The Trump administration’s targeting of China’s biggest technology groups has prompted concerns of forceful retaliation against US businesses.
President Donald Trump this month signed executive orders that could hit the operations of China’s most valuable start-up ByteDance and Tencent, the country’s second-largest tech company by market capitalisation. On Monday, Washington moved to cut off Huawei’s access to its global suppliers, which some say could prove lethal for the Chinese telecoms group.
But despite mounting political pressure to unveil commensurate restrictions on US businesses in China, Beijing has historically been reluctant to retaliate. Analysts think officials will continue to hold back, as they are reluctant to upset the economic benefits and innovation US companies bring to China.
“One of the key ways for Beijing to fight [measures by the US] is to keep foreign companies and investors in China,” said Sean Ding, analyst at research company Plenum.
Investors have been fretting over China seriously targeting foreign businesses since March 2019, when Beijing announced it would draw up a “non-reliable entity list” of companies that had harmed its interests. But the list, and any penalties, have not materialised.
China is a huge market for many US companies, ranging from tech groups to carmakers. About two-thirds of US semiconductor manufacturer Qualcomm’s revenues come from China, while US brands from Nike to Starbucks rely on Chinese consumers for more than a tenth of sales.
But US companies in China have been largely immune to government-imposed restrictions or investigations.
Apple, a big competitor of Huawei in the smartphone market, has continued to grow its revenues in the country despite a recent brush with regulators over licences for games on its App Store. Its China iPhone sales rose by a third in the second quarter, according to Counterpoint research.
The latest Huawei sanctions are a clear provocation, analysts say. Mei Xinyu, a researcher affiliated with China’s commerce ministry, said the telecoms group — which is central to Beijing’s ambitions in 5G mobile technology — is far more important strategically than ByteDance and Tencent. The US commerce department’s latest curbs on Huawei have been described as a “death sentence” by some.
China still faces a huge gap when it comes to certain parts of the supply chain. They like the fact that the US investment is high-tech
Mr Mei said Beijing’s entity list was “a show of readiness to fight” but believes that officials may instead try to take the high ground rather than engage in tit-for-tat measures.
“Given the current practices of the US, the most beneficial approach for China is not to simply retaliate, but rather to create the image that China is the most reliable supplier and customer, and will not arbitrarily break off supply or contracts,” he said.
However, some believe Beijing has limited room for manoeuvre. “China’s ability to retaliate in high-tech is very limited” and in many industries it is still keen to attract foreign investment, said Shi Yinhong, an international relations scholar at Renmin university in Beijing. “I can’t think of any tit-for-tat retaliatory measures.”
Analysts also point to the fact that US companies are often closely integrated with their Chinese counterparts in the world’s second-biggest economy, such as through joint ventures, risking collateral damage if Beijing targets US companies.
General Motors, for example, sells more cars in China than it does in the US. But its joint ventures with Chinese car companies mean that the domestic industry would also suffer if authorities targeted GM.
“If they go after General Motors, it would likely hurt [its Chinese partner] SAIC Motor too,” said Tu Le, founder of consultancy Sino Auto Insights.
There could be too much collateral damage, especially at a time when the government wants the car industry to be a driver of China’s economic recovery from coronavirus, Mr Le said.
Executives point out that market access for foreign companies is often only granted if China believes they will help to develop local industries, such as investment banking, electric cars and software development. That suggests there is little incentive to kick them out once they have been invited in.
“The Chinese government doesn’t care where you come from so long as you help China to grow,” said Joerg Wuttke, president of the EU Chamber of Commerce in China. “China still faces a huge gap when it comes to certain parts of the supply chain. They like the fact that the US investment is high-tech and they’re helping to build up supply chains here.”
Beijing may also be cautious about imposing measures it finds difficult to back down from later on. Three years ago Chinese consumers boycotted South Korean goods and companies over a proposed missile defence system, amid a wave of nationalist sentiment.
“The Chinese don’t want to escalate, they want to keep the door open. It’s very, very hard to undo sanctions because you have to explain it politically to a Chinese base,” said Mr Wuttke.