Tariffs pose threat to global industrial chains, official says

The tariff increases that the United States has placed on Chinese goods affect not only the interests of Chinese companies and consumers, but also their US counterparts and threaten the security of global industrial and supply chains, according to a senior Chinese industrial official. "We once again urge the US to stop unreasonably suppressing Chinese companies. Chinese companies deserve to invest and operate in a fair and just environment in the US and the world," Vice-Minister of Industry and Information Technology Wang Zhijun said.

Concerning the US decision to further increase tariffs on Chinese imports, Wang said during a recent interview with news media that the total impact is "controllable". The nearly $200 billion of Chinese goods hit by additional US tariffs on May 10 accounted for 41.8 percent of China's US exports in 2018, or 8 percent of its total exports. Fifty percent of the enterprises affected by those additional tariffs are foreign funded. Many of them are US companies whose primary market is in the United States, Wang said.

The recent US moves "abruptly interfere with" the normal order of the global integrated circuit industry and undermine its stable development, he said.

China's chip industry has grown on average 20 percent annually since 2012, with sales revenue reaching 653.2 billion yuan ($94.7 billion) in 2018, Wang said.

He conceded that there is a significant gap between China and global leaders in the overall design, manufacturing, testing of the relevant equipment and raw material processing for integrated circuits.

The tariff hikes will bring troubles in China's overseas manufacturing market, but they will not lead to a decline in China's manufacturing sector, Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, said.

"The US no longer accounts for such a significant market share as it did in the old days," Mei said. "And the major market share is taken by the domestic market, Europe, Japan and other emerging overseas markets. The US move will gradually later affect its own market."

Mei said the US ban on Chinese tech titan Huawei and rumored imposition of restrictions on Chinese surveillance giant Hikvision will not hamper the growth of China's tech sector. The US accounts for only a small part of Hikvision's overseas markets, and Hikvision is not heavily reliant on US components for production, Mei said.

"Huawei's chip arm HiSilicon has produced 70 percent of global surveillance chips. In past years, Japanese companies were Hikvision's main chip suppliers, and now the major supplier is HiSilicon." Mei added.

Mei said that although the ban will have certain impacts on Huawei, the Chinese telecom company has already prepared options to deal with the problem.

A recent report by Dongxing Securities said the US ban on Huawei will foster demand for manufacturing independent and controllable semiconductor components in China.

"We see remarkable room for growth in the next-generation 5G and consumer electronics products in the future," the report said. "As the US has imposed restrictions on Huawei's purchases of US technology, some major domestic chipmakers will step in to offer the supply. As their market share grows in the future, they will gradually be able to gain core capabilities and increase their presence globally amid the fierce competition."

Dongxing Securities analysts noted in the report that the ban will be an alarm bell for China, and the Chinese government and domestic companies will accelerate the push for developing core industries, including in chips manufacturing.