China remains in for ‘a difficult time’ as U.S. targets tech sector, specialist states

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China is in for 'a tough time' as U.S. targets tech sector, expert says

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SINGAPORE — China remains in for “a tough time” in the short-term as the U.S. attempts to reject it access to important tech parts, a company specialist informed CNBC on Monday.

Tensions in between the 2 nations in the innovation area warmed up over the weekend with the U.S. thinking about blacklisting China’s biggest chipmaker, Semiconductor Manufacturing International Corporation or SMIC.

The procedure would limit SMIC from getting particular items made in the U.S. Even though China has actually been establishing its own semiconductor production abilities, business such as SMIC still counts on American devices in its assembly line.

Richard Martin, handling director of IMA Asia, informed CNBC’s “Squawk Box Asia” that China might need to “look elsewhere” for supply of semiconductors if SMIC’s capability to produce them is paralyzed by the U.S. relocation.

“The problem with looking elsewhere is if you go to Europe or if you go to Japan, the companies in Europe and Japan are using U.S. machinery at some point in their production process. And therefore … they can be hit by this U.S. effort to choke it off,” he stated.

“So what China needs to do is move the entire supply chain into China,” he included.

Such effort might take years considered that SMIC is still “a long way” behind its competitors in regards to chip-making abilities, stated Martin.

“That’s going to be the big drive,” he stated. “It’s going to take them two or three years to get past this and move the whole supply chain into China.”

The United States flag is seen ahead of a welcome event with U.S. President Donald Trump and Chinese President Xi Jinping outside the Great Hall of the People in Beijing on November 9, 2017.

Nicolas Asfouri | AFP | Getty Images

Analysts from Jefferies approximated that 40% to 50% of SMIC’s devices is from the U.S. They stated in a Sunday note that a restriction on exports to SMIC — and possibly other Chinese semiconductor manufacturers — is a “lose-lose proposition.”

They described that China is a significant purchaser of devices to produce semiconductors and is anticipated to represent around 24% of worldwide purchases this year. Therefore, blacklisting business such as SMIC might likewise injure makers of the devices, consisting of those from the U.S., the experts stated.

The U.S.-China tech conflict becomes part of a more comprehensive dispute in between the world’s leading 2 economies. While a destructive tariff war has actually been stopped, the 2 nations have actually just recently clashed over a vast array of problems that consist of the origin of the coronavirus and Hong Kong’s autonomy.

Before the statement of SMIC’s prospective blacklisting, the U.S. had actually made other relocations versus Chinese tech gamers, kept in mind Martin. That consists of needing foreign makers utilizing American chip-making devices to get a license prior to offering semiconductors to Huawei, he stated.

“They’ve really been trying to close down the China tech sector.”

— CNBC’s Arjun Kharpal added to this report.

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