Is China Tech Doomed? (Part Two)

China will win the low-tech war but lose on high-tech innovation

In part one of the series, I argued that China’s core tech innovation faces inevitable challenges, not only because of the U.S. clampdown, but also due to China’s own internal issues.

However, I believe China will win the low-tech war with the U.S., i.e. the manufacturing of mature tech products like solar panels and electric vehicles. For this reason, I continue to like the new energy tech space in China, as one of the few sectors that offers high visibility to both short-term and long-term fundamentals.

This week the U.S-China Tech War escalated when:

• President Biden signed an executive order to “secure and protect” domestic bio-tech and bio-manufacturing industry,

• The White House is reported to be working on new export restriction for semiconductors, and

• President Xi Jinping reiterated China’s strategy of becoming self-reliant in tech, especially for national security reasons.

The China market did not take the above news well. On Tuesday (Sep 13), Chinese bio-tech and medical CXO stocks took a big hit from Biden’s executive order. WuXi Biologics (2269.HK) was down nearly 20% in one day. On Thursday (Sep 16), Chinese solar equipment stocks also collapsed, as Europe plans to ban products made with forced labor. The market interpreted this as the predecessor of an European import ban on Chinese photovoltaics. LONGi Green Energy (601012.SH) was down more than 7% on Sep 16. (We do not own either stock currently.)