The Trump administration’s goal of China’s largest technology groups has led to strong retaliation against U.S. companies.
President Donald Trump this month signed executive orders that could hamper the operations of China’s most valuable start-up by ByteDance and Tencent, the country’s second largest tech company by market capitalization. On Monday, Washington moved to cut Huawei’s access to its global suppliers, which some say could prove deadly for the Chinese telecom group.
But despite growing political pressure to expose commensurate restrictions for U.S. companies in China, Beijing has historically been reluctant to seek revenge. Analysts think officials will persevere because they are reluctant to deny the economic benefits and innovation that U.S. companies bring to China.
“One of the most important ways for Beijing to fight [measures by the US] is to keep foreign companies and investors in China, ”said Sean Ding, analyst at research firm Plenum.
Investors have been seriously targeting China targeting foreign companies since March 2019, when Beijing announced it would draw up an ‘unreliable entity list’ of companies that had harmed its interests. But the list, and any fines, are not materialized.
China is a huge market for many American companies, ranging from tech groups to carmakers. About two-thirds of U.S. semiconductor Qualcomm’s revenue comes from China, while U.S. brands from Nike to Starbucks rely on Chinese consumers for more than a tenth of sales.
But U.S. companies in China have for the most part been immune to restrictions implemented as investigations.
Apple, a major competitor of Huawei in the smartphone market, has continued to grow its revenue in the country despite a recent dispute with regulators over licenses for games on its App Store. Its China iPhone sales rose a third in the second quarter, according to Counterpoint research.
The latest Huawei sanctions are a clear provocation, analysts say. With Xinyu, a researcher affiliated with the Chinese Ministry of Commerce, said the telecom group – which is central to Beijing’s ambitions in 5G mobile technology – is strategically much more important than ByteDance and Tencent. The latest curbs from the U.S. Department of Commerce on Huawei have been described by some as a “death sentence.”
Mr. May said Beijing’s entity list was “a show of readiness to fight”, but believes officials could instead try to take the high ground instead of taking action for tat.
“Given the current practices of the US, the most advantageous approach for China is not just to take revenge, but rather to create the image that China is the most reliable supplier and customer, and will not arbitrarily cancel the offer or contracts,” he said. .
However, some believe that Beijing has limited room for maneuver. “China’s ability to take revenge in high-tech is very limited” and in many industries it is still attracting foreign investment, said Shi Yinhong, an international relations scientist at Renmin University in Beijing. “I can not think of continuous relationship measures.”
Analysts also point to the fact that US companies are often closely integrated with their Chinese counterparts in the world’s second largest economy, such as through joint ventures, and risk collateral damage if Beijing targets US companies.
For example, General Motors sells more cars in China than in the US. But their joint ventures with Chinese auto companies meant that the domestic sector would also suffer if authorities targeted GM.
‘If they pursue General Motors, it would probably hurt [its Chinese partner] SAIC Motor too, ”said Tu Le, founder of consulting firm Sino Auto Insights.
There could be too much collateral damage, especially at a time when the government wants the auto industry to become a driver of China’s economic recovery from coronavirus, Le said.
Managers point out that market access for foreign companies is often only granted if China believes they will help develop local industries, such as investment banking, electric cars and software development. This suggests that there is not much incentive to fire them once they have been invited.
“The Chinese government does not care where you come from, as long as you help China grow,” said Joerg Wuttke, chairman of the EU Chamber of Commerce in China. “China still has a big gap when it comes to certain parts of the supply chain. They love the fact that the US investment is high-tech and they help build supply chains here. ”
Beijing can also be careful about imposing measures that it finds difficult from later on. Three years ago, Chinese consumers boycotted South Korean goods and businesses over a proposed missile defense system, amid a wave of nationalist sentiment.
“The Chinese do not want to escalate, they want to keep the door open. “It is very, very difficult to undo sanctions, because you have to explain the policy on a Chinese basis,” said Mr Wuttke.
