China and Russia aren't ready to go it alone on tech, but their threats are worryingly plausible

Vendors caught between risks and fear of missing out on growth markets

Balancing market access and control

China's techno-nationalism efforts also have a weakness in the form of its desire to grow export businesses.

“Because the Chinese’s ambition is to extend its empire overseas as well, it does not seem smart to cut overseas vendors from its market in the future,” says Canalys' Sharon Hiu. “It will still need these relationships to penetrate overseas markets, where the roles then become reversed – the Chinese becoming the foreigners while overseas vendors becoming the locals.”

The CSIS' Kennedy thinks access to foreign markets for Chinese firms will be used as leverage, especially because foreign firms are not able to make investments in Chinese companies.

“I cannot think of a case in which a foreign company has bought a successful, brand name Chinese company in any sector,” he says. “The lack of reciprocity is stark. Industry will push for liberalisation of the Chinese market and review of Chinese purchases will expand.”

[Kennedy's prediction is already coming true – between his interview with El Reg and preparation of this story, President Obama issued an executive order to kill the proposed acquisition of semiconductor specialist Aixtron by Chinese investors.]

But Kennedy warns such action may awaken the dragon, because the current Chinese leadership includes some hawkish types who favour becoming more self-reliant.

Ironically, their stance could provide vendors with the premise they need to move manufacturing from China.

“If China suffered a financial crises or there was a major nationalisation, or prosecution of top leadership, then there could be a tipping point,” he says. Another trigger could be India's manufacturing capabilities improving, or the same in Vietnam. Or perhaps Donald Trump will indeed re-invigorate American manufacturing. Kennedy says any or all of those events could “provide the pull for companies to be able to go elsewhere and diversify global production network.”

But whatever happens, it won't happen fast.

“Companies that declare war on China do not do well in China,” Kennedy says. “Companies do not want to overly offend the Chinese government, but are lobbying on individual policies and asking their trade associations to be relatively assertive.

“We've seen that transition.”

But for now, companies are still willing to suffer in the short term to remain a chance of cracking China.

“Even the likes of Qualcomm, after its fine depends on china for over half of its global business and defines business in China as a win win proposition,” Kennedy says. ®




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