Bloomberg, 22 May 2019

By Anjani Trivedi — For China’s surveillance giant, the future has been looking bleak for a while now. The Trump administration’s escalating war on the country’s tech sector is only making things worse – and the net is widening.

The U.S. is now considering blacklisting one of Beijing’s national industrial-technology champions, Hangzhou Hikvision Digital Technology Co., among four other Chinese spy-tech firms. The restrictions, similar to those imposed on Huawei Technologies Co. last week,  would curb Hikvision’s ability to buy American technology and access the U.S. market. The limits not only further President Donald Trump’s attempts to cut off China’s rise in global technology, but also punish the company’s role in the surveillance and alleged mass detention of Uighurs, a Muslim ethnic minority group in the western region of Xinjiang. The news sent investors fleeing from the stock, a foreign-investor favorite in recent years.

Reality Bites

Investors initially shrugged off the damage to Hikvision and its peers from potential sanctions. But the impact could be severe

For Hikvision, the effects could be crippling: Losing complete access to U.S. parts from the likes of Western Digital Corp., Intel Corp., Ambarella Inc. and Xilinx Inc. would put 10% of its revenue at risk, given the lack of alternative suppliers. Meanwhile, the company could lose another 10% to 12% by turning to less-than-ideal substitutes, according to Bernstein Research.

Despite unleashing an army of lobbyists in Washington, Hikvision’s fate has been all but sealed since initial reports last year that the U.S. was considering sanctions against the company and Chinese officials over the detention of ethnic Uighurs and other minority Muslims in internment camps. Overseas revenue – at one point around a third of the company’s total – has struggled. In the first quarter of this year, revenue growth slowed to around 7% while profit dropped 15%.

Big Brother’s Bad Luck

Hikvision’s revenue growth has slowed amid an international backlash against surveillance

If the Trump administration’s dragnet spreads, several international companies will be caught in the crossfire, too. These firms have been banking on construction in Xinjiang, where excavator sales surged more than 75% in April from a year earlier. Meanwhile, public-spending budgets in this province and others rose 3.8% this year, compared with 3.5% in 2018. Energy and electricity production are climbing and imports from foreign-funded enterprises into the province have grown in recent months, too.

This bustling business activity has drawn some of America’s largest companies to this province. In 2016, the American Chamber of Commerce in China, which represents U.S. business interests on the mainland, took a group of its members to Xinjiang to “learn about the investment environment,” in a trip co-hosted by China’s commerce ministry.

Earlier this month, U.S. Secretary of State Mike Pompeo urged American companies to think twice about doing business in the Chinese province. “We watch the massive human rights violations in Xinjiang where over a million people are being held in a humanitarian crisis that is the scale of what took place in the 1930s,” he said, after receiving an award from Business Executives for National Security. “And we see American businesses and their technology being used to help facilitate that activity from the Chinese government. It’s something worthy of thinking about.”

We can theorize whether Trump’s escalation against China’s technology companies is a trade-war bargaining chip or a legitimate humanitarian campaign. Either way, companies doing business on the mainland will have more than just thinking to do, lest they get caught up in a war they never saw coming.

https://www.bloomberg.com/opinion/articles/2019-05-22/trump-blacklist