‘U.S. MOVE CLOUDS OUTLOOK’

China purchases from Asian semiconductor exporters slowing, warns Citigroup

UNITED States restrictions on China’s telecom giant Huawei Technologies Co Ltd 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 dominated purchases from Asian semiconductor exporters and bought 51 per cent of their exports in 2017, according to analysis by Citigroup Inc economists Jin-Wook Kim and Johanna Chua.

China and Hong Kong took 69 per cent of South Korea’s chip shipments, 56 per cent of Taiwan’s, 51 per cent of Vietnam’s, 43 per cent of Japan’s, and 39 per cent of Malaysia’s exports, according to the Citi note.

Citi’s Asia Semiconductor Leading Index “significantly stalled” this month 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 yesterday. South Korean exports during the first 20 days of the month fell 11.7 per cent 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 per cent, while total exports to China dropped 16 per cent.

“As trade wars hurt demand in the US and China, Asian electronics manufacturers will feel considerable pain, in our view,” said Tieying Ma, an economist at DBS Group Holdings Ltd, in a note.

If China bought more South Korean chips instead of US ones, then it could offset some of the negative effects in Asia, said Citi.

The International Monetary Fund has estimated that the AsiaPacific region is the biggest driver of world economic growth.

“It seems that the trade war is increasingly showing signs of becoming a tech war,” said Principal Global Investors senior global investment strategist Seema Shah.

“The further this trend develops, the bigger the collateral damage will be, particularly in Asia and the US, but the ripple effect will be significant across the globe.”

While regional growth in Asia would benefit from Chinese stimulus over the coming months, the spillover might not be as robust as some expected, according to Andrew Tilton, chief Asia Pacific economist at Goldman Sachs Group Inc in Hong Kong.

Softer growth in China, the composition of its stimulus and growth leaning more to infrastructure and consumer spending, and the weakening technology cycle were all weighing on activity, Tilton wrote in a note.

Meanwhile, Huawei founder Ren Zhengfei yesterday shrugged off US attempts to block his company’s global ambitions, saying the US underestimated the telecom giant’s strength.

“The current practice of US politicians underestimates our strength. 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 US” — a move analysts said was clearly aimed at Huawei.

At the same time, the US Commerce Department announced an effective ban on American companies selling or transferring US technology to Huawei.

But the Commerce Department on Monday issued a 90-day reprieve on the ban on the transfer of technology by allowing temporary licences.

“The 90-day temporary licence does not have much impact on us, we are ready,” said Ren.