Hello all, Mercedes here from Singapore. As my colleague Rana in New York put it this week so succinctly: US-China “decoupling . . . is a two-way street”. For evidence look no further than the ambitious Chinese localisation efforts, detailed in a scoop from the Nikkei Asian Review's super duo in Taiwan for our Big Story. And you can read more from Rana on why China’s immediate future looks a bit brighter than that of the US in her column (Best of comment).
In other news, don't miss the FT's dissection of SoftBank, the “Nasdaq whale”, and the reverberations for global stocks. Could it be the snowflake that causes the avalanche? (top 10). Don't miss a well-reported Big Read on how Disney, Netflix and Amazon are turning Covid-19 to their advantage in India (top 10). There is also a look at the whipsawing fortunes of Chinese chipmaker SMIC (Spotlight) and a must-read investigation on how Beijing has subsidised local companies on US blacklists (Smart data). Oh, and it appears those AI hedge funds aren't infallible . . . Until next week, enjoy!
The Big Story — exclusive
China’s top chipmakers are speeding up efforts to reduce reliance on US equipment suppliers as Washington tightens export controls, according to this exclusive in the Nikkei Asian Review.
Semiconductor Manufacturing International Co, China’s top contract chipmaker, and Yangtze Memory Technologies Co, the country’s first 3D Nand flash memory maker, are among the first companies setting ambitious goals to test homegrown and non-US equipment in their production lines.
Key implications: Chinese localisation efforts accelerated after the US hit Chinese tech champion Huawei Technologies with stricter export controls in May. Washington banned semiconductor manufacturers from building chips for Huawei if they use American software and tools in their production lines.
Reports that SMIC may also be blacklisted contributed to a 23 per cent fall in the company’s share price on Monday. Both SMIC and YMTC have set detailed internal targets to reduce reliance on US equipment suppliers. One observer called YMTC’s plans “radical”.
Upshot: Three US companies — Applied Materials, Lam Research and KLA — along with ASML of Europe and Tokyo Electron of Japan have long dominated the fabrication process for advanced semiconductors. While using all non-US chip equipment would definitely affect Chinese chipmakers' product competitiveness, over the longer term the market positions of US companies is also likely to be affected.
Mercedes’ top 10
The FT’s unmasking of SoftBank as a “Nasdaq whale” was top class reporting — and the stock market is still feeling the effects today. Check out an explainer here and the FT editorial on how the Japanese conglomerate could be “the snowflake that starts the avalanche” with tech stocks.
About time? After years of criticism that Apple bows to demands from China and carries out censorship in Xinjiang and Tibet, the US tech company has committed to freedom of speech.
A well-written deep dive by FT Mumbai correspondent Ben Parkin on how the coronavirus crisis has been a boon for expansionary efforts by Netflix, Amazon and Disney in India.
Nikkei Asian Review has a good piece on how a facelift of Hong Kong’s benchmark stock index fits into Beijing’s push to create a technology ecosystem stretching from Shanghai to Shenzhen to the former British colony.
We are sure you won’t be shocked by this stat: funding for private companies in China in the first half of 2020 was concentrated in health and “corona-tech” companies including education. More here.
Nervous about your personal information being collected if you live in a “smart city”? One small Japanese town of 120,000 is trying an opt-in model to gain trust.
In case you missed it, India banned an additional 118 Chinese apps last week. For a glimpse into the conundrum it has caused look no further than China’s Tencent and Korea developer Bluehole, which are behind the hit survival game PUBG Mobile. PUBG Corporation (Bluehole’s subsidiary) intends to split from Tencent in India but will that be enough? Possibly not.
A well-reported piece from Nikkei Asian Review’s Kentaro Iwamoto on the creeping influence of China’s Alipay in south-east Asia.
Perhaps AI is not always a fail-safe option. Voleon Group, one of the world’s biggest and best-performing artificial intelligence hedge funds, is one of a number of computer-driven fund managers struggling this year.
When sages speak
This fascinating podcast provides an insightful overview of India’s “broken” outpatient system and how one start-up is offering services that seek to address the problems. Siddharth Shah, co-founder and chief executive of PharmEasy, talks to Hans Tung and Madhu Yalamarthi at GGV Capital.
Cfius — the Committee on Foreign Investment in the United States — is getting tougher on issues related to data privacy, says this report by CSIS, a Washington-based think-tank. The TikTok case shows how China’s cyber security law of 2017 changed a lot in terms of US attitudes. Also, check out this report on TikTok from ASPI.
Gautam Chikermane, vice-president of Observer Research Foundation, the Indian think-tank, says in this piece that the ban on 118 Chinese mobile apps helps to protect India’s digital borders. It brings the total number of Chinese apps banned in India to 224 — a number that could yet increase.
Best of comment
Emerging nations represent a larger export market for China than the US, writes Rana Foroohar, global business columnist at the Financial Times. Beijing’s Belt and Road Initiative and its trade-based diplomacy in places such as Africa and the Middle East, combined with the rise of the digital renminbi, will make it ever easier for China to grow its exports to places other than the US.
The Trump administration has tried to offset these efforts by denying Huawei the US-made chips and software that it requires for its ambitious global 5G rollout. But no expert that I’ve spoken to on the topic thinks that this will prevent China from executing a longer-term decoupling from the US tech ecosystem. If anything, the restrictions have only sped up China’s efforts to develop its own chip industry.
Meanwhile, China has been able to access US patents, scientific papers and even American corporate innovations. That includes groundbreaking work on artificial intelligence, some which has been published or developed as open source. This is happening at the same time as China’s own legal protections around intellectual property and patents have been getting stronger by some measures.
That raises an interesting question: America is still home to the most cutting-edge technological innovations, but which country will be better at inventing the new thing in the future?
What a difference a few weeks can make. The founder and former chief executive of China’s largest chipmaker, Richard Chang, has gone from watching SMIC’s shares surge 246 per cent on their first day of trading in Shanghai in July to tumbling this week following reports the US may blacklist the company.
Chang founded SMIC with funding from China’s government in 2000 as a domestic Chinese rival to Taiwan Semiconductor Manufacturing Corporation. He resigned in 2009 but SMIC is now at the heart of Beijing’s drive to become more sufficient in chipmaking. The company said in a statement it was “in complete shock and perplexity” over the news, allegedly proposed because the US was worried SMIC was enabling the technological advancement of China’s military.
Blacklisting SMIC would mean the company, which needs US-made semiconductor tools for its manufacturing operations, could quickly lose the capability of fabricating chips for Huawei. The move comes after Chang said at a forum earlier this month he was “optimistic” China could catch up with the US in the next generation of semiconductors.
Art of the deal
Samsung has sealed a blockbuster deal with Verizon, showing how the Korean technology group can benefit from the Trump administration’s targeting of China’s Huawei. The FT has more on the $6.6bn deal to build 5G networks in the US here.
South-east Asian start-up Grab is looking to raise between $300m and $500m from Prudential, according to Reuters. They said Grab Financial Group’s pre-money valuation — the value of an unlisted start-up before its next funding round — has been estimated at $2bn.
Vodafone Idea, India's third largest telecom company, plans to raise up to Rs250bn ($3.41bn) through a mix of equity and debt to build a war chest to compete with Reliance Jio and Bharti Airtel.
Byju’s, the Indian education decacorn, has raised $500m from private equity giant Silver Lake. Existing investors Tiger Global, General Atlantic and Owl Ventures also participated in the round. Silver Lake also confirmed another, yes another, Reliance investment. As foreshadowed by the FT last week, it is investing about $1bn in Reliance Retail.
Chinese tech veterans, including former executives at Huawei and SMIC, are planning to launch a Rmb5bn ($730m) “domestic replacement” fund by the end of the year to help create China’s next tech giant and support Chinese companies sanctioned by Washington.
The IPO of the gaming unit of South Korea’s leading messaging app, Kakao, has smashed local records for demand, attracting orders of about 1,500 times the stock available. The FT’s Seoul bureau has more on the $323m listing.
China has subsidised companies that find themselves on US blacklists, according to this investigation by Kenji Kawase in the Nikkei Asian Review.
In some cases, the handouts are huge. Near the end of a 170-page interim report, leading tech company iFlytek revealed that it received Rmb378.57m in government subsidies, or about 50 per cent more than its reported net profit during the period. This level of subsidy was more than two-and-a-half times greater than during the same period last year, allowing it to more than cover what the company called the “expense of dealing with the US entity list”, which it put at Rmb46.38m.
Other companies to have benefited from subsidies are shown in the chart above.
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