Happy new year to everyone. This is Kenji from Hong Kong, where the scheduled reopening of the border with mainland China on Sunday has been dominating headlines lately.
The return of mainland visitors for the first time in three years is expected to give the stagnant local economy a boost, but there is also cause for concern — the reopening coincides with a sharp surge in infections in China following the country’s abrupt departure from its stringent zero-Covid policy.
The tech industry has already seen how a rapid easing of restrictions can be a double-edged sword. At first, manufacturers welcomed Beijing’s policy shift in hopes it would ease their operational burdens. But the spike in infections and general uncertainty that followed ended up severely impacting local production and hitting the global supply chain.
Eurasia Group — which predicted a year ago that China’s zero-Covid policy was doomed to fail — has warned this week of renewed risks on this front. A “misguided” approach by President Xi Jinping, who gained unconstrained power last fall, could lead the disease to “spread widely in China and beyond”, the US think-tank said. For now, the situation remains opaque, with the World Health Organization on Wednesday saying Beijing is “underrepresenting” Covid deaths.
Supply chain crises
Beijing’s sudden shift away from its zero-Covid policy of mass testing and strict quarantines was supposed to give the flagging economy a shot in the arm. But a hasty U-turn from ironclad controls to virtually none threw the country’s tech supply chain into chaos as fast-rising infection levels led to serious staff shortages, Nikkei Asia’s Cheng Ting-Fang and Cissy Zhou report.
With demand for tech products already faltering due to a slowing economy, Apple alerted suppliers it was lowering orders for components used in MacBooks, AirPods and more. It was a similar story for component makers supplying Samsung and Chinese smartphone brands.
Damp demand and a Covid U-turn are not the only headaches for China’s tech supply chain. Rising Washington-Beijing tensions are encouraging more companies to reduce their reliance on suppliers in Asia’s biggest economy.
Koji Arima, president and CEO of Japanese auto parts maker Denso, told Nikkei the top Toyota supplier is trying to gradually reduce its dependence on China by teaming up with the two leading Taiwanese chipmakers and joining the homegrown initiative to mass produce cutting-edge semiconductors.
Meanwhile, US computer maker Dell is aiming to phase out its use of chips made in China by next year, while significantly reducing its reliance on other components made in the country.
As one supply chain executive told Nikkei Asia, “This trend looks irreversible.”
A milestone in iPhones
Apple is set to enlist another manufacturer, China’s Luxshare Precision, to produce its premium iPhone models, breaking Taiwanese supplier Foxconn’s hold on production after worker protests erupted at its megafactory in Zhengzhou last year, writes the Financial Times’ Qianer Liu.
The Chinese contract manufacturer is set to obtain its first big order from Apple, according to three people familiar with the situation.
Luxshare had already taken over a small portion of the iPhone 14 Pro Max at its Kunshan plant to compensate for lost production at Foxconn since November last year, said two people with direct knowledge of the matter, and that initial output prompted Apple to place a more significant order.
The new orders represent a milestone for Luxshare, which has steadily been winning an increasing share of Apple’s business and emerging as a strong competitor to Taiwanese rivals Foxconn and Pegatron. Analysts said the iPhone Pro models’ orders would be proof of Luxshare’s muscle and open the company up to more diverse clients.
With geopolitics making a US listing more difficult, Chinese companies wanting to trade their shares abroad have found an unexpected alternative: Switzerland.
Although the Swiss Exchange, or SIX, does not match up to New York or Nasdaq in terms of size, liquidity and variety of investors, Chinese companies raised more equity funds in Zurich than in America last year. According to research by Nikkei Asia’s Kenji Kawase, a further 30 companies, at least, have listings in the pipeline.
SIX has attracted a number of tech names, including lithium battery producers Gotion High-Tech and Sunwoda Electronic, medical device maker Lepu Medical Technology Beijing, and hand tool manufacturer Hangzhou GreatStar Industrial.
LONGi Solar Technology said on Wednesday that its application has been accepted by the Chinese regulator, moving it a step closer to joining its compatriots in Zurich.
Taiwanese chipmakers like Taiwan Semiconductor Manufacturing Co. are often the first targets for countries looking to bring cutting-edge semiconductor production on to their shores.
But less high-profile companies in the chip supply chain are also feeling the pull move beyond their home turf. For example: Materials Analysis Technology, a prominent troubleshooter for chipmakers known in Taiwan as the “chip doctor”.
Hsieh Yong-fen, founding chair and CEO of MA-tek, told Nikkei Asia’s Cheng Ting-Fang that it is planning to expand in Japan, where TSMC is jointly building a plant in the western island of Kyushu.
Hsieh said she sees opportunities in Japan but is undecided on whether to follow TSMC to the US, where the world’s largest chipmaker is building a $40bn chip facility in Arizona. There are more challenges in the desert state, she said, including “much higher costs, a lack of easy access to enough talent, and management in a very different culture.”
Inside China’s online nationalist army (Nikkei Asia)
#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.