New US ban on Chinese tech firms unlikely to have long-term impact: analysts
They contend long-term risks will be limited as most of the firms have little involvement in the US market
Beijing
THE new ban announced by US President Donald Trump last week on 28 Chinese technology firms could impact the companies in the short term, with long-term effects mitigated as many of these firms have little involvement in the US market, analysts said.
Last Monday, the Trump administration added 28 Chinese firms to a US blacklist over concerns about their role in human rights violations, effectively blocking those entities from buying American products.
Among the affected are China's most powerful unicorns including SenseTime and Hikvision, which supplies the world with surveillance material.
Analysing the full impact on these companies is difficult as it depends on implementation, nature of the products sold and time-length of the ban.
If the ban on Huawei is anything to go by, the restrictions could be there in the long run impacting supply chains, university partnerships, fund-raising and overseas sales. This comes despite the fairly positive outcome of the talks between the world's two largest economies late last week.
"The ban is part of the technology war between China and the US. The goal is both political and economic", said Rebecca Fannin, an American journalist who covered China's entrepreneurial boom and the author of Silicon Dragon: How China is Winning the Tech Race.
The firms are involved in technology that is part of China's 2025 strategy which aims to create independent leaders in a number of key areas such as artificial intelligence. Much of that development is state-subsidised.
The companies denied any wrongdoing and issued statement to condemn the ban.
The timing comes at a bad time for these tech firms, most of which were looking to expand internationally or raise funds to mitigate a challenging home environment.
"The ban will certainly impact those companies looking to conduct IPOs or finance-raising, as well as initiatives designed to forge links between them and foreign research and development centres as well as component vendors," said Andrew Kitson, Head of ICT Research with Fitch Solutions. Some of them such as Hikvision have global operations with tens of thousands of employees worldwide. Dahua Technologies has more than 16,000 staff, with divisions in North America, Europe and Latin America.
Most are involved in facial and voice recognition, surveillance cameras or phone tracking systems and depend on the US for components, market and university collaborations.
For a company like Hikvision, which makes a significant portion of the world's security cameras, the block could have a roughly 10 per cent impact on revenue, technology research firm Sanford Bernstein said.
Other firms such as Megvii was planning a Hong Kong IPO early next year and was to become the first Chinese artificial intelligence firm to become public. Since the announcement of the ban, Goldman Sachs, one of Megvii's sponsors for the IPO, said it was reviewing its involvement. The US ban on Megvii could also see the end of university partnerships and a possible review of business ties with US companies.
However, analysts say the long- term risks will remain limited and will unlikely lead to other countries following suit.
"The majority of these companies' revenues is still derived from local activities, meaning that only international sales and revenues will be affected," said Mr Kitson.
" While all of them have been keen to expand internationally, the ban will have only a limited impact on sales, even in the medium term, as the Chinese government can find them plenty of work to do in the meantime." Furthermore these companies have been working hard to decouple from the US and many have full ownership of their patents.
"A company like SenseTime has been preparing for this," said Ms Fannin. "The company employs 148 PhD graduates out of 1,000 employees. They've already raised a lot of money and have the support of the government."
