HONG KONG/BEIJING – U.S. restrictions on Chinese telecom giant Huawei Technologies Co. threatens to snuff out a nascent recovery in semiconductor demand, a key driver of economic growth in technology powerhouses including South Korea and Taiwan.
China dominates purchases from Asian semiconductor exporters and bought 51 percent of their exports in 2017, according to analysis by Citigroup Inc. economists Jin-Wook Kim and Johanna Chua.
China and Hong Kong took 69 percent of South Korea’s chip shipments, 56 percent of Taiwan’s, 51 percent of Vietnam’s, 43 percent of Japan’s and 39 percent of Malaysia’s exports, according to the Citi note.
Citi’s Asia Semiconductor Leading Index “significantly stalled” in May having shown signs of recovery since January and could worsen from here if trade tensions deepen.
“In our view, China’s restocking efforts for electronic goods will likely weaken and be delayed if the tensions and the ban stay longer, which likely will hurt overall demand,” they wrote.
Evidence of weaker demand was on display Tuesday. South Korean exports during the first 20 days of the month fell 11.7 percent from a year earlier, pointing to a sixth straight full-month drop, driven by tumbling prices of semiconductors and falling exports to China, the country’s biggest export market.
Semiconductor shipments, which account for about a fifth of South Korea’s exports, fell 33 percent, while total exports to China dropped 16 percent.
“As trade wars hurt demand in the U.S. and China, Asian electronics manufacturers will feel considerable pain, in our view,” Tieying Ma, an economist at DBS Group Holdings Ltd., wrote in a note.
If China buys more South Korean chips instead of U.S. ones, then it could offset some of the negative effects in Asia, Citi noted.
The International Monetary Fund has estimated that the Asia-Pacific region is the biggest driver of world economic growth.
“It seems that the trade war is increasingly showing signs of becoming a tech war,” Seema Shah, senior global investment strategist at Principal Global Investors, said in emailed remarks. “The further this trend develops, the bigger the collateral damage will be — particularly in Asia and the U.S., but the ripple effect will be significant across the globe.”
Meanwhile, Huawei founder Ren Zhengfei struck a defiant tone Tuesday against American attempts to block his company’s global ambitions, saying the U.S. “underestimates” the telecom giant’s strength.
Ren spoke to Chinese state media days after President Donald Trump issued orders aimed at thwarting Huawei’s business in the United States, the latest salvo in a months-long effort to stop the company’s charge to the top of the leader board in next-generation 5G technology.
“The current practice of U.S. politicians underestimates our strength,” Ren said, according to CCTV.
“Huawei’s 5G will absolutely not be affected. In terms of 5G technologies, others won’t be able to catch up with Huawei in two or three years,” he said.
Last week, Trump declared a “national emergency” empowering him to blacklist companies seen as “an unacceptable risk to the national security of the United States” — a move analysts said was clearly aimed at Huawei.
At the same time, the U.S. Commerce Department announced an effective ban on American companies selling or transferring U.S. technology to Huawei.
U.S. internet giant Google LLC, whose Android mobile operating system powers most of the world’s smartphones, said this week it was beginning to cut ties with Huawei in light of the ban.
The move could have dramatic implications for Huawei smartphone users, as the telecoms giant will no longer have access to Google’s proprietary services — which include the Gmail and Google Maps apps — a source close to the matter said.
But the U.S. Commerce Department on Monday issued a 90-day reprieve on the ban on the transfer of technology by allowing temporary licenses.
“The U.S. 90-day temporary license does not have much impact on us, we are ready,” Ren said.
Half of chips used in Huawei equipment come from the United States and the other half are made by the Chinese company, he said.
“We cannot be isolated from the world,” Ren said. “We can also make the same chips as the U.S. chips, but it doesn’t mean we won’t buy them.”
The Huawei confrontation has been building for years, as the company has raced to a huge advantage over rivals in next-generation 5G mobile technology.
U.S. intelligence believes Huawei is backed by the Chinese military and that its equipment could provide Beijing’s intelligence services with a back door into the communications networks of rival countries.
For that reason, Washington has pushed its closest allies to reject Huawei technology, a significant challenge given the few alternatives for 5G.
The battle over Huawei has added to tensions in a trade war that has escalated between the world’s top two economies, with both sides exchanging steep increases in tariffs as negotiations have faltered.
Asked how long Huawei may face difficult times, Ren said: “You may need to ask Trump about this question, not me.”
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