Hello, Mercedes here in Singapore. Is there any clearer symbol of the shift under way in global supply chains than a top-of-the-range Apple iPhone being assembled in India, backed by increased manufacturing investment? Our Big Story this week examines this move amid increasing acrimony between the US and China.
In other news, China's leading AI companies are recovering from finding themselves on the US blacklist last year (Top 10). We also have more on the feeble debut of Hong Kong’s new tech index and a breakdown on China’s new data security law. Don’t miss the surge in fundraising by south-east Asian start-ups (Smart data). For those readers “laptop-ing on the sun lounger”, check out our recommendations for the top tech gadgets for WFH: Working From Holiday.
Speaking of which, I am off for two weeks after this edition of #techAsia, but not before hosting the second of our FT LinkedIn Live series. I will be talking to Rui Ma — the San Francisco-based co-founder of the Tech Buzz China podcast, a China internet tech expert and author of the upcoming book “ByteDance: The Super App Factory” — on Thursday July 30. Please join us on the FT’s LinkedIn page at 11pm Hong Kong/4pm London/11am New York/8am San Francisco for the event, which is titled “What are the options for China's short video streaming app TikTok?”
The Big Story
A flagship Apple iPhone is being made in India. The move reinforces a multibillion-dollar pivot to the country among US tech giants as Washington agitates for a commercial decoupling from China.
Foxconn, a Taiwanese contract manufacturer, has begun making the top-of-the-range iPhone 11 in Chennai and may export it from there, sources told the Nikkei Asian Review. Lower-priced Apple phones have been made in India since 2017, but the iPhone 11 represents a step-change.
Key Implications: Apple is embracing India as a manufacturing hub and as the second-largest smartphone market in the world after China. Aside from Foxconn, another Taiwanese manufacturer, Wistron, is making iPhones in Bangalore. Pegatron, another big Taiwanese iPhone maker, is said to be planning a new plant.
Apple’s actions correspond to those of other US tech giants betting big on India. Facebook and Google have announced $5.7bn and $4.5bn investments respectively this year. Qualcomm and Intel have also struck deals.
Upshot: China dominates Apple’s supply chain but the shift of capacity to India represents a key diversification just as China-India ties sour. A border clash last month that killed 20 Indian troops has turned public opinion against Beijing, resulted in the banning of scores of Chinese apps and prompted New Delhi to restrict Chinese companies in government infrastructure projects.
Mercedes’ Top 10
What is Silicon Valley’s plan in India? The FT digests its run of aggressive bets in Reliance Jio, which could help US tech unlock greater opportunities in the fast-growing Asia market.
“There is absolutely no doubt that 5G smartphones will exceed 100m units by the end of this year.” So said China’s Ministry of Industry and Information Technology last week. In further evidence of Beijing’s drive for 5G supremacy, its network of 5G base stations also continues to swell.
What blacklist? China’s leading AI start-ups, including Megvii and SenseTime, are raising money and winning overseas contracts despite landing on the US entity list last year. Their situation echoes Huawei’s early experience, with its spending with US suppliers surging 70 per cent in 2019 despite being blacklisted.
C’est la guerre! France did not ban Huawei outright but the country’s cyber security agency has essentially given its telecommunications operators until 2028 to eliminate the Chinese company’s equipment from their networks. It follows the UK’s reversal on Huawei this month.
Hong Kong’s China-powered new tech index, which is tilted towards stocks such as Alibaba and Meituan, had a lacklustre debut. But brokers remain confident it was a timely move.
Here comes a showdown. Facebook-owned Instagram has offered financial incentives to TikTok users with millions of followers to persuade them to use a new competing service by the US group. More here.
Businesses, including foreign ones, that collect and use data in ways that “harm national security or the public interest” would face hefty fines under China’s first comprehensive data security law. Nikkei Asian Review has more.
As China strengthens control of its online environment, a deal between the UK and Japan has sought to better support digital protection. The two countries are set to ban government demands to hand over encryption keys — used to protect proprietary corporate technology and information.
One of the biggest future streaming showdowns will be in south-east Asia, where Chinese-backed players and local contenders are racing to corner the market ahead of Netflix and Disney.
Checking into Zoom conference calls while sunning yourself in Ibiza? The FT has the top tech for those WFH — Working From Holiday.
When sages speak
Claude Achcar gives us this very insightful essay on how the world of 5G telecoms is changing fast. The US-led broadside against Huawei has helped foster a multiplicity of players in different countries all providing 5G equipment and services. Also check out the Open Radio Access Network (ORAN) movement.
Scott Kennedy of CSIS in Washington has this thought-provoking piece on attempts by the US to “crush” Huawei. He finds that “this effort could seriously harm the US economy and national security”.
Mike Pompeo’s speech, in which he said that “General Secretary Xi Jinping is a true believer in a bankrupt totalitarian ideology”, is not purely about tech. But it has plenty of key implications for tech companies from the US, China and elsewhere.
Best of Comment
A bipolar world of tech is starting to take shape, writes James. Around one pole are those countries that welcome Chinese technology and the multibillion-dollar investments of its corporations. Around the other is the US-led west that is closing its door, in varying degrees, to a lengthening list of what are regarded as sensitive Chinese technologies and investments.
Paul Triolo, a China tech expert at Eurasia Group, says a “watershed moment” has been reached. Scores of Chinese companies have been added to US blacklists over the past 18 months, and many are finding it difficult or impossible to source critical components such as semiconductors from US suppliers.
But will all this be enough to bring China’s tech juggernaut to a shuddering halt? A quick glance at the big picture, says Michael Power, strategist at asset manager Ninety One, makes clear the answer is no.
Also check out this piece on US-China semiconductor competition.
Until this week, Sogou, the company that runs China’s second-biggest search engine, largely flew under the radar. That was until Tencent, one of its investors, lobbed a buyout deal at the company that could see it delist from the US and form part of a broader Chinese exodus from the west.
Sogou, which means “Search Dog” in Mandarin, was founded by computer programmer Wang Xiaochuan and listed in the US in November 2017. His ambition was to take on Baidu, China’s main search engine company, but the company has always run a distant second to its rival. Instead, it was better known for being the country’s ubiquitous — and essential — text input software provider. The Sogou Input Method was adopted widely by Chinese speakers to translate their typing using the Latin alphabet into Chinese characters.
Sogou has been the default search engine for Tencent’s WeChat and benefited from the giant’s traffic. Sogou’s shares leapt 48 per cent on the news to $8.51, yet the company still trades far below its all-time high of $13.85 at the time of its IPO.
Art of the deal
This one has been rumoured for some time but there are more signs that Ctrip, China’s largest online travel firm, could delist from the US. Latest take from Reuters here.
But others are looking to the US, such as Chinese electric vehicle maker Li Auto, which is planning a $950m US listing this year. This follows Tencent-backed Beike, the Chinese online property platform that is seeking a $2bn IPO in New York.
Traveloka, one of Indonesia’s handful of unicorns, has raised $280m from international investors, including the Qatar Investment Authority, according to a report in the Nikkei Asian Review. But the company’s valuation took a hit and it is now valued at about $3bn, lower than before the coronavirus crisis.
Delivery Hero, the online food delivery group, plans to invest up to €30m to launch its Foodpanda brand in Japan by the end of September. Alert readers will recall it is also awaiting regulatory approval of its $4bn acquisition of South Korea’s Woowa Brothers.
Another Indonesian unicorn, Bukalapak, is in talks to raise at least $100m. GIC and Shinhan are expected to participate in the ecommerce company’s fundraising. More from DealStreetAsia here.
The cash is on the table in south-east Asia. The value of fundraising deals in the region surged 91 per cent on a year earlier to $2.7bn during the June quarter, according to data from DealStreetAsia. The number of transactions climbed 59 per cent to 184 for the three months through June, up from 116 in the same period a year earlier. The dealmaking came despite many countries being in lockdown.
The three-month period was also noteworthy because it was not just one or two large start-ups behind the majority of the deals. Leading the region were the ecommerce sector, which raised $691m, logistics, at $360m, and fintech, at $496m. Some locally operating companies also pulled in considerable funds, indicating the pandemic has created opportunities for a broader range of new companies.
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