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The “cell phone war” between China and the United States has brought attention not only to the growing technological rivalry between the two powers, but primarily to the devastating consequences that China's clearly domestic decisions have had on American and global finance.
Shares of global industrial and financial giant Apple collapsed after reports that Chinese officials were banned from using the iPhone. From September 6 to 7, Apple’s capitalization fell by about $100 billion after the Wall Street Journal cited unspecified sources “familiar with the situation” that state officials in China and government agencies were “strictly prohibited” from bringing smartphones with the “bitten apple” to the office, as well as using iPhones for work.
These restrictive measures, which followed other similar bans passed by some Russian ministries in August, are aimed at eliminating any threats to China’s national security posed by the use of telecommunications devices made by the US electronics giant.
The negative reaction of the markets was not long in coming: Apple stock prices fell by 4%, after which the main US indicators closed the session in the red. No surprise: Greater China, which also includes Hong Kong and Taiwan, is Apple’s third largest market in the world and generates cash flow equal to 18% of the Cupertino group’s total revenue. Nothing official has leaked out of Beijing, but investors are beginning to suspect that, after Micron and Tesla, Apple also ended up in the crosshairs of China that is locked in a “war” against the USA for technological supremacy.
It is no coincidence that a radical decision was made a few days before the official unveiling of the new iPhone 15. The ban threatens to damage Apple’s media presence in China that, among other things, manufactures smartphones, tablets, and PCs. To avoid Western sanctions, iPhones sold in Russia are assembled in China and India and imported under the so-called “gray schemes.” Based on sales results for the second quarter of 2023 (latest available data), 16% of smartphones in China are iPhones, second only to VIVO and OPPO (18%) and on par with Honor (16%). Before the ban, Apple’s sales were expected to reach or even exceed 20% in the last quarter of 2023, following the launch of the iPhone 15.
Espionage: Huawei as a scapegoat
In 2018, the story of the arrest by the United States of Meng Wanzhou, the chief financial officer of the Chinese telecommunications giant Huawei and the daughter of the company’s founder Zhengfei Zheng, spread around the world. The American crusade against the Chinese telecommunications giant terrorized financial markets around the world: a trade truce agreed upon by then-President Donald Trump and Chinese leader Xi Jinping on December 1, 2018, on the sidelines of the G20 summit in Buenos Aires failed, while the decision itself was seen as a real declaration of commercial and technological “war” on China.
Now we can remember that four years ago, Trump called on Western allies to boycott Huawei because “China is spying on the world with its phones.” According to American intelligence, “the Chinese company is in the service of the Chinese army.”
“Espionage” is the buzzword behind every ban: In 2021, Tesla cars were banned from government facilities and military complexes in China due to fears of “American espionage.”
Chip wars
Since then, the respective campaigns – anti-China in America and anti-American in China – have only intensified, including several local and strategic battles, particularly over advanced technologies and semiconductors. In June 2023, the USA and the Netherlands announced a series of draconian measures limiting sales of sophisticated microchip-manufacturing equipment to China. The main protagonist was the Dutch company ASML, as well as the American Lam Research and Applied Materials. Following directives from Washington, they imposed restrictions on the export of production lines and industrial robots to China. Japan, another important producer in the industry, has also restricted exports of various technologies necessary to produce semiconductors.
In August, the “chip war” between the USA and China gained a new chapter: President Joe Biden introduced a so-called “investment ban” limiting US investment in high technology in China. The White House head explained this move, “last but not least” in the exchange of blows between Washington and Beijing, as “national security considerations rather than economic ones.” At that time, the USA banned the installation and use of the Chinese social network TikTok on government devices. Additionally, Huawei, ZTE, and other major Chinese telecom companies were excluded from 5G network infrastructure in the West.
Control of rare earth elements
In response to restrictions on exports of chip-making equipment to China and Biden’s “investment ban,” Beijing announced it would “control and limit the export of rare earth metals” that are needed to produce semiconductors in markets around the world. China is the largest producer of gallium with a share of 94%, while for germanium and its derivatives it is 67%. These rare materials are not only needed to create semiconductors, but are also used in the production of solar panels, optical fibers, and infrared technologies. In other words, the Chinese ban threatens to jeopardize the implementation of the energy transition in the West.
Money has no smell
Of course, the technology war between Washington and Beijing has taken some “strange” turns, when money and profits weighed more than presumed national security. In May 2023, for “serious risks” to cybersecurity reasons, China banned semiconductors from US Micron company that, among other things, produces memory chips. Less than a month later, Micron put the Chinese “insult” on the back burner and pledged to invest 4.3 billion yuan ($603 million) over the next few years in its plant in Xi’an, in central China. The reason being is that the Chinese market accounts for about 25% of turnover for Micron, which will build a new DRAM, NAND, and SSD production line in Xi’an aimed specifically at meeting China’s growing demand.
Huawei’s technological advent
In September, tensions between the USA and China escalated again after the presentation of the new Mate 60 Pro smartphone from Huawei Technologies Co. The new Chinese gadget is based on a “very advanced” CPU developed by the Chinese company Semiconductor Manufacturing International (SMIC), which, according to international media, “is not far behind the latest Western chips.” White House national security adviser Jake Sullivan stated that “Washington would like to conduct a technical analysis of the new Chinese chip as soon as possible,” while suggesting that Joe Biden administration strengthen the policy of “a small yard surrounded by a very high fence.”
Huawei and SMIC have long been on US blacklists that prevent them from accessing advanced technologies and state-of-the-art chip manufacturing equipment. It is no coincidence that the presentation of the Mate 60 Pro took place on the same day that US Secretary of Commerce Gina Raimondo was on an official visit to Beijing.
According to international experts, the Kirin 9000 processor, manufactured using 7 nm technology, is a clear indication that China has achieved a lot towards independence in the semiconductor sector. Some experts even suggested that the new Huawei smartphone could seriously compete with the new iPhone model in China. According to Edison Lee, chief telecom analyst at Jefferies financial services company, “the Mate 60 Pro smartphone threatens to reduce iPhone 15 sales by as much as 38%.”
“It is becoming increasingly clear that industrialized countries view the semiconductor industry as being of strategic importance,” said Ajit Manocha, President and CEO of SEMI, International Semiconductor Industry Association. “Given the current geopolitical tensions, all countries are trying to stabilize and strengthen their positions in this sector. It doesn’t surprise me at all that China has been working hard in this direction for a long time.”
