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A staff member works at a factory in the economic and technological development zone in Jize County of Handan City, north China's Hebei Province, May 5, 2020. Photo: Xinhua

Tech Policy

Inside China Tech: with India’s app bans and US reshoring, are Chinese tech lifelines being cut?

India bans 59 Chinese mobile apps, including TikTok and WeChat, amid border disputes
US companies looking to reshore manufacturing out of China amid worsening bilateral relations and the pandemic

China technology

Melissa Zhu

Published: 7:00am, 4 Jul 2020

Why you can trust SCMP

Hello, this is Melissa Zhu from SCMP’s tech desk in Hong Kong with a round-up of some of our most important stories this week.

We kicked off the week with big news: India has banned 59 Chinese mobile apps, including the wildly popular TikTok and WeChat, saying that they “are engaged in activities which are prejudicial to the sovereignty and integrity of India, defence of India, security of state and public order”.

03:08

India bans dozens of Chinese apps, including TikTok and WeChat, after deadly border clash

The move comes after a deadly clash between the Indian Army and Chinese troops along the two nations’ disputed border on June 15, and a viral online campaign calling for people in the vast South Asian country to boycott Chinese-made goods.

For Chinese tech firms, there is a lot on the line. India, the second-most populous country in the world after China, represents a huge market for many companies.

Reuters reported that the blocked apps have a combined user base of more than half a billion. India is short video app TikTok’s biggest international market, with an estimated 120 million users, and Chinese smartphone giant Xiaomi Corp, whose Mi Video Call app was on the list, is the smartphone market leader in the South Asian country.

As our reporters Che Pan and Yujie Xie found, the sector appeared to take a collective pause on Tuesday to assess the damage.

TikTok owner ByteDance said on Tuesday that it was already “in the process of complying with the order”, but most other companies affected kept mum on their plans in the aftermath of the ban when approached by the Post.

Find out more about how India’s app ban might affect major Chinese tech players:

China’s tech sector quietly assesses India’s ban on TikTok, 58 other apps

04:43

Viral Indian TikTok star says followers ‘can’t stop crying’ due to Indian government ban

Offshoring in reverse

While India’s app ban might have thrown a spanner in the works for some Chinese tech firms’ global expansion plans, the industry is also facing the potential exit of more international companies looking to reshore manufacturing out of China amid worsening diplomatic relations and pandemic-related pressures.

Washington is now considering a US$25 billion “reshoring fund” which includes tax breaks and subsidies, according to a May 18 report by Reuters. Meanwhile, Japan in April introduced a US$2.2 billion economic stimulus package for reshoring out of China, amid worsening tensions between the two East Asian nations.

Coco Feng notes in her analysis of the trend that it began several years ago as China began to climb the economic value chain, lifting its cost of labour in the process, but has been accelerated amid US President Donald Trump’s war on globalism and his vow to bring more manufacturing jobs back to America.

Although Trump's desire to save US blue collar jobs is often cited as one reason behind reshoring, it is often cheaper for companies to make many products in Mexico, China and other countries.

But automation could help offset relatively higher wages in the US. While such technology could entail a high upfront cost, Pedro Palandrani, a research analyst at finance and research firm Global X, estimated in a recent study that it will take less than two years on average for an American factory deploying robots to reach break-even point, matching traditional labour costs, before enjoying gains in efficiency.

A worker is seen at a welding robots production workshop at the Tangshan Hi-tech Industrial Development Zone in Tangshan, north China's Hebei Province, April 29, 2020. Photo: Xinhua

“Over the last 30 years, the average price of a robot has fallen by more than 50 per cent in real terms while labour costs have increased over 100 per cent,” he said. “The economics will become more attractive as the cost of robotics falls and labour costs continue to rise.”

Some experts also see reshoring as a natural economic rebalancing process, with a greater proportion of foreign money pouring into China going into its hi-tech sector while labour-intensive industries move to other parts of the world.

China’s ascension in areas such as artificial intelligence and telecommunications is, of course, still challenged by US sanctions cutting it off from major suppliers.

Read the full story for what experts have to say about that:

How far can reshoring and decoupling go given interconnected supply chains?

Back in service

One major Chinese company that isn’t being cut off from a major US supplier, at least for now, is Inspur Group.

You might not have heard of it, but the Shanghai-listed firm was the world’s third-largest server vendor in terms of both shipments and revenue in 2019, according to research firm IDC.

Its major shareholder is also a Chinese government-owned investment holding company, and last week, the US Department of Defence put it on a list with 19 other companies alleged to be owned or controlled by the Chinese military.

03:07

China’s hi-tech industries capitalise on Covid-19 pandemic health care needs

Earlier this week, US chip maker Intel suspended supplies to Inspur, citing the need to ensure compliance with US laws.

By Friday, however, Intel confirmed that it had resumed normal supplies to the Chinese server giant, as Che Pan reports.

Inspur did not immediately respond to the Post’s requests for comment.

The Pentagon’s list of “Communist Chinese military companies operating in the United States” did not in itself put any new restrictions on the red-flagged companies, but opened them up to increased US scrutiny: following its release, Republican Marco Rubio said this week that he is preparing a bill to ban Chinese companies from US capital markets if they engage in spying, human rights abuse or support China’s military.

More about Inspur in the full story:

Intel resumes sales to Chinese server giant Inspur after suspension

That’s it for this week!

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