Hello, everyone. This is Kenji in Hong Kong, where we are feeling the impact of the national security law imposed by China over a month ago, as we witness local media tycoon Jimmy Lai and other known activists arrested en masse. The related US-China tensions have ensnared Chinese superapp WeChat (The Big Story) in a move that could also clobber Apple.
The same tensions are also injuring Huawei’s ambition to create its own operating system and they have spurred Japan to host its first-ever drill against a cyber attack, calling on more than 20 nations (Eli’s Top 10). Shifting south a bit, an army of online consumers is rapidly building up in south-east Asia, at least five years earlier than expected due to the pandemic (Eli’s Top 10). Elsewhere, Chinese companies have already raked in $4bn through New York IPOs and $5bn more is in the pipeline (Smart data). I dearly hope you remain safe until next week.
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The Big Story
Will the US ban on WeChat sink Apple in China? Washington’s decision to ban the Chinese superapp could force smartphone users in China to choose between the iPhone and their favourite app, according to this article in the Nikkei Asian Review.
It is not clear if the US executive order that bans WeChat from September 20 extends to Apple users in China as well as in the US. Some US lawyers think it does, because companies such as Apple fall under the classification of “US persons” to which the ban refers. Other lawyers argue it refers only to US users of WeChat.
Key implications: If the ban does extend to users of iPhones in China, Apple would be highly vulnerable. The company relies on China for close to 20 per cent of its worldwide revenues.
Phoenix Weekly, a media outlet in China, ran an online poll that asked people if they would change their phone if they could no longer access WeChat. Among 88,000 respondents nearly 80,000 said they would choose the messaging app, while fewer than 6,000 said they would stick with their iPhones.
Upshot: If the US ban applies to Apple in China, it could be a huge blow. WeChat is used by 1.1bn people and is an essential part of daily life. The US commerce department has 45 days to explain the scope of the ban and how it will be enforced.
Eli’s Top 10
A round-up of the week’s top stories from FT newsletter writer Eli Meixler
Two Chinese government-backed chip projects have together hired more than 100 veteran engineers and managers from Taiwan Semiconductor Manufacturing Co, the world's leading chipmaker, since last year, sources told the Nikkei Asian Review.
All hands on deck: Japan will host a first-ever digital defence exercise to prepare for possible cyber attacks on critical infrastructure, NAR reports. More than 20 countries, including the US, UK, France and Asean members, will take part online.
The great tech partition is also coming to Apple’s supply chain. Luxshare’s purchase of two Foxconn rival subsidiaries puts iPhone assembly in the hands of a Chinese company for the first time, and could herald the beginning of “one system for China, and another for non-China” in Apple’s production.
Geopolitical tension could also cost Huawei’s hopes of creating a global competitor to the Android operating system and Google app store. The new US Clean Network initiative is pressuring app developers to boycott Chinese companies, including Alibaba and Tencent.
South-east Asia will have 310m digital consumers by the end of 2020, five years faster than previously forecast, according to a report from Facebook and Bain. The reason? Coronavirus, which has accelerated the shift to online spending.
Smartyoke, a start-up that specialises in automation, has big plans to bring some 20 per cent of China’s petrol stations into the 21st century with services including smart payments and consolidated data storage.
What downturn? SoftBank has bounced back from a historic loss in the first quarter to post a $12bn quarterly profit as a global tech rally lifted Vision Fund investments in Uber and Slack.
Taiwan’s top tech expo is wooing Japanese companies looking to relocate advanced production away from China, seeking an edge in the trade war.
Shenzhen was already a global manufacturing hub, China’s “Silicon Valley of hardware”. But now, the city’s unicorns are diversifying into services and software under pressure of the trade war and pandemic. NAR has more.
Zhang Yiming, ByteDance chief executive, is in a bind: although he is stuck in Beijing, he lives on Silicon Valley time, getting up at 10pm to fight TikTok’s battles in the US. Yuan Yang and Hannah Murphy paint a poignant portrait.
When sages speak
Here is a series of excellent pieces on TikTok, ByteDance and Zhang Yiming by expert Rui Ma, who has been investigating the phenomenon. She also posts this lyrical and amusing piece by Eugene Wei on what ByteDance did to make TikTok a splash in the US.
Alex Capri at the Hinrich Foundation has published this useful paper on US-China tech innovation, comparing approaches in each country towards facilitating development. He favours a new “moonshot” programme for the US to accelerate innovation.
Check out these five reasons why Microsoft’s intended acquisition of TikTok is a bad idea, by Gautam Chikermane of ORF, the Indian think-tank. He says that TikTok’s valuation of up to $50bn “will crash within months” of a Microsoft acquisition.
Best of comment
To all appearances, Silicon Valley is remarkably chilled about the new cold war, writes Tom Braithwaite, the FT’s companies editor.
But the extent to which the US tech sector has become dependent on China is under-appreciated. Beneath the rhetoric of each side’s “clean networks” and “great firewalls”, the two tech worlds are connected via a tangle of wiring. The great uncoupling would cause huge economic pain to hundreds of US tech companies.
Apple, on the brink of becoming the world’s first $2tn company after its shares doubled in five months, relies on China for its manufacturing base and, including Taiwan, almost a fifth of its $270bn annual sales. In a world where many homes in the west are cluttered with its devices, China also offers a vital source of fresh customers. Tim Cook, Apple’s chief executive, noted last week that three out of four people in the country buying Mac computers were doing so for the first time; two out of three iPad buyers are new to the product.
Others have even greater exposure. Five US chip companies — Nvidia, Texas Instruments, Qualcomm, Intel and Broadcom — each with a market value of more than $100bn — depend on China for between 25 per cent and 50 per cent of their sales.
Sky Li drew acclaim by winning market share in India’s intensely competitive smartphone market. As a manager at Oppo, a Chinese budget bracket phone, he prevailed against Samsung and other more established brands.
Now, having moved from Oppo to become chief executive of newcomer brand Realme, he’s repeating his flair for selling flashy but inexpensive smartphones in emerging markets.
In the first quarter of 2020, Realme’s sales grew 157 per cent year-on-year, making it one of only two brands to register positive growth globally during the period. The two-year-old brand became one of the world’s top 10 handsets last year on the back of its strong sales in south and south-east Asia.
Art of the deal
Taipei-based CakeResume’s ambition is to build the largest tech talent pool in Asia — and it’s getting one step closer with $900,000 in seed funding to expand in Japan and India.
Indonesian fashion ecommerce firm Berrybenka is in talks to acquire assets of former rival Sorabel, which was recently put out of business by the pandemic.
Thailand’s Charoen Pokphand Group will acquire Hong Kong-based ecommerce company Chilindo for $18m to complement its online shopping platform WeMall and compete with Alibaba’s Lazada and JD Central.
A year-and-a-half after opening a venture fund to back start-ups, Walmart-owned Flipkart has launched an accelerator, called Flipkart Leap, to offer grants to even newer Indian tech entrants.
The chart shows the $4bn in IPOs by Chinese companies in New York that have already taken place this year. On top of this, there is about $5bn in the pipeline, including a potential $3bn splash by Lufax, an online wealth management portal, writes Narayanan Somasundaram, chief banking and financial correspondent at the Nikkei Asian Review.
Lufax made its filing with the US Securities and Exchange Commission on Monday even as Treasury secretary Steven Mnuchin warned that Chinese companies listed in New York would soon be required to meet US auditing standards.
Wall Street bank fees from China are also jumping, writes Hudson Lockett at the FT.
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