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China keeps on finding ways to hurt USA Inc.

Hasan Chowdhury   

China keeps on finding ways to hurt USA Inc.
  • China seems to have found another way to hurt US businesses operating there.
  • Beijing has asked domestic EV companies to ramp up spending with local chipmakers, per Bloomberg.

China isn't done squeezing US companies just yet.

Beijing appears to have found yet another way to hurt American business after Bloomberg reported on Friday that authorities there had started to ask domestic electric-vehicle manufacturers to ramp up their spending with local chipmakers — at the expense of US ones.

The directive, said to be led by China's Ministry of Industry and Information Technology, would align with efforts in China to revive a nationalist spirit by encouraging a focus on domestic industry over a reliance on the US.

That effort has already hurt Apple's iPhone sales, which were down 24% in the first six weeks of 2024 thanks to the growing popularity of an alternative from Huawei in China. It has bruised Tesla too, as it battles for market share with domestic electric-vehicle makers competing on price.

In this case, China is said to be turning its attention to the dependence its automakers have on the US for chips.

Modern-day vehicles are akin to computers on wheels, with chips from US companies often playing a key role in the development of new vehicles being made in China.

In March of last year, for instance, the Chinese Tesla rival BYD struck a partnership with the tech giant Nvidia to use its specialized Orin chip designs in its Dynasty and Ocean EV models to support everything from autonomous driving and parking to in-car entertainment.

So by asking Chinese carmakers like BYD and the Hangzhou-based Geely to direct their capital expenditure to local chipmakers, Beijing would be putting up another barrier for US tech companies seeking to do business in a market that has become crucial to their growth in recent years.

Apple, for instance, generated almost 20% of its revenue from sales in China last year. Nvidia reported $10.3 billion in revenue from China for its latest fiscal year, up from $5.8 billion the year prior.

US chipmakers have had some time to prepare for life without China. Nvidia, for instance, has acknowledged in filings that its "competitive position has been harmed" following the introduction of licensing requirements by the US last year that restrict exports to China.

The US has had its own go of punishing China, of course.

The tough export controls are as much of a pain to the sales numbers of chip giants like Nvidia as they are to Chinese companies that worry the technological capabilities of domestic firms lag those of their US counterparts.

This week offered another form of punishment after the US House voted in favor of a bill threatening TikTok with a ban — unless it is divested from its Chinese parent company, ByteDance, within six months.

That threatens to be a big hit to TikTok and ByteDance, with the app at risk of losing over 150 million users in the US without a sale, and the parent company at risk of losing a hugely popular product that the Financial Times says achieved $16 billion in US sales last year. China is not happy about it.

That said, pain is clearly going to be felt on both sides going forward. US tech firms might just be in for more pain than they first anticipated.