Global prospects weaken for China’s tech champions as big powers collide

SHANGHAI / BEIJING (Reuters) – The global ambitions of Huawei Technologies founder Ren Zhengfei are marked in brick and mortar at a new company campus in southern China, where the buildings are replicas of European cities.

Zhang Yiming, founder of ByteDance, the operator of the short video app TikTok, has plastered his Beijing headquarters with posters including a cover of former Google CEO Eric Schmidt’s book “How Google Works,” and has long said who will build a global company that can compete with the US tech giants.

But the two companies that best exemplify China’s ambitions to challenge America’s technological dominance are now hampered by tensions in relations between China and countries like the United States, India, Australia, and Britain.

Chinese companies with world-class technology, including DJI drone maker, artificial intelligence firms Megvii, SenseTime, and iFlytek (002230.SZ), vendor of Hikvision surveillance cameras (002415.SZ) and the e-commerce conglomerate Alibaba Group (BABA.N) – are also among those who lose access to markets.

Smaller companies are also forced to rethink.

“What we are experiencing now is unprecedented,” said a founder of a Chinese startup that has operations in the United States and India, but asked not to be identified as he is now considering retiring. “My entrepreneurial spirit has weakened because of all this, let alone global ambitions.”

It’s a big change from even a year ago, when the U.S.-led trade war with China and security concerns about Huawei were having little impact on most Chinese tech champions.

SenseTime and Megvii, backed by American investors, were considering large IPOs. ByteDance’s TikTok unit enjoyed unlimited global growth. Alibaba was promoting global perspectives for its cloud business, and DJI was consolidating its dominance of the drone business.

But then came new US sanctions against Chinese tech companies last October, fueled in part by the crackdown on the Uighur Muslim population in the western Xinjiang province.

United States President Donald Trump has stepped up rhetoric against China as he seeks reelection, and Chinese President Xi Jinping has taken a hard line. Tensions have also increased between Beijing and other countries over new security laws passed for Hong Kong, and a border skirmish with Indian troops led to the Indian government’s ban on 59 Chinese applications.

Now China’s top tech players are canceling contracts, banning products, and blocking investments, with more restrictions on the horizon.

ByteDance could be forced to sell TikTok, as Washington considers following India to ban the short video app, a global product that analysts say is worth at least $ 20 billion.

Huawei will lose billions of dollars a year in revenue from bans on its network equipment, and more countries could follow the United States, Britain and others to block the company’s equipment.

The U.S. Department of the Interior grounded DJI’s private fleet and halted additional purchases due to data security risks, and there may be further restrictions.

Alibaba Group is cutting staff at its UC web affiliate in India after its popular mobile web browser was banned by the government. DJI has put the IPO plans on ice.

Companies are watching geopolitical developments “with their white knuckles,” said Daniel Ives, managing director of securities research at Wedbush Securities.

Huawei, Alibaba, SenseTime and Megvii declined to comment. ByteDance and Tencent did not respond to requests for comment.

The Chinese Foreign Ministry said it encourages and directs the country’s “strong and reputable companies” to invest abroad in a consistent manner, and hopes that other countries will safeguard the legitimate rights and interests of Chinese companies.

“International investment is an important engine for economic growth. As the global economy is under enormous downward pressure, all parties must take firm steps to further liberalize and facilitate trade and investment, and create a fair, transparent and predictable investment environment, “he said in a fax.

SOME BRIGHT POINTS

Investors said some less sensitive sectors, such as games, are still open to Chinese players.

Tencent Holdings (0700.HK) has banned some of its apps in India, but not popular games like PlayerUnknown’s Battlegrounds. The company recently launched a new California-based gaming studio and plans more such operations.

A large domestic market is by far the biggest profit center for China’s tech companies, and some countries remain interested in accepting Chinese investment.

“Global markets are large and Southeast Asia and Europe should still be open to Chinese companies,” said a Beijing-based Internet-focused hedge fund investor.

But some startups in Southeast Asia that were previously willing to take Chinese money are becoming more reluctant, said David Chang, managing director of Hong Kong-based MindWorks Capital.

“For example, if I take ByteDance on my (stock) capitalization table and then ByteDance is blocked and blacklisted in the United States, my dream of listing on the Nasdaq is limited,” he said, referring to the stock exchange. American stock popular with tech companies. .

Efforts by Chinese companies to change the minds of foreign regulators have had little effect in the absence of policy changes by Beijing.

ByteDance says it has fenced off TikTok from its China operations and has poached a Disney executive to head the unit. That has failed to calm Washington.

“That’s all you can do,” said Mark Natkin, managing director of Beijing-based Marbridge Consulting. “Push public relations as much as you can, hire managers who give you a more foreign feel, and keep your fingers crossed that there is no other geopolitical hotspot.”