Dec 15, 2021
China’s Great Leap against Big Tech
The focus on the future will be the green transition and semiconductors
The past year has been the theater of harsh decisions from China’s leadership against so-called BAT — Baidu, Alibaba, Tencent. Didi is the next domino to fall as it was “asked” to accelerate its delisting from US stock exchanges, mere months after its IPO.
Xi is wilfully jettisoning so-called Chinese Big Tech because he doesn’t trust them. Billions will be lost by Western investors who never learn that with China: there’s no win-win.
Jack Ma was made an example of in 2020 as Xi Jinping couldn’t countenance his overseas popularity and arrogance against the CCP’s financial stewardship.
In May 2021, the SEC introduced the Holding Foreign Companies Accountable Act, which serves as a tool to force Chinese companies to delist from US stock exchanges. This will lead to close to 2T$ to be wiped out.
Chinese “Big Tech” was always a mirage, the CCP will neuter them all out of business
Chinese “Big Tech” was always a mirage, the CCP will neuter them all out of business. Xi and his clan are content with erasing their BigTech because Tencent/Alibaba don’t serve their interest at all. Chinese leadership is in survival mode and its focus is on securing energy resources for its growth.
The state-led “reshuffling” is just starting, those invested in Chinese tech can assess risk on their own. It’s quite clear that Chinese leaders’ interests have little to do with BAT’s business models. Their current focus is much more on the “green” industrial transition, which includes sovereign energy supply. It’s also worth noting that China is hedging its relationship with Russia by buying American LNG.
It will be interesting to see the Jack Ma types disappear from public view, in favor of green/energy executives.
There are additional areas of focus for China’s future, among them food and water security. They remain in a brittle position for both. Water conservation and more efficient agriculture are areas where increased investment will displace “shiny toy” tech and real estate. These sectors are biting the dust and will slowly be expunged from the state-managed economy.
The “uncoupling”between China and the West will be messy
The “uncoupling”between China and the West will be messy and the US will surely ramp up financial sanctions and Iran-ize the CCP. It’s conceivable that all party members will be unable to use USD accounts in the near future as America tests the limits of its dollar-as-a-weapon ability.
Rare earths and semiconductors remain a key area of investment and where China seeks partnerships. France’s Eramet $400 Million Lithium plant deal with China’s Tsingshan is a notable example and should be monitored.
Korea’s SK Hynix had planned to move EUV (extreme ultraviolet lithography) machines to a plant in Wuxi, China but Washington barred it from shipping the equipment to China. Netherlands-based ASML produces lithography systems used by leading global foundries and chip makers including TSMC and Samsung. American leadership is very attentive to what technology is sold to China as it perceives its next moves in key semiconductor areas.
Italy’s PM Mario Draghi has vetoed three Chinese takeovers, in the latest arguing the Applied Materials takeover could have had consequences in the strategic semiconductor sector: its products are machines used to manufacture semiconductors components.
“China’s vulnerability in the semiconductor industry is acute, rooted in its tech inadequacies in key parts of the value chain. This applies not just to core production stages [..] weakness of China’s position extends to certain highly specialized supporting technology”.
China’s 30 year rebound can be summed up as follows: the Great Leap Forward and the Cultural Revolution maimed its economic output so deeply it had no choice but a rapid re-industrialization; and Deng’s genius move was to get the West to pay for it ! Current Chinese senior leadership is attempting to rewrite history and to magnify its supposed R&D prowess by registering all kinds of patents in quantum computing and more. The reality: Chinese rule of law is non-existent and Chinese patents are worth little more than the paper they’re printed on. The real R&D powerhouse is Taiwan and this is why Xi wants to reel them in.
The problem: Taiwan is mainland China’s top private employer. If Xi persuades them to uncouple further he will relegate China to a sweatshop economy, rendered that less feasible as factories cannot hire enough workers anymore and poor demographics will wipe out 35 million workers.
Lastly, democracies’ economic might is formidable against China: the EU’s GDP total $15T, America and Canada combined is $23T. If you add Japan (5T), Australia (1.4T) and India (2.8T), major democracies represent $47.2T. China (14.3T) and Russia (1.7T) combined GDP is a mere 16T.
This is a classic giants versus lilliputians situation: Xi and Putin therefore resort to asymmetric warfare to bolster their personal positions. The West and its allies need to stand tall and firm against both of them and prepare the future.
