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Anxious Chinese tech companies in US mull next steps amid looming trade war
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With the US and China on the brink of a trade war, Chinese tech companies operating in the world's biggest economy are anxiously waiting for the dust to settle while keeping a low profile in the changing environment which has become more hostile than under the Obama administration.

Since Donald Trump became president, his administration began to tighten the screw on Chinese businesses. Senior executives of these companies often complain that the US is practicing serious protectionism against them.

China's booming Internet economy has paved the way for the competitive Chinese companies to expand into the US market. On one hand, they aim to boost sales in the new market; on the other hand, they take initiatives to invest into or acquire American businesses in bid to bolster their own R&D competency and amass 'arsenals of patents'.

However, all the plans may fall through after US President Donald Trump signed a plan last week to impose tariffs on up to $60 billion worth of Chinese imports in key strategic sectors identified by Beijing in its “Made in China 2025” plan. The plan also includes curbing restrictions on Chinese investments in the US, which along with the new tariffs represent the latest move of the US government aimed at cracking down on what they call theft of US technology.

One year after President Trump took office, the reviews of Chinese investments and takeovers had become stricter, which is proved by the 'high-profile' failure of several Chinese takeover bids.

The most sensitive sectors identified by the Trump administration would be telecommunications and semiconductors. Last September, the White House blocked the takeover of chip maker Lattice Semiconductor Corp by a private-equity company citing the reason that a Chinese state-owned asset manager is behind its back.

Guided by the 'China containment' strategy, Trump also rejected Broadcom Limited's $103 billion takeover of Qualcomm Inc, now the largest acquisition in the industry. Although Broadcom is a Singapore-based company which has just relocated to the US, the Trump administration was concerned the deal would compromise the R&D investments of Qualcomm, and thus give China's Huawei Technologies Co an edge in the 5G wireless communications, which is identified by them as a critical technology.

US Treasury Department officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, including semiconductors and 5G wireless communications, according to four people with knowledge of the proposal, Bloomberg reported.

The investment curbs would be the latest step in US President Donald Trump’s plan to punish China for what the US sees as violations of American intellectual-property rights, according to the report.

Chinese tech companies now operating in the US are concerned they may take the brunt of the pain in the emerging trade war, and they're waiting for the dust to settle.

Till now, Chinese companies have gained a strong presence in the US consumer electronics sector, due to ever-growing market share. For smartphones, there are ZTE, TCL, Coolpad and Huawei, while for televisions, Hisense, Changhong and TCL have become popular brands.

Most consumer electronics brands from China are focusing on the medium-to-low-end markets in the US, so their local factories could easily suffer from heavy tariffs on imports.

Coolpad is the second most popular Chinese cellphone brand in the US, with annual sales volume reaching four million last year in the market. “If the US is to impose new tariffs on smartphones from China, the impact would be on all factories, including those producing iPhones,” Kang Yongqing, the Coolpad brand's US chief, told sina.com.cn, a Chinese news portal.

He predicted it would be hard for American consumers to embrace iPhones with surging prices and then Apple Inc would use its leverage on the Trump administration in bid to exclude smartphones from the new tariffs list.

Meanwhile, according to Kang, the smartphone makers in the US are considering moving factories to other developing countries. For example, some of them including Apple Inc have set up factories in India and the Southeast Asia region. In the event of a full-scale trade war, the companies may choose to stay away from China, so as to evade the spearhead of Trump's tariff policy.

Hisense acquired Sharp's American business in 2015 and so gained the brand's manufacturing factory in Mexico. A spokesman for the US operation of Hisense told sino.com.cn most of its products for the US market are now from the factory, so the new tariffs would have limited impact on its business.

Besides tariffs, deteriorating business environment is also a risk. Huawei Technologies Co, China's largest smartphone maker, is an example. Due to Obama administration's intervention, the company lost its bid for a Sprint Nextel contract worth tens of billions in 2010; while in the Trump era, AT&T, the second biggest carrier in the US, has backed out of a deal with Huawei to sell its new flagship smartphone at the last minute.

The Chinese giant is believed to have been targeted by the US government, citing national security concerns. On various occasions, US government officials or congressmen lashed out at the tech company which is suspected to be backed by the Chinese government and may steal users' information in the US. Although Huawei had offered to have its Shenzhen headquarters being investigated by the US Congress, the preconceived hostility could not be defused.

About its business prospects in the country, Huawei's spokesman for its US development refused to comment, while confessing “it's a sensitive issue now. All we could do is to take it easy and try our best.”

Kang Yongqing remains optimistic about the future, “There should be no big change in the business environment, considering US consumers do need the products. And we could also restructure to evade the new levy.” Coolpad USA has recorded profits for two years in a row. Kang expected for the growth rate to be maintained at 50 percent for the year, while anticipating the sales volume to reach 10 million by 2020.

"When the nest is overturned, no egg stays unbroken. If the overall business environment continues to deteriorate, all Chinese factories here would be affected,” an industry insider who refused to be named told sina.com.cn.

The article is based on a sino.com.cn report. 
 

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