Coronavirus hits Asia’s tech supply chain

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Hi everyone — our main message this week is take care. The world of Asia tech is certainly not immune from the coronavirus outbreak. We’ve tried to set out some of the effects in the Big Story below and in Mercedes’ selection below that. Obviously in a fast-moving situation like this, it is tough to know how bad things may get. But it is clear that the vast China supply chain is already facing disruption (see the concern over Apple’s big new plans). Tensions with China feature prominently in this week’s newsletter, starting with the UK’s limited acceptance of Huawei for 5G — a “craven surrender”, according to one commentator. — James

The Big Story

Concerns are rising that China’s vast tech supply chain will be disrupted by the coronavirus outbreak. One of the initiatives that could be affected is an ambitious plan by Apple to increase its iPhone production in China this year, according to this exclusive in the Nikkei Asian Review. 

Apple has asked suppliers to make up to 80m iPhones in the first half of this year, an increase of more than 10 per cent from last year’s production schedule, according to people familiar with the plans. As part of this strategy, 15m units of a new cut-price model that Apple plans to unveil in March are planned.

Key implications: One of the issues for Apple is that the main iPhone manufacturing centres are in provinces near Hubei, the centre of the coronavirus crisis.

Authorities in China are already taking steps to reduce the mass migration of workers back to factories after the Chinese lunar new year holiday to reduce the risk of infection. For example, Suzhou, a tech hub north-west of Shanghai, has barred businesses from resuming operations before February 8. The central government has so far extended the holiday by three days until February 2.

Tech companies such as Alibaba, Tencent and Baidu have all told their staff to work from home for an extended period.

Upshot: With the coronavirus death toll still rising rapidly on Wednesday, the disruptions to supply chains for crucial tech products may well be further affected. This is especially the case for tech factories in Hubei.

Mercedes’ top 10

A round-up of the week’s best tech stories from the FT’s Asia tech reporter Mercedes Ruehl.

To read Nikkei Asian Review articles in Tech Scroll Asia claim your free trial subscription here.

1. The ructions from the coronavirus outbreak have even reached the US-China trade war: Wilbur Ross, the US commerce secretary, has decided against visiting China next month, when the “phase one” trade deal comes into effect. 
2. The other big story this week was Huawei’s fate in the UK. Britain approved a limited role in building its fifth generation mobile phone network. White House officials view the decision as a “craven surrender”, according to FT reporters in Washington and London. 
3. Rising costs and US-China trade tensions are forcing Taiwan’s Pegatron, the world’s second-largest contract manufacturer of electronics, to diversify production out of the mainland to countries such as Vietnam and Indonesia. 
4. US officials are increasingly focused on China’s efforts to obtain technology and knowledge from American universities. That is why this story about the acclaimed Harvard scientist charged with lying about his ties to a Chinese government programme caught my eye. 
5. Japan is warily stockpiling metals used for producing electric cars and high-tech gadgets — including lithium and cobalt — to counter China’s control over such supplies. 
6. A Chinese student at the University of Minnesota has been arrested in China and sentenced to six months in prison for tweets he posted while in the US, another escalation in Beijing’s increasing surveillance abroad. Axios has more. 
7. A former SoftBank employee has been arrested over allegedly providing corporate secrets to Russia. More here.
8. BHP Mitsubishi Alliance, a joint venture of the Anglo-Australian mining group and a unit of the Japanese trading house, are spending nearly half a billion dollars on autonomous trucks and AI to cut long-term costs. 
9. iPhone sales are surging again in India. Apple could pip brands such as OnePlus and Samsung to become the largest premium handset brand in the final three months of 2019, driven by aggressive pricing and promotions. Separately, the US company reported its highest quarterly revenue ever on Tuesday. 
10. Interesting piece in the Washington Post on how popular China’s TikTok has become among LGBTQ teens — even though it is public and there are a lot of questions about censorship. 

When sages speak

• Rui Ma and Ying-Ying Lu of the TechBuzz China podcast relay their top picks among need-to-know trends, events and participants in 2019 in China tech. They look at the saturation of mobile internet usage as well as some exceptions to this trend, such as the booming short video segment. 
• Danielle Cave reinforces the point that 5G is not simply an advance in telecoms technology in this piece for ORF, the Indian think-tank. It will change so many aspects of our lives that it must be regarded as critical national infrastructure.
• This article in the Heritage Foundation explains how China’s move to embrace a cryptocurrency is about power, not money. Dean Cheng, Norbert Michel and Klon Kitchen explain what lies behind the decision by China’s central bank to issue a digital currency. 

Art of the deal

Tencent, the Chinese gaming and social media company, is becoming a considerable force in French fintech. The Chinese company put up part of a $115m infusion into Qonto, a fully online French bank that is competing directly with traditional banks that rely on branch networks. 

Since its public launch in July 2017, Qonto has attracted ​65,000 SMEs in France, Italy, Spain and Germany. Transaction volume on the Qonto platform exceeded $11.09bn in 2019, with revenue quadrupling compared with 2018, the company said.

The investment came only days after Tencent led a $45m funding round for the Paris-based financial services platform Lydia. 

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• Indian consumer lending start-up MoneyTap says it has raised about $70m in a funding round led by Sequoia India, Aquiline Technology Growth and RTP Global. The lending start-up also has plans to expand its footprint to 200 Indian cities and grow its loan book in the next 12 to 18 months. It will use the money to invest in technology, data science and other areas. 
• Imagr, a New Zealand-based automated checkout start-up, has raised $9.5m in funding led by Toshiba TEC Corp. 

In the spotlight

Foxconn’s “Tiger” is back at the helm. Founder Terry Gou is returning to the company, an important Apple supplier, after quitting as chairman in June to pursue his now-failed presidential run. 

Gou, who remained on Foxconn’s board, is expected to keep Young Liu, his successor, in charge of day-to-day management. The former chairman will instead focus on launching a global fund that will invest in technology companies from the US, Japan, Germany and Israel, which he envisions as a driver for the group’s growth.

Per the Nikkei Asian Review: “The mogul is drawing inspiration from SoftBank, which under Masayoshi Son has shifted its focus from mobile services to fund management. Foxconn is an investor in the SoftBank Vision Fund, and Gou says he and Son are so close they are ‘just a phone call away’. Gou has not announced details of the Foxconn fund, but the two executives will likely co-ordinate.”

Smart data

Tesla’s share price has doubled over the past three months, giving it a market cap greater than Ford and General Motors combined. The latest rally has stretched the automaker’s valuation to 98 times its expected profits this year. 

Analysts attribute much of that performance to one factor: the Shanghai Gigafactory, which began vehicle deliveries this month. But there are a few reasons to be circumspect about Tesla’s prospects, especially in China. 

Expectations that the Tesla stock price would continue to rise might be “a stretch because it requires perfect execution, strong electric vehicle demand growth and at the same time the failure of the incumbent OEMs [original equipment manufacturers] to launch competitive EVs”, said Patrick Hummel, an auto analyst at UBS.

Tesla also aims to buy 100 per cent of its parts from local suppliers by the end of 2020 (up from the 30 per cent), a not insignificant challenge in a foreign country with an uncertain economic environment. 

Regulation round-up

• Japan has been excluded from a US whitelist that exempts foreign companies from tougher scrutiny. The decision means Japanese companies will be examined by the Committee on Foreign Investment in the US (Cfius), which reviews transactions involving foreign investors that may pose a security risk. Only Australia, Canada and the UK have made the list, which will take effect under the new rules of the Foreign Investment Risk Review Modernization Act of 2018 and come into force on February 13. 
• Separately, Japanese lawmakers are working on an initiative to create a national digital currency. The project would be a joint effort between government and private companies and “put Japan in tune with global changes in financial technology”. The country is already an important Asian centre for cryptocurrency trading.