Trade war casts shadow over China business prospects for US firms like Apple and Boeing
- Microsoft and Dell have been warned by Beijing they face dire consequences if they cooperate with Washington’s ban on sale of key technology to Chinese companies
- Washington’s has already put Huawei on its export ban list, therefore forcing US suppliers to severe the normal commercial ties with the company
The business prospects in China for American firms like Apple and Boeing are at risk because the mainland is rapidly becoming less welcoming and profitable, amid dampened consumer confidence, slowing growth, and an increasingly watchful state, analysts said.
The Chinese government has repeatedly assured investors from the United States that they will be treated fairly in China and have their legitimate interests protected, but recently Beijing has shown its teeth to those firms that it perceives as hostile, threatening to cut off rare earth minerals and also place firms on an “unreliable entity list” that could lead to sanctions.
According to Beijing policy statements, any US firm obeying Washington’s ban on supplying hardware or software to Chinese telecommunications equipment giant Huawei could be labelled as “hostile” and punished accordingly.
Beijing also summoned major technology firms, including Microsoft and Dell, to warn that they face dire consequences if they cooperate with Washington’s ban on sale of key American technology to Chinese companies, The New York Times reported.
Many US businesses are in danger of losing the China market for good
At the same time, China is cutting its purchases of American products significantly, with imports in the first five months of 2019 plunging 29.6 per cent from the same period in 2018, according to the figures released by China’s customs administration on Monday.
In comparison, China’s exports to the US only fell by 8.4 per cent during the same period, likely in part because of American buyers trying to front-load their orders ahead of the last round of tariffs, which were increased from 10 per cent to 25 per cent on June 1.
Ding Yifan, a senior researcher with Tsinghua University’s National Strategy Institute, said US businesses will be forced to make a choice between the Chinese and US markets if Washington continue to push for decoupling of the two economies.
“Many US businesses are in danger of losing the China market for good,” Ding said. “In the worst case scenario, the US business presence will be uprooted in China – not because of China, but because of US policymakers.”
Washington’s decision to put Huawei on its export ban list, therefore forcing US suppliers to sever normal commercial ties with the company, is an example how “radical” policies are creating new uncertainties for US companies doing business with China, added Ding, formally a senior researcher with a State Council-affiliated think tank.
And the ongoing tension between Beijing and Washington has already started to take a toll on business deals, with Boeing negotiations to sell Chinese airlines 100 widebody jetliners, one of the largest orders ever, in jeopardy, according to a Bloomberg News report.
“It’s nearly impossible for China to sign such a mega deal with Boeing when the two countries are in a trade war,” said one Chinese aviation industry insider, who declined to be identified. “From the demand side, China’s economic growth is slowing while competition in international flights is fierce, so there’s really no logic for Chinese airlines to buy a lot of new models.”
Boeing did not respond immediately to a request for comment, but another Chinese aviation industry insider said a large order like the one with Boeing gives the Chinese government negotiating leeway, with approval possibly part of a trade deal offer to Washington.
“This is certainly a bargaining chip for China to end the trade war,” he said.
Richard Aboulafia, an aerospace analyst with Teal Group, said that Boeing’s sales to China are subject to changes in the broad US-China relationship and so is “beyond the pay grade” of top executives to decide.
“Moving forward, this may well be the moment when the deterioration in US-China relations finally begins to impact on Boeing purchases,” Aboulafia said.
If US President Donald Trump and his Chinese counterpart Xi Jinping fail to reach a deal and the bilateral relationship worsens, “then there will be a shift towards Airbus [by China]”, he added.
Apple is another US firm that has thrived in China. Most of its products are assembled there, while it also accounts for a sizeable portion of its sales, however, its exposure to the Chinese market make its supply chain vulnerable to any disruption caused by the trade war, even though CEO Tim Cook has tried to allay such concerns publicly.
Last month, Han Jun, a senior Chinese agriculture policymaker said that American farmers may also lose the Chinese market, because supply gaps could be filled by imports from other countries.
While the US has blamed China for engaging in unfair trade practices, China has argued that the US has gained significantly from its economic ties with China. China’s Ministry of Commerce said in a report published last week that in 2017, the US exported US$241 billion worth of goods and services to China, while US firms producing goods in China sold US$700 billion worth of products and services in China.
The trade war adds a new layer to challenges associated with operating in China, on top of a slew of existing problems, including slowing economic growth, rising business costs, an opaque regulatory framework and restricted internet access.
Economists at Barclays, led by Chang Jian, said in late-May that China has a list of non-tariff retaliatory options available, including restrictions on sales of US goods and services in China due to “national security concerns or for regulatory or legal violations”.
Barclays said that China’s restrictions could apply to US smartphones, servers, cars, pharmaceuticals, or the distribution of Hollywood movies and TV series “as long as the action would not incur significant domestic economic and employment costs”.
In recent cases, the Chinese government fined Ford’s main joint venture in China US$23.6 million for violating antitrust laws, while Beijing is investigating US courier service provider FedEx for wrongly re-routing Huawei packages to the US.
