Japan’s chip supplier surprise and Vietnam’s educational returns

Hello everyone, this is Cissy from Hong Kong. I just got back to the city from mainland China, where I spent more than a week celebrating the lunar yew year.

Due to Covid restrictions, this was the first time in the past four years that I’ve been able to spend such a long time in the mainland and observe how the pandemic-hit economy was really doing. What I saw and experienced confirmed what I’ve been hearing consistently from my friends living in China. In Shanghai, a city that used to be proud of its cosmopolitan identity, even the downtown area is becoming less vibrant than it was a few years ago. I saw few foreign faces, and few shops, except international brands in big shopping malls, would accept Visa or Mastercard payment. Without WeChat or Alipay, I imagine travel could be very difficult for foreign tourists.

Signs of a widening wealth divide could be seen when eating out. Fast-food chains and high-end restaurants often had lines or required reservations, while mid-level restaurants had no lines at all, even during peak hours.

Many friends complained about falling housing prices, having previously purchased homes at much higher prices. Friends who own factories were even more frustrated, because their businesses are closely linked to China’s real estate sector, which is experiencing a deepening crisis. The downturn has even sparked fears of a financial crisis and a potential hard landing for the economy. Due to a significant decline in domestic orders, even friends with no prior export experience are starting to desperately seek clients overseas.

Amid the gloomy outlook for property-related industries, analysts say there are a few bright spots on the consumer-spending front. That demand could be helping to fuel some unexpected Chinese orders — to tech suppliers in Japan.

Surprise rise

While the US-China tariff war made Vietnam a surprise winner by encouraging Chinese companies to relocate to the south-east Asian country, the ongoing tension between the world’s two largest economies is producing another unexpected winner: Japanese chip equipment makers.

Beijing has made it a priority to boost the domestic chip industry, but companies are finding it increasingly difficult to source chips and materials due to US export controls targeting the sector. As a result, they are looking elsewhere, namely Japan, for tools and supplies.

Screen Semiconductor Solutions, for example, saw sales from China rise to 44 per cent of its total in the fiscal year ending this March, up from 19 per cent in the previous fiscal year, while the figure for Tokyo Electron reached a record high of 46.9 per cent in the fourth quarter of last year, writes Nikkei Asia’s Ryohtaroh Satoh.

In July, Tokyo followed Washington in restricting exports of certain advanced chipmaking equipment, though it did not mention China by name. Japanese companies are still free to sell older-generation chips to China, however, and while these chips are less profitable than the cutting-edge ones, they are widely used, particularly in the automobile and consumer electronics sectors, meaning they can still generate decent profits.

“Strings attached”

Saudi Arabia is borrowing tactics from Beijing’s playbook when doing business with Chinese companies: demanding tech transfer and investment in the kingdom in exchange for its petrodollars and market access.

Cash-strapped Chinese start-ups and venture capital firms are flocking to the kingdom, hunting for deals and investments. At the same time, Saudi Arabia is courting foreign companies to upgrade its infrastructure and technology to reduce its dependence on oil revenues.

The marriage between Chinese tech and Saudi investment comes with “strings attached,” reports the Financial Times’ Eleanor Olcott. Saudi Arabian state investors expect their counterparties to set up joint ventures with local partners to transfer technical knowledge and expertise.

Alibaba and SenseTime are among the top Chinese groups to have secured deals worth hundreds of millions of dollars with Saudi Arabia over the past three years in exchange for setting up joint ventures in the country.

The Saudi strategy echoes that adopted by Chinese local governments from the 1980s onward, when it granted foreign companies access to the country’s massive consumer market and growing manufacturing base if they pursued joint ventures with local firms. These profitable partnerships provided a crucial channel for Chinese counterparties to learn from and, in many cases, eventually emulate the technology of their foreign rivals.

Chinese entrepreneurs say they are more pragmatic about acquiescing to Saudi demands than their US and European counterparts, which have stricter rules on intellectual property transfer.

Smart returns

A slew of overseas-educated tech talent is now returning to Vietnam, fuelling not only an electronics supply chain to challenge China, but also a fast-growing digital economy, aligning with the communist country’s aspiration of creating its own Silicon Valley, writes Nikkei Asia’s Lien Hoang.

Compared to its south-east Asian counterparts, Vietnam has long sent far more students overseas. Similar to the postwar refugees, these students acquire valuable skills and networks during their time abroad, with some even gaining work experience in foreign countries. Now they are bringing that experience to bear in Vietnam.

In general, the likes of Harvard and Cambridge have educated Vietnamese who are coming home to lead all manner of tech companies, including Tap Tap, a rewards platform, Uber Vietnam and the logistics start-up Abivin.

However, this wanderlust also raises questions about the communist regime’s capacity to educate a generation of independent thinkers at home and whether the country’s authoritarian environment can produce a creative economy based on innovation.

New drivers

Japanese automakers are pursuing partnerships with start-ups in the country, with an eye on tapping expertise in software development for autonomous driving and updatable “infotainment” systems, writes Nikkei Asia’s Sayumi Take.

For example, Mazda has established an office in Tokyo, where 65 per cent of the country’s start-ups are based, to help it hobnob with new ventures and software engineers. The new office is keen on connecting with professionals who are addressing different social challenges and may not have had extensive involvement in the automotive industry. It is also looking to engage with people who can bring fresh perspectives and diverse experiences to the table.

“The rapid evolution of digitalisation in recent years has led to diverse companies, from tech to entertainment, venturing into the auto industry and coming up with various services and products,” Mazda executive officer Noriyuki Takimura said. He mentioned Toyota Motor’s smart Woven City project, which aims to serve as a testing ground for innovative concepts, as an example of the new ideas automakers are pursuing.

Suggested reads

1. FBI warns Chinese malware could threaten critical US infrastructure (FT)

2. Alibaba’s Taobao sets up live commerce venture as competition grows (Nikkei Asia)

3. North Korean hackers use AI for more sophisticated scams (FT)

4. Samsung and LG join forces against Chinese rivals in battle for display dominance (FT)

5. US needs another CHIPS Act to lead world, says Raimondo (Nikkei Asia)

6. Intel joins 1.4-nanometre chip race against TSMC and Samsung (Nikkei Asia)

7. Alibaba gives way to China ecommerce rivals on Jack Ma Boulevard (FT)

8. AI commitment gives competitive edge: Expedia CEO (Nikkei Asia)

9. Google plans to begin Pixel phone production in India in Q2 (Nikkei Asia)

10. Japanese chipmaker Renesas steps up deal spree with $5.8bn Altium bid (FT)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

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