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Here are two words for investors rushing to exit Chinese tech shares and those tempted to buy: Joe Biden.
Granted, this week’s chaotic selloff bears Beijing’s fingerprints. The government’s sudden attempt to rein in its most powerful private-sector companies helped wipe out US$290 billion of market value in tech giants Alibaba Group Holdings, Tencent Holdings and others in just a couple of days.
The regulatory clampdown, one punters fear will widen, is roughing up shares of internet-sector leaders including JD.com, Meituan and Xiaomi Corp – basically, every homegrown champion investors thought would pave the way for Chinese tech dominance by 2025 and beyond. Including, of course, the suspension of Ant Group’s $35 billion initial public offering.
Yet might Biden’s victory over Donald Trump in the November 3 US presidential election also be a factor? The idea being that Biden is less interested in a dual-track technological future – one built around Washington’s and the other around Beijing.
There is a way to read this as Chinese-tech negative. With its 1.4 billion home market and growing sphere of influence around the globe, a Balkanized tech future is one in which China Inc. can thrive. President Xi Jinping’s team gets to make the rules, pick the core players and ensure the market evolves according to Communist Party priorities.
It also means that if the Biden administration does ease some, or many, of Trump’s tech war restrictions, the opposite would be true. In exchange for a Biden White House taking Washington’s foot off the Chinese tech industry’s throat, the US would seek a greater mainland foothold for corporate America.
As part of any Biden-Xi deal, might US tech outfits Nvidia and Qualcomm, chip software developers like Cadence and Synopsis and equipment makers like Applied Materials, KLA-Tencor and Lam Research score greater access to China? Would Facebook, Google, Slack, Snapchat, Twitter and the range of social media operations be part of any deal?
Granted, Xi’s party would tread very carefully. And, particularly in the case of media, demand that US tech submits to a level of state censorship to which they are unaccustomed in the west (which might, of course, have tech CEOs balking). Even so, a Biden administration might push for tech reciprocity in ways that shake up China Inc. and spook investors.
Denying the mainland semiconductor fabrication technology on US national security grounds has been Washington’s default China play in the Trump era. If that’s about to change, it might turn the self-sufficiency trade in China on its head.
It’s hard to tell how much of a role such imponderables are playing in China’s tech-stock rout. But there’s a solid argument that a Biden presidency might lower the geopolitical temperature in ways that cheer China bulls.
The pressure is on
Little about America’s rhetoric toward China will change. A lifelong moderate, Biden has two wildly divergent groups to placate.
One: Young progressives in his Democratic Party caucus keen to take a stronger tack on Beijing’s records on trade and human rights. Two: Trumpian conservatives who will howl loudly if Biden adopts a more conciliatory tone toward China.
Bottom line, expect a “more competition, buy less confrontation with China,” says Darrell West at the Brookings Institution. A Biden administration “is likely to negotiate hard and seek meaningful resolution through joint engagement and consultation between the two countries.”
Over time, though, Biden’s economic team will realize how little Trump’s White House got in return for his tariffs, bans on mainland companies and rage tweeting. The trade deficit with China isn’t disappearing. In fact, in August alone it expanded the most since 2006.
Trump’s “Phase One” trade deal has clearly not granted the US great access. The yuan, which Trump complained ad nauseum was undervalued, is up nearly 5% against the dollar this year alone.
One important, and underappreciated escape valve, is how nimbly China Inc. outmaneuvered the Trump gang, making many of their curbs futile.
Case in point: Huawei spent months stockpiling critical radio chips to front-run Trump’s sanctions. In late 2019, partner Taiwan Semiconductor Manufacturing Co. began stepping up production of Huawei’s 7-nanometer Tiangang communications chips, a pivotal element in 5G base stations.
My Asia Times colleague David Goldman has detailed, early and often, how quick-thinking mainland executives turned Trump’s tech war into a game of global whack-a-mole. It’s the ideal microcosm of how Trumponomics was heavy on bluster, light on precision, discernable strategy and, most importantly, wins.
The “entity list” of Chinese companies banned from operating in the US, meantime, is great political theater, but not very useful in economic terms. As Trump tried to tackle China Inc. at the ankles, he forgot to encourage corporate America to hone its own competitiveness.
Trump spent the last four years making the US even more reliant on fossil fuels, browbeating Detroit into making less efficient vehicles and sabotaging efforts to improve crumbling infrastructure, strengthen education or healthcare.
Xi’s China, meanwhile, spent that time investing trillions of dollars with the aim of dominating the semiconductor, renewable energy, automation, artificial intelligence, software, biotechnology, robot, and self-driving vehicle spaces by 2025 and beyond.
There will, of course, be growing pains along the way. Not least of which a regulatory crackdown that triggered the suspension of Ant Group’s ginormous IPO, derailing Jack Ma’s designs on dominating online finance. And, of course, having global investors wonder if Ma’s troubles are an aberration or a cautionary tale of excessive Beijing regulation to come.
Here comes the colossus
Still, the sheer size of China’s ambitions cannot be denied.
Last month, Xi’s team accelerated efforts to create a giant, world-beating special enterprise zone of sorts in southern China known as the Greater Bay Area. “Silicon Valley East” is a better name for this grouping of Hong Kong, Macau and nine municipalities each destined to become economic powers all their own: Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.
With a population of 72 million and a collective gross domestic product of $1.7 trillion – that is greater than Canada’s annual GDP – Xi’s Greater Bay Area could become a self-sufficient juggernaut all its own.
As this high-tech megalopolis punches above its weight in churning out tech “unicorns,” it has bustling bourses in Shenzhen and Hong Kong on which to list shares. Hong Kong in particular could see a rush of initial public offerings.
“With Shenzhen tapped to lead China’s innovation drive, Hong Kong will play a crucial role in facilitating financing for Chinese firms,” notes analyst Andrew Coflan of Eurasia Group.
This sprawling enterprise alone shows why the Biden administration must hit the ground running. On the economic front, the first point of order is clearing away the wreckage of a trade war that hurt US households and farmers more than the average Chinese.
Either way, Biden’s arrival on the scene adds a new wild card into the mix. While punters may be tempted to rush out of Chinese tech shares, a Trumpless Washington could just as easily be a buy signal in Asia’s top economy.