Inaction against China’s largest internet companies with a combined market value of $1.3 trillion follows a recurring pattern in Washington’s phony war against China. The US announces what appears to be draconian sanctions, but allows business as usual (or close to usual) by order of anonymous mid-level bureaucrats.
So it was at the weekend. A US exchange-traded fund for Chinese internet stocks jumped by more than 5% Friday after Washington declined to ban Americans from owning them.
Rumors of a Treasury Department ban on American ownership of Chinese tech giants Alibaba and Tencent, reported in a leak to the Wall Street Journal from nameless officials, produced an air pocket for Chinese tech stocks earlier in the week. After the rumors turned out to be wrong, Tencent finished the week with a 7% gain.
KWEB, a popular China internet ETF, closed Friday at 82.60 with a 5.2% daily gain, and more than double its March 2020 low price. KWEB returned 56.24% over the past year vs 16.8% for the S&P 500 and 43.45% for the NASDAQ.
Earlier last week the New York Stock Exchange announced that it would rescind a December 31 order to de-list the American depository receipts of China’s big three mobile phone providers, which the US government – alleging ties to the Chinese military – had put on the prohibited list.
After a call from Treasury Secretary Steven Mnuchin, the NYSE reversed its reversal, but indicated that it might reverse the reversal of the reversal at a future date. The prices of the three Chinese companies rose and fell accordingly.
Fear of Chinese retaliation figured into Washington’s hesitation. Beijing on Friday ordered Chinese companies to refuse to comply with trade restrictions, and gave Chinese courts the power to exact compensating damages from global companies. The new law allows Chinese firms to sue American companies that comply with American restrictions in Chinese courts.
US tech companies such as chip designers Nvidia and Qualcomm sell the overwhelming majority of their products in China, and the impact on key US firms could be devastating.
Another explanation for the Treasury’s inaction against Tencent and Alibaba is the disarray inside the Trump Administration after last week’s Capitol Hill riots. A number of key staffers, including Deputy National Security Advisor Matthew Pottinger, the top White House China expert, resigned late last week.
President Trump’s much-heralded ban on American’s use of Tiktok, a popular app for posting short videos, never materialized – although his administration has banned Chinese smartphone payment apps, which few Americans use to begin with.
Despite a putative ban on US exports of chip and chip technology to China, sales to China are booming for high-end smartphone chips, chips for 5G broadband base stations and chip design software, as I reported January 4.
Chinese companies on the US “entity list,” including Huawei and ZTE, are buying US products through intermediaries licensed by the Commerce Department, which does not make public its list of exceptions. Huawei’s sales of 5G smartphones have fallen, but other Chinese companies such as Xiaomi and Oppo have taken up the slack.
US exports to China surged at the end of last year to an all-time record. Exports to China fell sharply during the 2008-2009 world recession, but jumped during the present recession, as China’s economy continued to grow while output shrank in the world’s other big economies.
European technology companies complain that the supposed American bans on technology sales to China, including products made offshore by foreign companies using American intellectual property, amount to a backdoor form of protectionism. The US Commerce Department has enforced the bans against European companies while granting exceptions to US firms, European companies complain.
What Europe regards as American duplicity and favoritism towards US companies contributed to the European Community’s decision at the end of December to sign the Comprehensive Agreement on Investment with China, ignoring the strident objections of the Trump administration as well as an appeal from the Biden transition team.
A wave of popular resentment against the United States has pushed European leaders to distance themselves from Washington. The German daily Die Welt reported January 10 that 77% of Germans are for keeping out of a conflict between the United States and China, according to a December opinion poll.
“Asked which of the two countries the German government should support in case of conflict, only 17% favored supporting the United States, Germany’s longstanding alliance partner,” the newspaper reported.