Hello, Mercedes here from Singapore. If there is one 2021 call we are making early it is that the global investment and M&A frenzy in the chip sector is only going to snowball. In Asia there are a few important names on manoeuvres in this space but one of the most interesting is Huawei. Our big story this week is how the telecoms equipment provider, galvanised by US sanctions, is investing heavily in semiconductor tech. The effort is a significant consequence of the US-China tech war. Enjoy, and catch you next week.
The Big Story — Exclusive
China's Huawei Technologies, the world’s largest telecoms equipment provider, is boosting investment in domestic chip companies to plug holes in a semiconductor supply chain created by the long-running US crackdown on the tech group, according to this exclusive in Nikkei Asia.
Huawei is in talks to invest in SiEn (QingDao) Integrated Circuits, a chip manufacturer founded in 2018. If the investment goes through, it would add to 20 semiconductor-related investments made by Hubble Technology Investment — Huawei’s wholly-owned $417m venture capital arm — since the US added the Chinese group to a trade blacklist that restricted its access to American technology in 2019.
Key implications: The galvanising impact of US sanctions on Huawei’s semiconductor self-sufficiency drive can be clearly seen by the fact that 10 of Hubble’s investments took place after August 2020. That was when the US commerce department further tightened export controls to restrict even non-US players from using American technology to supply the Chinese company.
Huawei's ownership in the Chinese tech companies ranges from 3 per cent to 15 per cent, based on current data. Its most recent recorded investment came in late December, when it bought a 15 per cent stake in NineCube, a Chinese chip design toolmaker founded in 2011 in Wuhan.
Upshot: Efforts by the Chinese company to beef up its chip supply chain are in line with Beijing's goal of achieving self-sufficiency in semiconductors — an important battleground in the US-China tech war. China's biggest contract chipmaker Semiconductor Manufacturing International Corporation and memory chipmaker Yangtze Memory are accelerating efforts to strip US equipment out of their production lines.
Mercedes’ top 10
Jack Ma’s fall from grace is becoming a potent metaphor for private business in Xi Jinping’s China. This FT piece is a must read.
Scoop here by Yuan Yang, the FT’s deputy Beijing bureau chief, on China’s order to gag reporting of the antitrust action against Alibaba.
Vietnam is the focus of an ecommerce war between Alibaba and Singapore’s Shopee. This in-depth piece describes the battle lines.
The auto industry is experiencing a severe shortage of semiconductors, prompting some manufacturers to cut production.
Samsung may grab a slice of chipmaking production from US rival Intel, a move that puts the spotlight on its fierce rivalry with Taiwan’s TSMC.
What happens when your semi-autonomous car does not stop at the lights? John Gapper finds that self-driving dreams are a way off.
China’s big tech companies can’t shake the negative headlines. A delivery driver who had worked for Alibaba set himself on fire to protest against unpaid wages.
Nikkei Asia editor-at-large Ken Koyanagi takes stock of the prospects for the handful of tech unicorns set to go public in India this year.
It’s not all bad news out there. Check out this AI system in Japan that helps detect cancer in real time.
When sages speak
Here is a good analysis of China’s green strategies by Anna Holzmann and Nis Grunberg for Merics, a Berlin-based think-tank. Sustainable development looks set to become an ever more important theme for China and tech investors.
AI’s meteoric rise in importance in China is charted here by Matt Sheehan at the Macro Polo think-tank. Blockchain also appears to be enjoying a flurry of interest in Chinese official media. Meanwhile, check out Matt’s recent “modest proposal” on how the US and EU should handle China’s technological rise.
If equity markets reflect the future value of industries, electric vehicles are set to have an extremely bright future, writes Kenji Kawase, Nikkei Asia’s chief business news correspondent. Tesla took the crown away from Toyota Motor as the most valuable automaker in the world last July, while Chinese electric vehicle players are considered to be the beneficiaries of this tectonic shift.
The market capitalisation of New York-listed Nio — a company sometimes referred to as China’s Tesla — has grown 15 times since June and is approaching $100bn in value, overtaking Volkswagen as the third largest in the world.
Nio’s vehicle deliveries last year grew by 112.6 per cent. Its domestic rival Xpeng similarly recorded a 112 per cent increase over the year, driving its share price to triple since its US IPO last August. However, these companies are still too small to be profitable. Nio’s sales volume last year was 43,728 and Xpeng’s was 27,041. These levels are minuscule compared to Toyota and Volkswagen, which each sell in the region of 10m vehicles a year.
The anomaly does not end there. According to an analyst consensus compiled by FactSet, both Nio and Xpeng are likely to keep on losing money at least in 2021 but Toyota’s annual net profit for the financial year to March is estimated to be $13.6bn.
Nio and Xpeng may have the momentum that the market likes, but even the share price of BYD, whose annual sales of new energy vehicles dropped by 17.3 per cent, rose by sixfold. BAIC Blue Park New Energy, a Shanghai-listed subsidiary of Beijing Auto Group and the top EV seller in China for seven years until 2019, announced that its sales had slumped 83 per cent last year. Nevertheless, its share price rose by almost 50 per cent.
Investors could be correct in pricing these Chinese EV makers, especially given the size of their home market and the backdrop of excess liquidity that needs to be invested somewhere. But markets do overshoot, make wrong calls and create bubbles from time to time. Remaining cool headed may be the way to go this year.
Art of the deal
SK Group, the South Korean conglomerate, is making a big bet on the hydrogen economy. It paid $1.5bn for a 9.9 per cent stake in Plug Power, a New York-based company that makes the hydrogen fuel cells systems that pose a competitive threat to electric vehicle technology.
The two companies will also form a joint venture to help provide fuel cell systems, hydrogen fuelling stations and electrolysers to Korea and other Asian markets. Hydrogen fuel cells, which can recharge in minutes compared to the several hours required by conventional lead-acid batteries, are used to power vehicles and other equipment.
The deal is seen as a further endorsement for fuel cell technologies and for Plug Power, which also announced a joint venture with Renault based in France. Plug Power’s share price has surged.
The South Korean government in 2019 announced a Hydrogen Economy Roadmap through to 2040. Its ambitious goals include over 5m tonnes of hydrogen per year and it expects the cumulative economic value of its hydrogen economy to reach about $40bn by 2040.
January has got off to a rocky start for Colin Huang, the founder of Pinduoduo, China’s fastest-growing ecommerce company. The secretive billionaire, who is also the group’s chairman and controlling shareholder, is facing a deepening public relations crisis.
A former employee released a video at the weekend in which he alleged Pinduoduo staff had to work from 300 to 380 hours a month. The video, which went viral on social media, followed the death of a Pinduoduo employee who collapsed late at night on her way home from work last week. Separately, a Pinduoduo employee surnamed Tan committed suicide on Saturday by jumping from the 27th floor of an apartment building in his hometown of Changsha.
The situation isn’t helped by the fact that Pinduoduo, which is listed on the US Nasdaq with a $200bn-plus valuation, has a culture of secrecy. That extends to the 40-year-old Mr Huang, who is described as mysterious by Chinese media. It is not even known if he is married. Both of his parents were factory workers and he studied computer science at Zhejiang University before heading to the US in 2002, later turning up at Google China.
The recent events, coupled with serious questions over its business model, may mean Mr Huang has to step into the spotlight for damage control.
A dramatic shift is taking place in Taiwan’s corporate landscape and it will have significant implications for global manufacturing. Hundreds of thousands of Taiwanese enterprises are bidding farewell to China because of rising costs and trade tensions between Washington and Beijing. The chart above shows how annual investment flows from Taiwan to China have been in decline since peaking in 2010, the year Beijing and Taipei signed a trade agreement. “The era of cross-strait industrial co-prosperity is over,” said one expert.
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