Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

China’s tech companies have had a rough 2019 but will the US be the long term loser amid ongoing stand-off?

Putting companies like Huawei on the trade blacklist has exposed China’s soft underbelly – its reliance on foreign technology as part of a global supply chain

For many of China’s technology companies, 2019 has been a rough year.

Following the arrest of Huawei chief financial officer Meng Wanzhou late last year over allegations of bank fraud and her ongoing US extradition proceedings in Canada, Huawei in May was put on a US trade blacklist that bans them from doing business with US companies.

Months later, some of China’s largest artificial intelligence firms such as SenseTime, Megvii and Hikvision were also added to the same blacklist amid concern in Washington that their surveillance technology was being used by China to commit human rights abuses against the Uygur ethnic minority in Xinjiang.

To top it all, TikTok – the wildly popular short video app operated by China’s ByteDance that has taken the world by storm – has recently come under US scrutiny over national security, privacy and censorship concerns.

All of this has happened against the backdrop of the US-China trade war, and increasing suspicion in the US over China’s ambitions to become a global leader in strategic technologies, such as AI and 5G.

“There’s a deep distrust [of China],” said James Lewis, director of the technology and public policy program at the Center for Strategic and International Studies, a research organisation in Washington, DC. “People worry that China is spying on them, and many people in Washington DC are convinced that China steals Western intellectual property.”

On the other side of the fence in Beijing, efforts to curtail Chinese technology companies’ access to US-origin products and services have been seen as the US attempting to contain the Middle Kingdom’s economic rise, spurring the country to double down on efforts to achieve self-sufficiency in core technologies such as semiconductors and software.

Putting companies like Huawei on the trade blacklist has exposed China’s soft underbelly – its reliance on foreign technology as part of a global supply chain. For example, by losing access to Google’s Android operating system for its new smartphones, Huawei’s overseas handset sales could soon fall off a cliff. Who wants an Android handset without Google apps? Stockpiling chips and other components will only cover Chinese firms in the short-run.

Even the basic-building blocks for a technology like AI are in US hands – small and medium-sized Chinese companies that work in the field almost exclusively use software from US-originated open-source platforms such as Google’s Tensorflow and Facebook’s Pytorch.


So what is China doing about it?

After relying on foreign software such as Microsoft’s Windows operating system and imported chips from the US and Taiwan for years, Beijing wants to create a road to self-sufficiency, even if this means a certain amount of ‘reinventing the wheel’. It has started by creating a US$29 billion state-backed fund with the aim of creating its own semiconductor supply chain as well as plans to invest more in basic research, science and technology spending.

“The US has lived up to its word in terms of stepping up what it sees as a competition with China, and it has followed through on its rhetoric,” said Andy Mok, research fellow at the Centre for China and Globalisation. “But this has backfired on the US, it has encouraged Huawei [and China] to accelerate its efforts to reduce reliance on the US and that really hurts American technology companies in the long run.”

The first signs of how China’s efforts to be self-sufficient in technology could unravel decades of international trade and global supply chains are starting to show.

Earlier this month, the Financial Times reported that Beijing has ordered government offices and public institutions to stop using foreign hardware and software within three years and switch to domestic vendors, with analysts estimating that 20 to 30 million pieces of hardware will be ripped out and replaced as part of the directive.

Meanwhile e-commerce and technology titan Alibaba Group Holding, which has vast troves of data collected from its millions of users that can be used to ‘train’ AI systems, has started designing AI chips that can be optimised to run specific AI-related tasks.

Alibaba’s chip subsidiary T-Head in September unveiled its first AI chip built on the open-source RISC-V architecture, instead of licensing architecture from companies like Cambridge, UK-based ARM. Huawei’s HiSilicon chip unit in August also unveiled the Ascend 910, which it calls “the world’s most powerful AI processor”, which is targeted at training AI models.

The idea is that as AI is increasingly used in businesses and industries to improve efficiency and unlock economic output, these Chinese-designed AI chips will give the country a shot at overcoming its semiconductor deficiencies and even lead when it comes to using AI chips in everything from autonomous cars to robotics.

For companies like Huawei, whose business depends heavily on hardware components such as chips, designing and having its own supply of proprietary chips will ensure that its devices will be shielded from any impact in the supply of US technology.
According to a Wall Street Journal report earlier this month, Huawei’s latest Mate 30 phone is already America-free, containing no components sourced from the US, even though some US companies have been given concessions to continue doing business with Huawei.

This so-called de-Americanisation for Chinese technology companies is unavoidable in the coming year, seeing as how many Chinese companies are now on the trade blacklist, according to Conor O’Mara, managing director of Asia equity sales at Jefferies.

“But this is a positive for the Chinese software industry … The likes of Oracle are going to get swapped out in favour of Kingdee and Alibaba Cloud [by domestic companies], you’re going to see a substitution wherever you can,” said O’Mara.

Some US hardware companies, such as Intel and Dell, have already seen softening demand from China for their products amid the trade war. For many of these companies, China represents a large, important market that they cannot afford to lose. Dell in November said that its server business in China had declined, and Intel earlier this year revised its revenue guidance amid a slowdown in demand from the country.

“Most companies in the US that have exposure [in China] have already brought expectations down to zero or within 5 per cent,” said O’Mara, who added that tensions between US and China in technology are likely to continue well into the future.

In the short-term, however, China is likely to suffer from this decoupling as it attempts to match the standards of the US technology that it is seeking to substitute. It also has a lot to live up to in terms of promises that have been made as part of phase one trade deal with the US.

“Some decoupling is unavoidable, this affects China more than the US [in the short term] because Chinese companies have had a free hand in the US that was not reciprocated for US companies in China,” said Lewis, of the Washington DC-based Center for Strategic and International Studies, referring to US accusations that China forces foreign firms to make technology transfers in order to operate in China.

In the first phase of the US-China trade war deal, China has agreed not only to purchase an unspecified amount of American products in exchange for suspended tariffs on US$160 billion worth of Chinese goods – it has also committed to better protecting intellectual property and preventing forced transfers of technology from US firms in the Chinese market.

On a more basic level, people – meaning top tech talent – will also be an area of ongoing tension and scrutiny.

Tighter immigration policies in the US amid rising espionage fears over researchers with Chinese backgrounds, could see a wider flow of Chinese talent returning to home shores after studying and working in the US.

“There’s this joke that Silicon Valley was built on the IC circuit [integrated circuit] – but where IC stands for Indians and Chinese,” said Mok, research fellow at the Centre for China and Globalisation, referring to the large swathes of expatriate talent that have been attracted to the California tech hub to live and work over the past half-century.

“So whether it’s harder for people in China to pursue education in the US, or whether it’s harder for them to get visas to work in the US and conduct research, that is going to have a negative impact on the ability of the US to maintain technological leadership.”

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
×