Last week two Huawei executives in the United Kingdom resigned over their company’s position on the war in Ukraine, by not condemning the invasion and continuing to market products to Russia. The news came while the US Secretary of Commerce, Gina Raimondo, assured the nytimes, that they could take “devastating” action against Chinese companies that defied sanctions on Russia, prohibiting them from using American equipment and software to manufacture their products.
No sooner said than done. The US government has announced the call Foreign Direct Product Rule (FDPR) for all of Russia, as part of its export controls to block Russia’s access to high-tech products, such as semiconductors. That means Chinese companies will need to be licensed by the US for tech items using US technology before shipping them to Russia, which is feared will affect their business as many use US chips and software for their devices. USA, according to the Yonhap agency.
That China has avoided condemning the Russian military intervention and maintains its ambiguity in the face of the conflict that, for many analysts, only half hides its support for Moscow, seems to be putting Chinese technology companies in a bind. And it is that these threats from the US about them are reminiscent of the actions taken against Huawei, when the Donald Trump Administration included this company on its blacklist of entities that are prohibited from acquiring technology from US companies without government approval. A blockade that has taken a heavy toll on Huawei’s business, both in mobile phones and in its activity linked to 5G networks.
Nikkei Asia recalls that the FDPR was used to cut Huawei’s access to global chip suppliers, and ensures that this rule, and its sweeping scope, has caught many Chinese tech companies by surprise. And it is that, this time, according to the aforementioned media, the scope of the restrictions goes far beyond semiconductors and other components and includes telecommunications and information security equipment, sensors, lasers and computers.
Shipments to Russia of consumer electronics products such as laptops and smartphones will not be subject to such controls, but only if companies can be sure that their end users are civil and non-governmental or military, as indicated by a spokesman for the US Department of Commerce to the Asian media. Something that, in practice, can be very complex, as Christopher Timura, Gibson Dunn’s International Trade lawyer, also pointed out.
Nikkei Asia explains that the first step in determining if a product or component is subject to the FDPR is to find its Export Control Classification Number (ECCN), a piece of information that is then cross-referenced with US trade regulations. But, As the aforementioned lawyer points out, the task is not easy, “not all manufacturers have classified their products and, therefore, some will not know which ECNC would apply to their products”.
The Asian media explains that there are companies that are still assessing the implications of the new US export rules and the economic sanctions that could derive from it. Some recognize that it is difficult to be sure whether their products will be impacted by the new controls, which will look closely at those technologies and products of ‘dual use’, that is, those that are used for civil and military use. This label will be a key criterion to determine if shipments are subject to export controls, but as some companies warn, it is difficult to know if some components of high-end devices can be used for military purposes, even if they have not been sold for that purpose.
The situation, beyond determining which products and companies will be affected, is very complex, because as Cristian Castillo, professor of Economics and Business Studies at the UOC, points out to CincoDías, the new US sanctioning measure can be a weapon double edged “It is difficult to think that a restriction like the one proposed by the US government will not have a rebound effect given that we are in a very interrelated sector. Without a doubt, if the measure is applied there will be collateral damage in American and European companiesgiven the weight that China has in the technology industry”.
Castillo stresses that applying the RDPR is a very difficult matter. “There are no blacks and whites here, as was seen with the sanction on Huawei or is being seen with the sanctions imposed by the EU on Russia. It’s not about me sanctioning you and that’s it. There is so much dependence between the companies of both countries, that if the US sanctions Chinese companies, it will also have an impact on their industry and on the global economy.”
For the UOC professor, an intelligent decision on the part of the United States, due to the aforementioned dependency, has been the South Korean exemption from the FDPR, because in that country there are giants like Samsung (one of the world’s great manufacturers of chips and technological products), LG and the semiconductor manufacturer SK Hynix. According to the US, South Korea’s sanctions against Russia are in line with international standards, hence its decision to remove it from the list of nations affected by this new sanctioning measure. A few days ago, this Asian country became part of the list of 33 nationals exempt from the FDPR, which includes the EU, the United Kingdom and Japan. Samsung and Xiaomi are two leading mobile phone brands in Russia, while Acer, Asus and Lenovo are the main PC manufacturers in this country, and LG and Sony are leading brands selling home appliances and consumer electronics products.
Chinese technology companies do not have an easy decision. Withdrawing from Russia could also have commercial consequences. Xiaomi mobile shipments to Russia increased by 29% in 2021, before the war broke out, according to data from Counterpoint Research. And Huawei and ZTE are a provider of telecommunications equipment in the country, according to research firm Lightcounting.
companies are silent
The Chinese technology companies consulted in Spain prefer to remain silent about their operations in Russia (where almost all continue to operate normally) or about the new rule announced by the US. His cautious response contrasts with his Western peers like Apple, Microsoft, SAP, HP or Google, which quickly condemned the war and suspended their operations and sales in Russia. “It is difficult for them to speak unless the Chinese government publicly positions itself for or against Russia; In a totalitarian country, it is normal for them to go with the same voice as their political leaders”, continues Cristian Castillo.
The UOC professor believes that if the FDPR is applied to Chinese companies, this could force China to position itself. “But, then, it would be necessary to see what their position would be, because if the United States applies that measure and punishes Chinese companies, it is very possible that Beijing will side with Russia. All, in the end, are hypotheses in such an uncertain scenario like the one we have”, he acknowledges.
A chip industry executive who was involved in the case between Huawei and the US describes the dilemma Chinese companies are currently in: “They don’t know how long the war will last, and they don’t just mistrust retaliation afterwards. of Russia and its partners and its customers there. They also harbor concerns about potential geopolitical fallout from China, one of Russia’s strongest allies.”
castle yes rules out a general boycott of Western consumers to Chinese companies. “I don’t see how it could happen, unless China openly supports the war in Ukraine and positions itself in favor of Russia. But if it remains neutral or as it is now, I see it as complicated, because a large part of the technological products that we consume bear the ‘made in China’ seal. Think about a fact: 70% of merchandise that moves by sea comes from Asia, specifically from China”.
#Chinas #ambiguity #Ukraine #war #puts #Chinese #technology #companies #bind