Tag Archives: US-China Trade War 

US-China deal edges closer as Huawei gets a break

Markets were buoyant today as speculation rose that a US-China trade deal was imminent

No deal was done by the time everyone went to bed in Washington, but the US president had made some encouraging suggestions earlier in the day that they were close.

That followed a New York Times report that the US government plans to soon issue licenses allowing some American companies to supply “nonsensitive goods” to Huawei Technologies. In a meeting last week, President Trump gave the green light to begin approving the licenses, which will allow a select few American companies to bypass a ban placed on Huawei this year.

Flex closes Zhuhai plant as Huawei sales slow

American OEM giant Flex International has shut down production at one of its Zhuhai plants serving Huawei Electronics and begun laying off workers, according to local media. It has also recently closed its factory in Hunan’s Changsha as Huawei cut down its smartphone production orders. 

Founded in California 1969, Flex is the world’s second largest OEM enterprise after Taiwan’s Foxconn. It entered the Zhuhai market in 1996 and its industrial park there is its largest in the world. At its peak, the park employed up to 18,000 workers. It has shut its South plant, keeping its North plant going.

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Huawei to invest RMB3b in new chips ‘ecosystem’

Kunpeng, the new ARM-based server chips being developed by Huawei Technologies, is getting a RMB3 billion ($436 million) capital injection over the next five years. The aim is to build an entire “computing ecosystem” for the new microchips.

Xu Zhijun, Huawei’s rotating chairman, said the investment will be used to bolster the company’s IT infrastructure related to Kunpeng and encourage the development of applications based on the processors. An “online community” is being established to offer developers tools, open-source operating systems, and access to related projects. 

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No surprise, Huawei cuts back in US

Huawei Technologies’ US research arm, Futurewei Technologies, has decided to cut back, with 70% of the division’s 850 staff being laid off. The news comes just as it appears that Huawei is about to be given a reprievefrom a blacklist by the US government, with negotiations between the China and the US set to resume in Beijing. So what is going on?

On the face of it, the move is understandable from an operations perspective. Futurewei has played a key role in filing thousands of patents for Huawei. However, its work has been at a standstill since May 17, when its Shenzhen-based parent was placed on the Entity List. Apart from layoffs, Huawei is also terminating any open source projects, projects related to near-term Huawei products, and any R&Din critical technology, the company has said.

Founder Ren Zhengfei said that Huawei had planned to invest US$600 million this year in R&D through the US subsidiary, but the blacklist had blocked any results from research being transferred to Huawei and it forbade any contact with Huawei personnel. 

Futurewei was established by Huawei in Texas in 2001. Last year, Huawei invested US$510 million in the company’s R&D. Huawei said in a statement to the media that the decision has been a difficult one and the company would strictly follow the US law to provide the necessary remunerations and benefit to those who were let go.

Are we the only ones wondering why Huawei couldn’t just wait a bit longer to see which way the political winds in the US might blow? It might be that the answer is that Huawei has its sights set on the longer term. It doesn’t take a political genius at the moment to see that US-China relations are deteriorating, despite any progress that may be made in current trade talks. In the circumstances, it would be better to close up shop and see if Huawei can lure R&D talent back home to Shenzhen. 

Which it is already doing, announcing this week that it would pay a starting salary to PhDsof US$300,000. Keeping in mind that Shenzhen now offers foreigners tax-equalization subsidiesin line with Hong Kong’s 15% income-tax rate, that has got to be looking extremely inviting to any of those PhDs being laid off at Futurewei. 

Huawei to host biggest-ever developer conference

Shenzhen-based Huawei Technologies announced that it will hold its annual developer conference from August 9 to 11 in Dongguan, which is home to the tech giant’s research and development center. 

Approximately 1,500 partners and 5,000 developers from around the world will participate in the event, which is expected to be its largest-ever developer conference, reports China Daily.

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Huawei not out of woodshed yet

Getting the fine print right on their latest deal is proving tough for Chinese and U.S. trade negotiators. As a result, the question mark hanging over Shenzhen’s industrial supernova, Huawei Technologies, is still, well, hanging.

According to sources who spoke to SCMP, China’s decision to import a lot more soybeans from American farmers – seen as somewhat important to U.S. President Donald Trump’s re-election campaign – is contingent upon how exactly the U.S. government lives up to its pledge to rescind the ban on companies supplying Huawei. 

Read more on SCMP.

Trade truce a big short-term win for GBA

Hong Kong’s stock market is closed today for July 1 anniversary celebrations, which are being overshadowed by violent protests outside the legislature. But it is sure to open with a rip tomorrow, despite political tensions ratcheting up in the city, thanks to the trade-war truce declared over the weekend by the American and Chinese presidents.

Perhaps most important for the region is the agreement by U.S. President Donald Trump to lift the ban (mostly) on companies supplying Huawei Technologies. The company is not listed, but it is a bellwether for the health of the GBA’s tech industry clustered in Shenzhen’s Yuehai district. Unsurprisingly, the Shenzhen Composite Index rose 3.5% today.

The agreement comes at an opportune moment for the GBA. Caixin’s closely watched survey of the country’s manufacturing sector showed a contraction in June, the first since January. Investors in the GBA need not be overly alarmed, as it is a national index and the dip is marginal. As covered in our Friday newsletter, economic data from Guangzhou and Shenzhen, the GBA’s two powerhouse economies, suggests industrial production is growing at a decent pace. Nevertheless, there is little doubt that the region’s manufacturing engine was likely to start coughing a spluttering more seriously the longer US-China trade uncertainty prevailed.

Most noteworthy is that the rhetoric seems to have been dialed back. In our view, if the U.S. side drops its most extreme demands relating to inspection teams, it is possible to believe Treasury Secretary Stephen Mnuchin’s claim that the two sides are 90% towards getting a deal. And, as the next item below shows, the Chinese side is moving quickly to open up further to foreign investment with specific actions.

Have we bottomed out? Longer-term tensions are not likely to subside soon. However, we are on the optimistic side that a short-term deal will likely be reached within the coming weeks. Even though the US election cycle is sure to make Trump’s job of managing the U.S.-China relationship more difficult in the coming year, any breathing space afforded to China’s hi-tech drive and the rise of the private sector in the economy is sure to be welcomed most in this part of the country.

World holds breath for Xi-Trump meeting

The meeting with US President Donald Trump has not yet taken place. But President Xi Jinping took his opportunity at the G20 summit today to lay out China’s commitment to the next round of its Opening and Reform program, pledging five major initiatives. According to a release from the People’s Daily, these included: 

  1. Further opening 

We are about to release a 2019 edition of the negative list of foreign investment to further expand the opening of agriculture, mining, manufacturing and service industries. Six new free trade pilot zones will be established, and an additional new section in the Shanghai Free Trade Zone, while we will accelerate the process of building a free trade port in Hainan.

  • Expand imports

We will further proactively reduce tariffs, work hard to eliminate trade barriers, and drastically reduce the intermediary costs for imports. We will continue to host the second edition of the China International Import Expo.

  • Improve business environment

We will implement a new foreign investment law on January 1 next year, introduce a punitive damage compensation system, enhance the civil and criminal protection, and improve the protection of intellectual property.

  • Equal treatment for all

We will completely remove the restrictions on foreign investment access outside the negative list. We will treat all registered companies in China equally, establish and improve complaint mechanisms for foreign-funded enterprises.

  • Promote economic and trade relations

We will push forward a regional comprehensive economic partnership agreement, accelerate the negotiation of China-EU investment agreements and the China-Japan-Korea Free Trade Agreement. Read more.

Deal done?

Stock markets around the world are liking news of an apparent deal between the U.S. and China on their trade dispute ahead of the all-important Trump-Xi meeting at the G20 this weekend. As SCMP reports:

The US and China have tentatively agreed to another truce in their trade war in order to resume talks aimed at resolving the dispute, sources familiar with the situation said.

Details of the agreement are being laid out in press releases in advance of the meeting between Chinese President Xi Jinping and US President Donald Trump at the Group of 20 summit in Osaka, Japan, this weekend, according to three sources – one in Beijing and two in Washington. Such an agreement would avert the next round of tariffs on an additional US$300 billion of Chinese imports, which if applied would extend punitive tariffs to virtually all the country’s shipments to the United States.

However, as realists among the political-analyst community continue to point out, deals like this are patch-up jobs, and will continue to be so for the foreseeable future. The two sides remain far apart on fundamentals.

That doesn’t mean it is all bad news ahead. On the contrary, China in the meantime – and especially in the GBA – is shifting as fast as it can to getting US proprietary technology out of its supply chain, which is having a galvanizing effect on the economy. In particular, three priorities are being pursued AVAP (as vigorously as possible): 1) Like Gree, invest tens of billions in MYOC (make your own chips) and other key tech; 2) Offer every subsidy you can think of to attract talented people into your “innovation hubs”; and 3) Refocus your sales teams on a) domestic markets and b) Non-U.S. markets.

To be sure, GBA investors have much to be thankful for. Companies here look likely to get a bit of short-term breathing space, while the bigger picture of “industrial upgrading” continues apace. As Michael Enright, the GBA guru at Hong Kong University, likes to point out, think of the GBA within China, a market of 1.4b people, the way you would think of Germany within Europe at the early stages of the post-war period. It’s easy if you try.

Read more on the deal at SCMP.