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US-China Tech Cold War: The Apocalypse Of Chinese Technology Firms?

US-China Tech Cold War: The Apocalypse Of Chinese Technology Firms?

. 5 min read

While Huawei manages to survive through the upcoming US-China tech war, other technology firms in China aren’t that lucky.

Just half a year ago, Steve Liu- the CEO of a Shanghai-based company manufacturing phone accessories, still kept his optimistic belief about the end of the looming Us-China trade war. After all, he inferred that both sides were prerequisite of one another.

But now, Liu cannot hold that positive thought anymore. Indeed. The US tax hike on Chinese goods and the recent ban on Huawei Technologies have acted as an official declaration of war between these two superpowers.

 The US is putting a knife to China’s neck
The US is putting a knife to China’s neck

The Giants – The Lifeblood

The effects of the ban on our company are unavoidable since we provide accessories for many lines of Huawei, such as the Mate and P series.

For now, the ban might not affect us that much as our orders are mostly for domestic demands. But if the scenario turns worse, the adverse influences are inevitable.”

said Liu.

The ban on Huawei last month has also cleared the way for this corporation to enter the list of forbid-to-trade companies in the US. Also, this movement made Huawei lose all of its partners in the US, including Google. Following is a temporary 90-day reprieve with the expectation to lower the demands for Huawei’s products.

According to SCMP, after this movement of the US, thousands of Huawei users have sold their smartphones online with an unbelievably low price. They fear that they won’t be able to use Google services in the future.

In 29/5, the legal director of Huawei, Mr. Song Liuping, reaffirmed that this ban could result in a dangerous precedent. He also stated that this US prohibition would also affect more than 1.200 Huawei suppliers.

On the other hand, Liu fears that the ban may even end the partnerships between US chip suppliers and Chinese technology firms for good. If this scenario came true, his company couldn’t survive through the cold war as most of his customers are Chinese smartphones’ brands.

In fact, Liu’s company isn’t the only victim in this tech war. Indeed. Most of small to average technology companies are heavily reliant on orders from big corporations like Huawei. Therefore, any customer losses can affect the survival of them.

The Supply Chain Shift

“What we might witness in the future is the world slowly polarize into various technological poles that go for different aspects, from software to hardware.”

said Prof. Christopher Balding
The Impact of the US-China Tech Cold War on the global supply chain
The world supply chain is shifting under the influence of the US-China trade war

According to him, if the situation escalates, it will create a broader technology split in the global supply chains. He also suggested that Foxconn, the factory manufacturing most iPhones in China, should begin to make more devices for global markets rather than serving Chinese consumers in China only.

The Recent Picture Of China

In the joint survey by AmCham China and AmCham Shanghai last month, many US firms are interested in “In China, for China” strategies. This contrasts the “In China, for the world” strategy of MNCs to cut down the labor costs in the past.

Another supplier under the impact of this extreme scenario is Dongguan-based firm MHD, which produces chargers and adaptors for US demands. Their sales employee – Ms. Yan, showed her significant concerns towards their reduced number of orders received in the last months.

The looming picture of China these days
The looming picture of China these days

“Many of our US partners have stopped working with us because we’re Chinese. Other than China, they can select alternative suppliers from India and Vietnam.”

Yan pointed out

This can be explained by two reasons – the geopolitical risks and the costs. After the ban, chargers and adaptors from China are now imposed with a higher tax.

“At this moment, we are still working on a few orders, but in the near future, I don’t think we’ll have much to do,” Yan said. She also added that her company didn’t have a backup plan yet. And how to keep workers employed is still an unsolved question.

For US Companies

On the other hand, US companies may have to reconsider operating in China, especially those who have been under severe conditions of the Chinese government.

“American companies have been tired of the harsh regulatory inspections, technology transfer provisions, and joint venture terms that have been on their ways for years,” said Zhong Rui, an assistant of the Wilson Center’s Kissinger Institute of China and the United States.

For Chinese Firms

Meanwhile, Huawei is facing one of their worst nightmares ever. According to reports, Chinese firms have to stockpile millions of US components to make sure there will be no effects in the short term. Smaller hardware enterprises like Remo Technology have to take Huawei as a lesson.

Remo’s CEO, Mr. Liu Bo, shared that they have already looked for Chinese alternatives to US products in case of that the US prohibit their companies from trading with Chinese firms.

“In the meantime, it’s essential to stockpile as many US accessories as possible to ensure that we have enough components to operate in the next few months. However, as a start-up company, we still have to pay attention to our cash flow. Therefore, it’s impossible to store too many of them,” said Mr. Liu Bo.

The Experts’ Verdicts

Although it might take years to develop their technology officially, China has no other choices in this scenario. The US seems not to yield in this battle, and so does China.

“With the market of 1.3 billion people and a driven economy, it’s possible that China can build a much higher supply chain than the US. They can become a free market,” Prof. Wong Kam Fai believed.

However, the chance to survive of small to medium tech companies in China is little, according to SCMP.

According to Daniel, whose mainland-based Japanese firm providing Huawei with electronic accessories, the top-line revenue has been under a lot of pressure due to the endless cold war between the US and China.

“Of course, no one could give out any predictions about the precise end of this trade war. But hopefully, it comes soon. It’s a no-win situation for both sides. We will keep updating and hope that there won’t be more negative impact coming,”

said Daniel.