Despite sanctions, US tech companies are continuing to do business in China

Despite sanctions, US tech companies are continuing to do business in China
Source: Yilei Sun, Reuters
Despite signs that frosty US-China relations will continue into a Biden administration, some US tech companies are expanding their operations in the country.

Even as his presidency draws to a close, President Donald Trump has seized the opportunity to intensify sanctions on China’s economy and certain targeted industries.

Chinese companies with alleged links to China’s military as well as Chinese officials connected to Hong Kong’s controversial national security law have all faced additional sanctions and blacklisting in recent weeks.

More generally, the escalation of sanctions has generated huge amounts of uncertainty for those Chinese companies under fire, such as tech giant Huawei Technologies Co., Ltd.

Despite this and signs that frosty US-China relations will continue into a Biden administration, some tech companies in the United States are expanding their operations in the country.

In particular, electric vehicle giant Tesla, Inc. has continued to expand its operations in the country, seeking a larger share of what is the world’s largest market for electric vehicles – China. As recent figures show, this market is only growing larger.

Other companies have similar reasons for ignoring the uncertainty of sanctions and deteriorating relations between the US and China. American chipmaker Qualcomm has secured exemptions to the Trump administration’s sanctions on semiconductor technology and will continue to provide crucial semiconductor chips to a list of Chinese companies, Huawei included.

More generally, despite the weight of sanctions and threats by the president himself to impose tariffs on US companies that “desert America” for opportunities in other countries, few US businesses with operations in China are actively planning to move out of the country, a testament to the continued economic ties between the two countries.

Business in China

Economic ties between the US and China have become progressively more unstable, even with President Trump’s term coming to an end next month.

In November, the Trump administration banned American investment in companies deemed to be “Chinese military companies,” that is, allegedly possessing significant ties to China’s military.

And in December, the Trump administration delivered further sanctions on Chinese officials connected to the crackdown on Hong Kong’s autonomy.

Sanctions have created much instability for Chinese companies in particular. The smartphone and telecoms giant Huawei Technologies has suffered greatly throughout 2020, even selling off its budget phone brand Honor as a result of semiconductor chip shortages stemming from targeted US sanctions.

Despite the uncertainty for Chinese companies, some US tech companies have continued their business in the country. Some, despite growing instability, have even expanded.

In particular, electric vehicle producer Tesla has continued to build upon its growing presence in China, which is, at present and for the foreseeable future, the world’s largest electric vehicle market.

In late 2019, Tesla began production on its Model 3 line in its multibillion dollar “Gigafactory” in Shanghai, aiming to produce 150,000 cars by the end of 2020.

And, as recent figures suggest, Tesla’s business in China is booming.

In November, the China Passenger Car Association reported that Tesla had sold 21,604 Tesla Model 3 cars – all made in the country. These deliveries were up significantly from a monthly average of around 10,000-12,000 cars sold and represented a 78% increase in Tesla sales on a year-on-year basis.

Tesla’s growing business in China is riding the wave of a burgeoning market for electric and so-called “new energy” vehicles in the country more generally.

Sales of “new energy” vehicles, which includes electric, plug-in hybrid and fuel-cell vehicles, are expected to jump by 40% in 2021 to a total of 1.8 million units, according to figures released by the China Association of Automobile Manufacturers.

To cope with rising demand, Elon Musk’s Tesla is also planning to expand its Supercharger network across the country and plans to produce these stations within China.

Previously, Tesla’s Supercharger units, which provide faster charger for Tesla vehicles, were produced in Tesla’s Fremont, California factory. Now, Tesla is planning to launch a new factory in Zhongshan, China specifically to produce Supercharger units, with an investment of some US$6.4 million.

The electric vehicle giant is also opening new Supercharger stations in the city of Zhongshan, contributing toward a policy priority of China’s government to develop the electric vehicle industry in the Greater Bay Area development zone, which encompasses the likes of Zhongshan, Shenzhen and Guangzhou.

Even as President Trump has warned in the past that his administration would “impose tariffs on companies that desert America to create jobs in China and other countries,” Tesla’s business in China has expanded so much that it is now exporting vehicles around the world from its Gigafactory in Shanghai. The automaker planned to ship some 7,000 made-in-China Model 3s to sell in European markets in October.

Opportunities amid sanctions

But Tesla is not alone in continuing to see opportunities in Chinese markets amid the pressure of sanctions.

San Diego-based chipmaker Qualcomm was one of several companies impacted by Trump administration sanctions relating to semiconductor technology, as the company is one of the key providers of these parts to Chinese tech giant Huawei.

As a result, in November, Qualcomm secured an exemption from sanctions to continue providing 4G semiconductor chips to Huawei.

Not only that, Qualcomm is also reportedly in advanced talks with Honor, the budget phone brand which was, until recently, owned by Huawei and thus subject to US sanctions, to provide semiconductor parts for a new range of smartphones.

Even as US-led sanctions have devastated specific Chinese companies, US tech companies have seen business grow in the country.

And in September, a survey by the American Chamber of Commerce in Shanghai of more than 200 manufacturers with business in China showed that only 4% planned to shift any of the production to the US.

More than 75% said they did not intend to move production at all, with a further 21% considering moving to non-US locations.

Ultimately, despite the impact of sanctions and the pessimism surrounding US-China relations, US businesses are still attracted to the China market, with some expanding their already considerable operations within the country.

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