China Tech Stocks Plunge As Investors Fear A Full-Blown Tech Cold War

Tech Cold War
Investors look at computer screens showing stock information (Photo: Reuters / Aly Song)

Chinese tech stocks plunged this week following fears that the United States may ban other technology firms as the trade war escalates into a new tech cold war between both nations. The US recently placed Huawei in its trade blacklist, a move that reverberated all throughout the Chinese tech industry. Huawei is the largest producer of telecommunications equipment with hundreds of domestic suppliers.

In response to the declining investor confidence in the Chinese tech industry, the market showed a drop in major indexes. The Shanghai Composite Index dropped by 0.5 percent to 2891.7 points. Major indexes such as the Shenzhen Component Index and the ChiNext Index also dropped by 0.5 percent and 0.3 percent, respectively.

The drop in investor confidence in the Chinese tech market was instigated by reported indicating Trump's intention of placing yet another Chinese tech firm on the country's trade blacklist. Trump is reportedly considering placing Hangzhou Hikvision Digital Technology in the list.

The Chinese firm is currently the largest manufacturer and distributor of video surveillance products. If the company is indeed placed on the blacklist, it will suffer from not being able to purchase components from its US suppliers. Hikvision is currently being traded on Shenzhen's main board. Following news of the possible ban, shares of the company dropped by 5.5 percent.

Unlike Huawei, Hikvision's revenue exposure in the United States is significantly lower. US sales only account for around 5 percent of the company's total sales. Hikivision currently gets most of its chips from US companies such as Ambarella and Nvidia. However, those suppliers can easily be replaced with domestic ones such as Huawei's Hisilicon semiconductor arm. Transitioning to domestic suppliers will of course still entail a lot of costs, which could eat into the company's bottom line.

According to market analysts, the trade war between both nations has now escalated into a technological cold war. The market sentiment is now very cautious with most investors pulling out their tech interest fearing additional retaliatory actions from both sides.

Trump's administration to ban Huawei from dealing with US companies had negatively affected firms from both sides of the fence. Not being able to sell to one of their biggest buyers has spelled hundreds of millions of dollars in losses for US companies such as Intel, Qualcomm, and Nvidia. Conversely, not being able to purchase the chips it needs, Huawei is now being pressured to take on the daunting task of seeking other suppliers.

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