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1. Huawei’s global competitiveness is threatened by international pressure
  • The UK is seeking to create a “D10” 10-country alliance of democracies (the G7, plus Australia, India and South Korea) to work on an alternative 5G strategy that avoids using Chinese technology. The move, widely understood to be targeting Huawei, came a week after reports the UK was planning to force a phase-out of Huawei technology from 5G networks within 3 years (UK had previously capped Huawei’s market share at 35%).
  • Despite Huawei’s claims that it is 99% employee-owned, the US believes that, when push comes to shove, Huawei would act as an arm of the state – not least because Chinese laws require it. Huawei is one of China’s national champions and has reportedly enjoyed as much as $75B in state support (e.g. financing, tax incentives) over decades. The US stance is that “[c]ountries that choose Huawei technology are opening the door to Chinese access to their domestic networks and local companies, as well as potential surveillance by Chinese officials.”
  • Related Briefs:
    • May 29 2020 (3 Shifts): China’s national tech champions invest billions in next-gen infrastructure
    • Apr 4 2020: Global supply chains diversify away from China
2. Investments may spur a rebound in China’s electric-vehicle industry
  • This past week saw major developments in China’s electric-vehicle (EV) industry. Volkswagen announced a $1.1B investment in an existing electric-vehicle joint venture with Chinese automaker JAC Motors, increasing its stake from 50% to 75%. Separately, Volkswagen also invested $1.2B in a 26% stake in EV battery maker Guoxuan High-Tech.
  • Despite recent setbacks, the Chinese government remains bullish on electric vehicles, recently upping its outlook from 20% of Chinese cars being electric by 2025 to 25%. To reverse the sales slump and address consumer indifference, the central government and 20+ provinces are offering subsidies and other initiatives to boost demand. The EV industry will also take advantage of government investments in charging stations as part of the “New Infrastructure” initiative, as well as the vehicle communications infrastructure being rolled out on 90% of city motorways to support (mostly EV) autonomous vehicles.
  • Related Briefs:
    • Apr 28 2020: Robotaxis, local delivery & the future of driverless ground vehicles
    • Oct 18 2019: How driverless trucks may reshape long-haul trucking
3. India, seeking self-reliance, lures electronics manufacturers with $6.6B in incentives
  • This past week, the Indian government announced it was targeting 5 global manufacturers of smartphones and related components, luring them to India with $6.6B in financial incentives and ready-to-use facilities. Incentives would include 4-6% of incremental sales manufactured in India over 5 years, and 25% of capital expenditure. As part of the announcement, the government will also offer incentives to 5 local manufacturers.
  • India hopes to accelerate manufacturers’ diversification of global supply chains away from China. In May, for instance, Apple was reportedly exploring moving nearly 20% of manufacturing capacity from China to India and scaling iPhone contract manufacturing in India to $40B in output over 5 years. These incentives support India’s goals to manufacture $133B in smartphones and related components by 2025.
  • India’s ambition to become an export hub comes as the nation, one of the fastest digitizing economies in the world, pushes to achieve “a self-reliant India.” Rising nationalism in India has led the country to push back against foreign firms and entities in certain cases, where the country’s long-term competitiveness or government control may be threatened. In Apr 2020, India began requiring border-sharing countries to get government approval on foreign-investment deals, to limit takeovers by Chinese investors. Last week, it rejected Walmart-owned ecommerce platform Flipkart’s application to enter the food retail market. At the consumer level, smartphone app Remove China Apps (which helps users remove Chinese-made apps) was recently downloaded 4.7M times in 6 days from India's Google Play Store before it was removed for policy violations.
  • That said, India has had a good view of China’s approach to its strategic sectors and recognizes it needs to attract high-value technology and manufacturing from all over the world. It is seeking to strike a balance between fostering homegrown players and luring in IP from foreign players. India is increasingly seeing itself as a major player on the world stage, with economic and geopolitical power. As the fastest-growing large economy in the world, India cannot be ignored. US and global investors have lately been pouring massive cash inflows into local giants such as Reliance Jio.
  • With a government not afraid to flex its policy muscles – as seen with its push for data sovereignty as well as the recent “total lockdown” and mandated tracing-app installation during COVID-19 – India is becoming a trickier environment for tech firms and other foreign players looking for a workable business model there.
  • Related Briefs:
    • Apr 4 2020: Global supply chains diversify away from China
    • Jan 30 2020: India is the market battleground everyone is watching
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