It is impossible to browse the internet or read the newspaper these days without being informed of the dire threat of a US-China trade war. In the past few months, Donald Trump has taken aim at China’s trade policy and its theft of American intellectual property. He argues that China, among other countries, have large commercial imbalances—exporting far more than they import—and takes that as an indicator of unfair trade deals.
Most recently, the US imposed tariffs of $34 billion on Chinese goods, and more are anticipated. China is expected to retaliate by imposing its own duties on American-made agricultural and energy products.
But speakers at RISE in Hong Kong took more of an optimistic stance on the much-discussed tensions between the two countries, believing that when it comes to companies expanding internationally, the market itself can solve the problem.
“I think it’s going to be hard in North America and Western Europe in the short term, but in the long term, the best innovation wins,” said CloudFlare CEO Matthew Prince.
Prince referred to the story of musical.ly, the Bytedance-owned short video app, which he said “caught fire among 15-year-old girls in California and built an enormous following,” after being founded China. Bytedance also owns Douyin, known internationally as Tik Tok, and is making globalization a key strategy.
“I think the more that we can cross-pollinate the culture between China and the rest of the world, the better it is,” Prince said.
John Zhao, chairman and CEO at Hony Capital, shared Prince’s sentiment. He said that China has an enormous market, and its advances in data science, biotechnology, and the size of its market have begun to show. This, he believes, coupled with the US’s strengths in accumulative innovation, “create value for everybody.”
“I don’t see how that could be stopped,” he commented.
Barriers to internationalization
In June, the US Treasury Department began drafting measures that would prevent companies with more than 25% Chinese ownership from acquiring companies that develop “industrially significant technology,” citing national security concerns. Earlier in the year, legislators looked to update an already existing committee that would have a similar effect. This would stop Chinese firms from acquiring companies that, for instance, also produce tech for the US military.
Zhao thinks that the threats posed to Chinese companies by these proposed measures have been blown out of proportion.
“If you read from the press or listen to politicians rhetoric it feels that way. We’ve always invested in the US, just like we’ve brought US [companies] to China. We haven’t run into what we thought was unfair [practices],” he said.
However, he admits he is concerned about the direction of the discourse. “I hope people deal with the matter according to laws and regulations and don’t make a political issue out of that,” he adds.
Nonetheless, “the matter” has become inherently political on both sides of the Pacific. In April, telecommunications manufacturer ZTE was banned from sourcing components from American companies after it violated US sanctions on Iran. The prohibition has subsequently been lifted after ZTE paid nearly $2 billion in fines, but it lost a substantial amount of its market value.
Huawei has also been caught up in proposed and existing limitations of its overseas business. In the US, the Federal Communications Commission (FCC) is citing national security concerns to prevent local companies that use its equipment from accessing federal funds. Huawei submitted a filing in response stating that its competitors are responsible for setting up the roadblocks. Consumers have also been warned against using both Huawei and ZTE smartphones.
Similar moves are reportedly being made in Australia, in which lawmakers are seeking to ban the company’s 5G rollout in the country. The company was also accused of meddling in local politics, with the Huawei sponsoring more of the county’s federal politicians overseas travel than any other company.
Intellectual property theft
One of Trump’s major rationalizations for imposing trade tariffs on China is its alleged intellectual property (IP) theft. According to the Global Innovation Policy Center (GIPC), an affiliate of the US Chamber of Commerce, China ranks 25th out of the 50 countries surveyed regarding (IP) rights. The GIPC says that the number of IP infringements remains high, while the interpretation of IP laws is not on par with international standards.
“I think that China has gotten to the point where they had better [improve] their [intellectual] property law or their practices just for the sake of their own development,” said Zhao.
Some foreign companies entering China are required to find local partners to operate in the country. This has been a point of contention and seen as a risk to the IP of foreign companies. However, Zhao doesn’t seem to think finding a local partner is negative, adding that it takes place in the US and China.
“…I am very puzzled why all of a sudden finding a local partner to access the market is such a bad thing. There are issues like IP protection, but again, a lot of these issues can be worked out by continuing to work together to get a rule-based system that is mutually understood and respected,” he said.
Zhao’s take may be a little naive. TechNode reported in June that IP theft has become a particular problem with the internet of things (IoT) devices. When companies choose to manufacture their products in China, local partners have unfettered access to the IP. Having gained it legally, there is little that can be done if it is stolen.
However, both men remained optimistic, despite the current trade difficulties and IP protection woes.
“While politicians need to sort out all of the disputes, people sitting in this room and at exchanges like will push it forward. So I do see Chinese companies, just like US companies, will be more and more global,” said Zhao.
“I welcome competition from Chinese companies,” said Prince. “I hope that it becomes easier for Chinese companies to come to the US, and I hope that the optimistic case of the trade war is it will be easier for US technology companies to come to China.”