Increased China-US IT trade tensions likely short-term

Summary:The U.S. scrutiny over Huawei could see a spillover impact on other firms, but this is likely to be short-lived and American companies are unlikely to face retaliatory sanctions.

The heightened scrutiny over Chinese telecoms equipment maker Huawei Technologies in recently could lead to more obstacles for other technology exports from China. However, any trade obstacles from the United States would likely be short-term and it may be business as usual within a year, according to industry watchers.

Benjamin Cavender, senior analyst at China Market Research (CMR), said with the recent spate of national security concerns and alleged espionage risks raised over the Chinese vendor's telecommunications gear, this could lead to increased wariness of other Chinese firms by the American government and companies.

"Any sectors that involve potential access to secure data are at risk so IT would be one candidate. It is also possible that sectors where other countries are trying to develop homegrown capabilities may also be at risk," added Cavender.

The renewable energy sector is a good example, the analyst noted, as it represents a major potential growth area for China and a host of developed nations including the U.S.

China's solar exports to the United States have already seen rising trade obstacles--most recently after Chinese manufacturers were slapped with tariff hikes worth billions of dollars in September. The U.S. Commerce Department made the move after deciding Chinese firms received unfair government subsidies to undercut the competition--an allegation China had denounced .

Even large American tech companies have felt compelled to limit their association with their Chinese partners, at least for the time being. For example, Huawei was a conspicuous absentee from Microsoft's Windows Phone 8 launch today , considering it was one of four handset makers picked by Redmond to produce handsets powered by its latest mobile operating system.

Long-term impact limited
Albert Hu, associate professor at the department of economics at the National University of Singapore, added the lack of transparency in corporate governance structure of certain Chinese companies does leave them vulnerable to negative perceptions, which then hinders their overseas expansion plans.

Companies that are perceived to have close links with the Chinese government will also continue to difficulty winning over the trust and endorsement of politicians in the West, Hu added.

That said, he believes this tension between China and U.S. is not new. "I don't think these would represent spillover effects from Huawei's case. [These tensions] have always been there and will probably continue to be there in the foreseeable future."

On the flipside, Cavender said the United States' decision to recommend local companies from using Huawei's equipment means American companies in the same industry could face similar challenges in doing business in China or China-friendly markets.

However, it remains to be seen whether trade tensions between both countries is a long-term trend or more of a short-term issue raised because of the coming U.S. elections as well as the government handover in China, he pointed out.

"12 months from now it is very possible the situation will be stabilized and there will be a clear path for a company like Huawei to continue to do business in the U.S," the analyst added.

American network equipment vendor Cisco Systems had earlier played down any possible retaliation it might face as a result of Huawei's troubles in the U.S. "This is not a China issue. This is a Huawei issue ," a Cisco spokesperson told ZDNet Asia.

Agreeing, Hu said the key to China's growth over the past three decades has been its open economy.

"Despite the protectionist measures that China's trade partners have resorted to for various reasons, we have seen hardly any real quid pro quo from the Chinese side. So I don't expect there to be any 'more' obstacles for U.S. companies to do business in China," he added.

Topics: Government, China, Security, Tech Industry

About

Loves caption contests, leisurely strolls along supermarket aisles and watching How It's Made. Ryan has covered finance, politics, tech and sports for TV, radio and print. He is also co-author of best seller "Profit from the Panic". Ryan is an editor at ZDNet's Asia/Singapore office.

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