In U.S.-China tech war, investors bet on China’s localisation push

As the U.S.-China “tech war” widens, investors are betting on China’s efforts to replace U.S. technologies with indigenous applications to run networks in the state sector. In recent months, local governments and state firms such as China Telecom have announced plans and procurements aimed at fostering a home-grown tech ecosystem to displace gear from the likes of Intel, Microsoft, Oracle and IBM.

An index tracking Chinese IT stocks has jumped nearly 30% this year, doubling blue-chip gains. “We’re seeing more U.S. actions against China, and the future tends to be ‘one world, two systems’,” said Wu Kan, portfolio manager at Soochow Securities Co, who has invested in local tech leaders including China National Software & Service Co Ltd, China Greatwall Technology Group and Beijing Kingsoft Office Software.

“Any segment that faces decoupling risks represents big investment opportunities.” Some market watchers warn valuations of China tech stocks are getting frothy at roughly 60 times trailing earnings, noting Chinese firms could take years to catch-up to established global players. But Wu said price levels are justified by growth potential and direct government backing.

The Trump administration has recently strengthened restrictions on China’s Huawei Technologies and sanctioned China-owned apps TikTok and WeChat. Washington also rolled out a “Clean Network” initiative to exclude Chinese tech firms perceived as threatening national security.

Some 95% of Chinese servers use CPUs from Intel. It would be disaster, Zhang Chi, chairman of Xin Ding Capital said, “if one day, Trump bans Intel from selling CPUs to China.” Zhang expects Chinese government agencies to replace all computers using U.S. chips in the next five years, echoing views of many analysts.

In U.S.-China tech war, investors bet on China’s localisation push, Reuters, Aug 20