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  • The subject of this webinar is: what

  • the presidency of Joe Biden is likely to mean

  • for the future of the US-China tech war?

  • Could I start by asking you to say, in general terms,

  • how you think a Biden presidency could

  • impact the world of Asia tech?

  • President-elect Biden will not be starting from a clean slate.

  • He will be carrying on a lot of regulatory processes

  • that President Trump has initiated.

  • Now, after Congress passed the Export Control Reform Act

  • in 2018, President Trump has directed the US Department

  • of Commerce to come up with two lists of technologies.

  • The first is a list of emerging technologies.

  • The second is a list of foundational technologies.

  • Basically, what the Department of Commerce now has to do

  • is to figure out if something like artificial intelligence

  • or semiconductors is going to be treated

  • on par with military grade technologies,

  • like fighter jets and missile systems.

  • Another crucial question that president-elect Biden

  • will have to figure out is whether Huawei

  • will have some reprieves from its status on the Entity List.

  • I think the main point here is that there

  • are a lot of actions that Biden will inherit,

  • that are the result of legislation, that will not

  • be very easy to wipe back, that will impact

  • Asia technology in very big ways depending on what he decides.

  • Would you say that it's likely that Biden will come,

  • or Biden's presidency will come under a lot of pressure

  • from the business lobby in the US

  • to dial back the tensions with China.

  • And if so, do you think that Biden could acquiesce to the US

  • business lobby's demands?

  • Certainly, I agree that there will

  • be a lot of business lobbying to sort of push things

  • into a more normal and predictable relationship,

  • but I'm not sure that Biden will acquiesce.

  • Now, just to put some numbers in terms

  • of the US-China relationship, by the fact that we see the US

  • exports to China are around $200bn over the last few years.

  • But that's sort of dwarfed by the sales

  • that US companies make directly in China.

  • So, US affiliate sales in China came

  • in at around $600bn in the most recent bureau available data.

  • And, it's been still a large and growing market because US

  • companies realise that China is a fantastic growth story,

  • not just in the near term, in the immediate aftermath

  • of Covid, but also in the longer term,

  • where other emerging markets still aren't able to drive

  • China levels of growth.

  • One other thing that we can remark upon

  • is that the mood in Washington DC

  • has turned much more confrontational

  • against China, not just in the last couple of months,

  • but also over the last four years.

  • And arguably for quite a bit of a longer time period.

  • From your position there in Beijing and travelling around

  • China, meeting a lot of the Chinese companies,

  • would you say that much of the decoupling of the US and China

  • tech supply chains has actually happened?

  • And, what's the progress that you see going forward now?

  • Certainly, in general terms, I think

  • it is a little bit difficult to see

  • how much decoupling there has really been, after the Covid

  • pandemic, after China's manufacturing sector

  • was basically able to get back to completely normal production

  • by April of 2020.

  • What we know now is China's exports to the US have come up,

  • have roared back, up to the pre-trade war levels.

  • And, I think one other interesting thing

  • to note about decoupling is that what we know now

  • is that American investors have become very substantially

  • interested in China, because of it's status still,

  • a very good story.

  • So, what we see now is that there

  • has been considerable inflows of investments

  • into China, not just on the bond,

  • or not just in the equity market,

  • but more so pronounced in the bond market,

  • where China's 10-years CGBs are yielding 3.25 per cent

  • and every other developed country's

  • bonds are yielding negative.

  • So, it has become a pretty attractive prospect

  • to come into China's bond market.

  • Now, in terms of decoupling on specifically technology,

  • I think there is some evidence now that basically, first

  • of all, US firms are not able to sell semiconductors,

  • in particular, to many of China's leading tech firms,

  • especially Huawei.

  • What we also know is that SMIC, China's leading semiconductor

  • maker, is having some greater problems actually buying

  • American equipment.

  • So, Chinese firms are very keen to continue

  • buying offshore technology because often, that

  • is the very best product on the market.

  • But they are actually, physically, and legally

  • limited off from doing so.

  • And so they are turning quite a bit more to Chinese supply.

  • So, certainly in the tech area, we see a little bit more

  • decoupling.

  • But in general terms I would not say

  • that there is great evidence that President Trump has

  • in fact managed to bring a broader decoupling writ large.

  • So Dan, if you were to look forward five to 10 years,

  • could you sort of try to put a number on how much of the US

  • tech supply chain that's currently in China

  • will have moved to, let's say, India, Vietnam, other places

  • in southeast Asia back to the US or other parts of the world?

  • I mean, is it possible to sort of try

  • to put a number on how big this decoupling in tech supply

  • chains really is?

  • It depends on the segment.

  • But certainly, what we do know is

  • that there are some things that have been able to leave China.

  • So, something like servers have been

  • moving quite a bit to Taiwan in particular.

  • Now, servers are basically high margin, low volume products.

  • Basically, it does make sense to move some server production

  • over to a place like Taiwan, which

  • is not too large in terms of having a very

  • substantial workforce.

  • But we also can see that smartphone production,

  • although there has been a little bit more

  • of Apple smartphone supply chain in particular moving to India,

  • I think that the rest of that process is very slow indeed.

  • And, what I consistently hear from companies

  • operating in China is that China remains the world's best

  • manufacturer.

  • If you're embedded into a production ecosystem

  • it is really difficult for you alone to move,

  • unless your vendors and suppliers and customers

  • are also not altogether moving with you.

  • So, it is pretty difficult to peel off any single firm

  • from a production network.

  • Instead, it is the entire network has to move,

  • and that's a pretty difficult prospect.

  • Could you comment on how the US-China tech

  • war has been affecting China's own industrial policy?

  • How have they reacted to this US pressure?

  • What kind of an impetus do you think,

  • this is creating for the next few years?

  • The events of the last few weeks and months

  • change nothing from the Chinese perspective.

  • China is now very committed to doing quite a lot more

  • self-sufficiency.

  • China is now very consistently saying things

  • like we need a secure and controllable supply chain.

  • We need a back-up ecosystem of industrial technologies,

  • and we need to make sure that there are no choke point

  • technologies that the Americans can deny,

  • that we will substantially lack, that hurts our companies quite

  • a bit.

  • One issue with Chinese industrial policy

  • has been that it's always been very substantially state

  • driven.

  • It was the Chinese government telling

  • its large but fairly ineffectual state sector

  • to try to improve China's capabilities

  • in different technologies.

  • That include semiconductors and aviation

  • where it hasn't gone super far to things

  • that have become better successes, like high-speed rail

  • and power generation equipment.

  • Now, what's pretty different this time

  • is the scale of US reactions to Chinese industrial policy.

  • And right now what we can see is that a lot

  • of China's technology companies, a lot of its leading firms,

  • are under some form of US restriction.

  • For the first time, for the Chinese government,

  • it's state companies' goals, the Chinese government goals,

  • as well as the private companies'

  • goals are broadly aligned.

  • Now, I'm not sure that this is any guarantee of success.

  • I don't think there are any guarantees here,

  • but I think it does substantially

  • increase the chances of China's broader technology capabilities

  • upgrading over the longer term.

  • Dan, I understand.

  • I think you were just recently down in southern China

  • visiting Huawei.

  • And, as everybody knows, Huawei is

  • kind of ground zero in the US-China tech war.

  • So, what kind of soundings are you picking up there?

  • Do you think Huawei will survive as a company?

  • How big re the difficulties that they're facing right now?

  • Well, Huawei will certainly survive as a going concern.

  • I don't think that it is very likely that it will declare

  • bankruptcy because that's a political issue and not so much

  • of a commercial issue.

  • But outside of that, I think we can

  • be quite sure of is that Huawei is

  • going through quite a lot of fairly intense struggles

  • at the moment.

  • It's been the case now that Huawei has no longer been

  • able to receive semiconductors since roughly mid-September.

  • And so, it is drawing down its inventory

  • for these different products.

  • And I think it is becoming quite a lot more challenging for it

  • to continue operations.

  • Now, it claims that it is moving more

  • into the automotive sector, including

  • by doing things like building power cranes,

  • as well as getting into infotainment systems.

  • But if Huawei becomes much more of an automotive company,

  • it's not really the Huawei we knew and loved growing up.

  • We think of it mostly as a smartphone producer, as well as

  • a base station producer.

  • They're not sure that, pending some relief from the US

  • government, it's still able to maintain

  • production of these items for the next few months.

The subject of this webinar is: what

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What the Biden presidency means for the US-China tech war | FT

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    joey joey posted on 2021/06/05
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