So let us assume that the Trump administration is moving towards the threat of preventing American companies from cooperating with ByteDance division TikTok and Tencent Holdings’ WeChat.
How will the Chinese government respond?
Bernstein analyst Toni Sacconaghi has been thinking about this issue. He also reported on Apple and Tesla (TSLA), both of which are iconic American companies with deep connections in China. Sacconaghi pointed out that China accounts for 15% of Apple’s revenue and almost all of the company’s products are sourced in China. 15% of Tesla’s revenue comes from China, and plans to achieve a mixed revenue of more than 30% after the recent completion of the Shanghai Gigafactory.
In short, if China makes an effort, it may cause damage to these two companies. Sakonagi does not believe that the current share prices of Apple or Tesla reflect any potential risks in China.
He admitted that it is difficult to say how much risk exists.
On the one hand, he pointed out that President Donald Trump’s executive order on WeChat was vague. He wrote: “If the use of WeChat on iOS is eventually to be banned globally, it will have a significant impact on Apple’s sales in China,” which may greatly weaken the country’s hardware sales. “However, the risk of collateral damage from China may be the biggest concern.”
Sacconaghi pointed out that although Sino-US relations have been deteriorating, Apple’s business in China has been quite resilient in the past two years. Chain stores and very strong consumer brands. ”
He added that Tesla “has maintained a good relationship with China so far, as evidenced by the timetable for the construction of the Shanghai Gigafactory supported by the government, because the Chinese government may believe that Tesla is electrifying its own cars. Planning is crucial.”
But he also wrote that the soaring stock prices of Apple and Tesla in recent weeks “will show that investors have not significantly underestimated China’s risks.”
In his research report, Sacconaghi contains an exhaustive list of previous retaliations by the Chinese government in other disputes.
- In March 2010, the Chinese government criticized the quality of HP laptops on CCTV television programs, resulting in a sharp drop in sales. Sacconaghi pointed out: “The government’s sanctions and subsequent consumer response may exacerbate the continued deterioration of HP’s brand in China, resulting in the company’s failure to recover market share for many years.”
- In August 2012 and September 2012, the border dispute between China and Japan prompted Chinese consumers to boycott Japanese automakers, causing their market share to drop from 19% in the third quarter to 13.4% in the fourth quarter of 2012. Although these brands make up for the loss. Share within one year.
- At the end of 2016, in a dispute with South Korea over the installation of US-made missile systems, China closed 74 of the 99 supermarkets operated by South Korea’s Lotte Group for alleged violations of safety regulations.
- In April 2016, China banned Apple’s iTunes Movies and iBooks stores.
Due to the delay in the approval of new games by Chinese regulators, the growth of Apple’s App Store in China dropped suddenly in 2018.
Sacconaghi wrote that retaliation may be informal. He pointed out that in 2014, China delayed the release of iPhone 6 by one month, reportedly because the United States had prosecuted several Chinese military hackers.
“Or, this may manifest as customs delays in importing components or exporting products, being prohibited from bidding for contracts from Chinese state-owned enterprises, or being prohibited from making acquisitions with companies with important business in China, regardless of whether the acquisition target is China. Based on (for example, Qualcomm and NXP
[Semiconductors] In 2018),” he wrote.
Apple shares fell 3% on Tuesday to $437.50, while Tesla fell 3.1% to $1,374.39. The S&P 500 index closed down 0.8%.
Write to Eric J.Savitz, email: email@example.com