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China, Today

High stakes: the US takes on China-tech

21 Mai 2019
Autoren: Anton du PlooyTechnology Analyst, Greg KuhnertCo-Head of 4Factor

Seismic shift for semiconductors? What Huawei dispute means for the global chip sector

Despite the Trump administration’s decision to temporarily allow US companies to keep supplying China’s Huawei, the dispute could have widespread implications for investors. Beyond the direct impact on Huawei, we believe potential consequences include the following:

  • Huawei is China’s largest technology exporter but is heavily reliant on US suppliers.
  • Escalation of the dispute could damage tech companies not only in China but globally, including in the US.
  • Global supply chains could be reshaped as US and Chinese businesses seek to unwind their mutual dependence.
  • China is likely to accelerate its industrial policy, which focuses on developing its technological industries.
  • Longer term, the US and China may diverge on key technology standards as they battle for technological supremacy and economic influence.

What is happening

On 15 May, the US put Huawei on its Entity List, requiring US companies to obtain permission before selling products to the Chinese business. Subsequently, several US firms — including Google, Qualcomm and Intel — announced that they would stop supplying Huawei. The US administration has since issued a three-month licence to limit the immediate global disruption to US suppliers as well as customers, such as telecom networks, that rely on Huawei for critical ongoing operations. The general license will not apply to new transactions. We believe this is a reprieve and the least worst outcome could be the leverage required to agree a US-China trade deal.

Following both evidence of recent acceleration in Huawei component orders and Chinese media reports quoting Huawei management1, it appears the company has been making contingency plans that involve the stockpiling of key semiconductors and accelerating inhouse design and manufacturing. 

This is the latest in a series of actions against Huawei. It follows the arrest of its CFO in Canada, a sting operation by the DOJ that has led to criminal charges being brought against it in the US, and pressure applied to allies to exclude Huawei technology in the build out of their 5G Networks, notably in Europe and Australia.

Big picture: a battle for tech supremacy

The moves against Huawei should be seen in the context of an ongoing battle between the US and China for technological supremacy. Technology is at the heart of China’s ‘Made in China 2025’ industrial policy, which aims to spur the development of select high-tech industries for economic and national-security reasons.

The US regards the policy as a threat to its own interests, for the same reasons. Earlier US actions against China include:

  • Banning Huawei and ZTE from selling equipment to US telcom companies in 2012
  • Blocking some China-linked entities from acquiring US tech companies
  • Naming China as a violator of intellectual property (IP) laws
  • Accusing China of implementing policies that may unfairly disadvantage US IP rights-holders in international markets

Why this matters

Given Huawei’s size and integral role in global supply chains, the consequences of US moves against the Chinese firm could be material, particularly if the dispute escalates.

Huawei consumes nearly 10% of the world's semiconductor output and is a global leader in smartphones and telecommunications equipment. The company recently overtook Apple to become the world's second-largest smartphone manufacturer. It has revenues of over US$100 billion and employs nearly 200,000 people2.

Direct impacts

The key determinants of the direct impact on Huawei are:

  • Design: The degree to which insourcing could insulate the company. Some of its technology is well advanced (HiSilicon, a subsidiary, has very strong capabilities in smartphone application processors, for example), but the consensus view is that Huawei still lacks capacity in certain key chips (including x86, RF) and the associated intellectual property (notably with respect to 5G and mobile operating software).
  • Manufacturing: Its ability to continue to use TSMC (Taiwan Semiconductor Manufacturing Company) as a major foundry partner to manufacture leading-edge chips. Technologically, TSMC is well ahead of its Chinese peers, so this relationship is critical to ensure that Huawei can manufacture its products.

Wider impacts

The broader risks arising from the technology dispute between the US and China are significant.

US and Chinese tech businesses are entwined in global supply chains. A semiconductor designed in California could be manufactured in Taiwan, tested and packaged in Southeast Asia, inserted into a product manufactured in China by a US company, and then exported back to the US. Moreover, the US and China depend on each other as a source of demand. China consumes about 60% of the world’s output of semiconductors3; US companies supply almost half of it4.

The complexity of these relationships means that the precise impacts of the tech dispute are difficult to assess. However, we believe potential consequences, if the dispute escalates, include the following:

  • The ability of US tech firms (for example Apple) to sell to China, a large and growing market for them, may be restricted. Chinese authorities are likely to retaliate, either by disrupting US firms’ ability to sell to China (e.g., by withholding customs clearances or revoking operating licences) or by imposing bans on US products.
  • If the dispute escalates, supply chains are likely to be reshaped away from China.
  • China is likely to accelerate its tech policy and seek alternative sources of supply, including from businesses in Korea, Taiwan, Japan and Europe (to the extent that they exist). A key question is whether the US will be able to exert influence on its allies to limit China’s access.
  • Longer term, the US and China could diverge on critical technology standards, both seeking to co-opt allies to adopt their ecosystems as they battle for technological supremacy and economic influence. The consequent impact on businesses in the global technology supply chain is uncertain.


[1] China Daily (, TRT World (, South China Morning Post (

[2] 2018 Annual report

[3] CCIS, CSIA, PWC ANZ Research (  

[4] SIA semiconductor association (


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Important Information

This material is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual results may differ materially from those stated herein.

All rights reserved. Issued by Investec Asset Management, issued May 2019.

Anton du Plooy
Anton du Plooy Technology Analyst
Greg Kuhnert
Greg Kuhnert Co-Head of 4Factor

The content of this page is intended for investment professionals only and should not be relied upon by anyone else

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