for the BCCI.
Notably, digital rights fetched a record-breaking ₹23,758 crore, highlighting the growing importance of online viewership. While Disney-Star acquired the subcontinent broadcast rights for ₹23,575 crore, Viacom18 secured the digital rights.
The Tata Group's ₹300 crore sponsorship for the 2022 and 2023 IPL seasons exemplifies the value proposition of title sponsorships.
Additionally, each franchise receives approximately ₹500 crore from the central pool, with local revenue streams like ticketing and merchandise contributing an estimated ₹100-200 crore.
ISL Strives for Financial Stability:
While the Indian Super League (ISL) commands a valuation of ₹463 crore, it remains in the red despite entering its tenth year.
This stands in stark contrast to the PKL, where each of the twelve teams boasts a valuation exceeding ₹100 crore, pushing the league's total valuation beyond ₹2,000 crore.
Except for RPSG Group's ATK Mohan Bagan (now named Mohan Bagan Super Giants), other ISL teams like Bengaluru FC, Chennayin FC, and Jamshedpur FC, which reportedly incur losses of ₹30-40 crore annually.
Sports Industry Spending Soars:
The Indian sports industry witnessed a significant surge in 2022, with sponsorship, endorsement, and media outlays reaching ₹14,209 crore, reflecting a 49% growth compared to the previous year.
Cricket continues to dominate, claiming 85% of the total spend (up 44% from 2021).
However, emerging sports are making headway, experiencing an impressive 15% growth (87% higher than 2021), indicating a promising future for a more diversified sporting ecosystem.