MNI EXCLUSIVE: China To Wait On Huawei Moves, May Target Cisco

--China To Wait To See Whether US Implements Latest Moves

--Could Target Cisco, But Probably Not Apple

By Wanxia Lin and Archie Zhang 

     BEIJING (MNI) - China will wait to see whether intensified U.S. controls on

chip purchases by tech-giant Huawei go into effect in August before retaliating,

but would respond quickly, possibly by adding U.S. companies including Cisco to

a list of "non-reliable" entities or by blocking pending deals in China, policy

advisors and sources close to the government told MNI.

     Counter-measures could come in 24 hours if the U.S. does implement the

restrictions, said Mei Xinyu, researcher at Chinese Academy of International

Trade and Economic Cooperation, affiliated with the Ministry of Commerce,

although he added that China would only act if forced to do so.

     Any inclusions in the unreliable entities list would be "highly selective",

possibly targeting companies with links to politicians seen as anti-Chinese or

with a significant presence in key electoral districts, Mei said.

     Cisco may be one Chinese target, according to both Mei, who said the

company had been "very active" in containing Huawei, and also according to a

source close to the Chinese government. Lv Xiang, a research fellow of the

Institute of American Studies at the Chinese Academy of Social Sciences, said

China would retaliate if pushed.

     --CISCO DEAL

     California-based Cisco is waiting for the green light from a Chinese

anti-trust review of its acquisition of optical equipment maker Acacia, a deal

originally announced in July 2019.

     "Cisco has submitted the applications twice to the (Chinese)

administration. I think the government is delaying the review process in

preparation for tense moments like this," the source said.

     The Global Times, a Chinese Communist Party tabloid, has reported that

Apple and Qualcomm could also be targeted, but both Mei and the source close to

the government said that such a move could be counter-productive as the

companies have such significant operations in China. Qualcomm also supplies

chips to other Chinese mobile phone makers such as Xiaomi, noted a person from

the technology industry, who asked for anonymity due to the sensitivity of the

issue.

     Chinese companies have stepped up efforts to source key hardware from South

Korea, Japan and Europe, the source close to the government said, adding that

U.S. pressure contributed to a Dutch decision to block the sale of chipmaking

technology to China by ASML. China also has high hopes for Samsung, as South

Korea's relations with China have improved since President Moon Jae-in came to

office in 2017.

     Chinese media reported that Samsung Electronics Vice Chairman Lee Jae-yong

recently visited a factory expansion in Xi'an, western China, in the most

prominent business arrival in the country since borders were largely closed in

response to the coronavirus pandemic.

     The U.S. Commerce Department said on Friday it would require foreign

semiconductor manufacturers which use American chipmaking technology to obtain a

U.S. government licence before shipping chips to Huawei. While there is a

120-day grace period, the source close to the Chinese government said that the

U.S. would not renew all licences.

     The move comes as the Sino-U.S. relationship is at its lowest ebb since

1989, according to officials, although the source said that a Phase One trade

deal signed in January should survive.

     Reprisals against the U.S. moves will inevitably impact China's own

economy, said Wang Haifeng, director of International Trade and Investment at

the Chinese Academy of Macroeconomic Research, run by the National Development

and Reform Commission. But Wang said Huawei should be able to withstand the U.S.

actions, and had been preparing to lose access to U.S. technology for more than

two years.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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