Wed. Oct 20th, 2021


This is an audio heading of the FT News Briefing podcast episode: Huawei tries to rediscover itself

Marc Filippino
Good morning from the Financial Times. Today’s Thursday, September 30th, and this is your FT newsletter.

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Our show is going to focus on Asia today. First, Hong Kong is struggling with fewer stock market listings. Japan has a new prime minister, and China’s Belt and Road Initiative is putting countries up with hundreds of billions of dollars in hidden debt. In addition, Chinese telecommunications giant Huawei has to shift its business focus due to US sanctions. But can the company eliminate it?

Kathrin Hille
I think the big question remains how will they pay for it all. And if the Chinese state is going to pay for it, can they really succeed?

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The Hong Kong stock market is hurting as a result of a drop in new listings following Beijing’s suppression of Chinese technology groups. The listings of these companies have become an important role in the city, and bankers expected Hong Kong to pick up speed after Beijing made it clear that it did not like the technology companies in the US. It did not happen. Over the past three months, Chinese technology groups have raised just $ 670 million from the listings in Hong Kong, and in total new offerings have raised six and a half billion dollars. In both respects, it was the worst performance since the first quarter of 2020, when the pandemic swept through world markets.

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The big goal for China’s Belt and Road Initiative is to connect the country with the rest of the world with a massive network of roads and bridges, ports and pipelines. But it also leaves many countries with debt taxed to China, as funding for projects comes largely from Beijing. A new study shows that low- and middle-income countries are left with nearly $ 400 billion in hidden debt.

Edward White
It is therefore basically the amount of public sector debt to China that governments and low- and middle-income countries do not accurately report to the World Bank’s data reporting system.

Marc Filippino
This is the FT’s China correspondent, Ed White. U.S. researchers conducted the study, which looks at the first five years of Belt and Road funding.

Edward White
To put it another way, this means that more than 40 countries with lower and middle incomes are now exposed to debt levels to China that are higher than 10 percent of the national gross domestic product. It also means that the average developing country basically does not repay more than six percent of GDP to China. It therefore emphasizes a real critical transition. This is a long-term transition that has taken place with China’s foreign lending. So before, lending to China was mostly to sovereign lenders like central banks. But now nearly three-quarters, or nearly 70 percent of China’s foreign debt is issued over state-owned enterprises, state-owned banks, special vehicles and joint ventures, as well as private-sector institutions. So remember that these are debts that do not appear on the state’s balance sheets. But most importantly, the researchers believe that governments, that is, taxpayers, would eventually be at stake if this debt was not repaid.

Marc Filippino
This is the FT’s Ed White.

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One of China’s leading technology companies has just regained its chief financial officer. Meng Wanzhou of Huawei was detained in Canada for almost three years. She was finally released last week after the US Department of Justice dropped his extradition request. The US has accused Meng of violating sanctions against Iran, but now Meng has to deal with US sanctions that have shattered her business. To talk more about what’s happening with Huawei, I’ve joined the FT’s greater China correspondent, Kathrin Hille.

Kathrin Hille
Hello, Marc.

Marc Filippino
So, just to reiterate, the US sanctions against Huawei made the group virtually impossible to buy semiconductor chips. And it’s a business that really depends on chips for the smartphone and telecommunications equipment it sells. How badly did the sanctions hurt the business?

Kathrin Hille
So until last year, the impact of the sanctions was not so visible. But in the first half of this year, we had the first really concrete evidence in terms of numbers. The business reported a 30% drop in overall revenue. And last week, one of the group’s senior executives predicted that the smartphone business, which earns revenue of about $ 50 billion a year, would likely lose up to $ 40 billion by the end of the year. So it basically means that it is going to be eradicated.

Marc Filippino
Wow. Given all these existing issues, it would probably make sense for Huawei to rediscover itself.

Kathrin Hille
This is exactly what they are trying to do. Now, the management of the company, after the first struggle in the last two years to try to respond to the US sanctions and try to stay afloat, that they have now come to the point that they have a little more time to reflect on their longer-term future and develop a strategy and make new plans. If you look at what they do, there are basically two components – one is trying to find new revenue streams or new sources of income that can compensate for at least part of the income they lose, and then trying to stay the second component in the long run ahead in the innovation races. And so the businesses they are now targeting to generate revenue soon are businesses that are less dependent on leading semiconductors. So if they need fewer chips and if they need chips, they are more mature chips that can be made in China.

Marc Filippino
And what kind of business is it developing now, Kathrin? Can you talk a little more about the sectors in which Huawei is innovating?

Kathrin Hille
Certainly. One direction in which Huawei is pushing very hard is therefore electric vehicles and smart cars. The chips used in most applications in electric motors are chips that can be manufactured in older chips. So you do not need the latest of all. And that means the chip factories do not need new US hardware or software. And the other big area, which is more of a future ambition for Huawei, is of course 6G. We recently spoke to Huawei founder and CEO Ren Zhengfei about the importance of focusing on research and development for 6G. And he himself said that it was crucial for Huawei to stay ahead in the technology race, so that he would like to use military language and military metaphors, which is why he said we should seize the patent front. Thus, to enable Huawei in the future to be a major owner of patents, after which other businesses will have to visit them.

Marc Filippino
Is there a major obstacle in the way of Huawei’s planned transformation?

Kathrin Hille
I think the big question remains how will they pay for it all. And if the Chinese state is going to pay for it or pay for a part of it, can they really succeed, or will it be in line with the direction that the enterprise itself would like? The other big question remains about China’s future semiconductor supplies. The reason why these US sanctions are currently relatively successful against Huawei is because US companies control technology and equipment in a few cores. I’m just talking about some equipment, machinery needed to manufacture the latest types of semiconductors. And as long as semiconductor technology does not move away from manufacturing to other segments, the American stranglehold will remain. And as long as China does not succeed in breaking through, I can not see how this situation is going to change. And so it always stays finished with this key obstacle.

Marc Filippino
Kathrin Hille is the FT’s major China correspondent. Thank you, Kathrin.

Kathrin Hille
Thanks, Marc.

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Marc Filippino
Japan will have a new prime minister to replace Yoshihide Suga, who announced earlier this month. Fumio Kishida has won the battle to lead the ruling Liberal Democratic Party. His victory is a victory for the status quo and a defeat for younger LDP members who want gender reassignment. The FT’s head of the Tokyo bureau, Kana Inagaki, says the 64-year-old political veteran is gentle and steadfast.

Kana Inagaki
Under Kishida, therefore, we do not expect a major change in economic or foreign policy. He campaigned against promises to, for example, distribute wealth or reduce the income gap. And he talked a bit about the shift in neoliberal policies pursued under former Prime Minister Junichiro Koizumi. But at the end of the day, I do not think there will be a big shift, for example in Japan’s policy of pursuing aggressive monetary policy or fiscal spending. Economic policy is unlikely to change under Kishida

Marc Filippino
This is our head office in Tokyo, Kana Inagaki.

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You can read more about all these stories on FT.com. This was your daily FT News Briefing. Visit again tomorrow for the latest business news.

This transcript was generated automatically. If there is an error, please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.



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