In what seems to be another setback for American manufacturing activities, a section of Chinese rare earth suppliers have reportedly declined to ship their commodities to the world’s largest economy for fear of repercussions from Beijing.

The latest development comes just ahead of Chinese President Xi Jinping’s Washington visit, during which he will meet his American counterpart Donald Trump at the White House.

While the Trump administration has repeatedly reminded Beijing to stick to commitments made in Busan ‌and Beijing over 2025 to ensure the smooth flow of rare earth export licences, the ongoing issue will make the topic feature at the top of the White House’s agenda when Xi arrives at the American shores on September 24.

As per a report from Reuters, a handful of Chinese suppliers have refused to ship rare earths to American companies since early August, when China imposed sanctions on the Responsible Business Alliance (RBA), a US supply chain monitor.

“With China deploying its own trade compliance weapons, the companies were wary of punishment from Beijing for complying with the due diligence framework of the Responsible Minerals Initiative (RMI), a global mineral supply chain audit programme connected with the RBA,” the report further stated.

Other Chinese rare earth companies had already stopped shipments to the United States to avoid entanglement in geopolitics in recent months, with a source even sighting about four instances where Chinese firms declined to send material for fear it could be resold to banned users.

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However, the US-China trade conflict has forced many businesses to reevaluate their global supply chains. In the next five years, according to a recent study by the McKinsey Worldwide Institute, businesses may move a quarter of their global product sourcing to new countries. This tendency is being further accelerated by threats from the climate, cyberattacks, and the continuing pandemic. An increasing number of countries are optimistic that they might dethrone China as the world’s next major manufacturing hub in this rocky trade environment.

Vietnam
By absorbing a large portion of the manufacturing capacity that China lost, Vietnam has so far been one of the biggest gainers of the US-China trade war.

Vietnam boasts progressively liberalised trade and investment rules that make it an attractive location for firms wishing to diversify out of China, in addition to having affordable labour and stable politics. Since tensions between the two powers deteriorated, several of the greatest names in technology moved some of their businesses to Vietnam.

Early in May 2020, Apple declared it would make around 30% of its AirPods in Vietnam rather than China for the following three months.

Mexico
Mexico is another country that has gained from the US-China trade war. The investment firm Nomura noted in a report that Mexico, which opened six new factories in multiple industries between April 2018 and August 2019, could emerge as a top choice for US businesses.

Additionally, a number of businesses are presently thinking about moving their operations to Mexico, including the Taiwanese manufacturers Foxconn and Pegatron, which are known as Apple contractors.

As US businesses adopt “near-shoring,” Mexico’s proximity to the US represents a significant benefit. To encourage businesses to relocate production facilities from Asia to the US, Latin America, and the Caribbean, the US administration is looking at financial incentives.

India
India has significantly increased its efforts in recent years to attract manufacturing investments into the country. The “Made in India” project of PM Narendra Modi aims to assist India in displacing China as a centre of the world’s manufacturing.

The promotion of the largest smartphone manufacturers in the world to manufacture in India is a key component of this strategy. India started a USD 6.6 billion incentive scheme in June of this year to increase the production of electronics there.

However, the trade battle has so far only yielded small benefits for the country. Analysts attribute this to India’s severe regulatory environment. On the FDI Regulatory Restrictiveness Index, India ranks 62nd out of 70 countries.

Malaysia
The Malaysian island of Penang witnessed a spike in foreign investment between 2018 and 2019. According to the Malaysian Investment Development Authority, the US contributed significantly to this, spending USD 5.9 billion in Malaysia in the first nine months of 2019, an increase from USD 889 million the year prior.

A new drive assembly and test facility would cost RM1.5 billion (USD 364.5 million) over five years, according to a statement from US chipmaker Micron Technology.

Malaysia, however, has been severely impacted by China’s loss of trade. Up to 60% of the materials and components used by Penang’s tech companies come from China.

Singapore
Over the last few years, Singapore’s ability to manufacture goods has somewhat diminished. While manufacturing accounts for roughly 30% of the GDPs of Taiwan and South Korea, it accounts for only 19% of the GDP in Singapore.

The trade conflict and the coronavirus outbreak might alter this. Singapore is in a good position to take advantage of this potential as a global hub with open investment and trade regulations and a track record of steady economic growth.

Singapore, like Malaysia, is coping with the consequences of the decline in Chinese demand, though. The trade war has caused the export-dependent nation’s industrial output to plummet, an indication that the country could gain from being more independent of China.

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According to analysts, the outbreak of coronavirus is also responsible for the economic contraction. Japan’s GDP contracted at an annualised 6.3 percent during the period from October to December 2019. Its economic contraction is sharper than a median market forecast of 3.7 percent drop, according to government data.

It is the country’s first economic decline in five years, media reports said. The last fall took place in the second quarter of 2014. Capital expenditure dropped 3.7 percent in the fourth quarter last year, which is higher than a median forecast for a 1.6 percent drop.

Taro Saito, executive research fellow at NLI Research Institute, told the media, “There’s a pretty good chance the economy will suffer another contraction in January-March. The virus will mainly hit inbound tourism and exports, but could also weigh on domestic consumption quite a lot.”

Previously, Japanese policymakers had warned that the economy will contract during the period from October to December. They had attributed the contraction to US-China trade war and sales tax hike that could affect consumption and factory output.

Now investors are assessing the situation closely to see whether the country’s economic growth will rebound in the current quarter. Last month, the Bank of Japan kept the monetary policy steady in a hope that global growth will rebound mid-year, media reports said.

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The tariffs were to be implemented by China on corn and US manufactured cars and auto parts from December 15, 2019.

On its website, China’s State Council’s Customs Tariff Commission revealed that other tariffs on US goods will remain unchanged.

In a statement on its website, the commission said, “China hopes, on the basis of equality and mutual respect, to work with the United States, to properly resolve each other’s core concerns and promote the stable development of US-China economic and trade relations.”

According to media reports, Beijing has agreed to import at least $200 billion worth of US-made goods over the next two years on top of the amount it purchased in 2017.

Last week, after the signing of the phase-one trade deal with China, US President Donald Trump announced the decision to wave off US tariffs on $160 billion worth of consumer goods entering the country from China. The tariffs were also scheduled to go into effect on December 15, 2019.

Advisers also discussed the possible reductions of existing duties on Chinese products with the president.

According to the deal, China will increase the import of agricultural products from the US. Also, the deal requires China to commit and do more to stop intellectual-property theft. Both the US and China have also agreed to not manipulate their currencies.

Reportedly, the US has been working on the terms of the phase-one deal since Donald Trump announced in October that the two nations have reached an agreement. The announcement of the deal was met with immediate criticism from Democrats and even by members of his own party.

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Besides signing the trade deal, the US President has also decided to wave off US tariffs on $160 billion worth of consumer goods entering the country from China. The tariffs were scheduled to go into effect on December 15, 2019.

Advisers also discussed the possible reductions of existing duties on Chinese products with the president.

According to the deal, China will increase the import of agricultural products from the US. Also, the deal requires China to commit and do more to stop intellectual-property theft. Both the US and China have also agreed to not manipulate their currencies.

Reportedly, the US has been working on the terms of the phase-one deal since Donald Trump announced in October that the two nations have reached an agreement.

However, the announcement of the deal was met with immediate criticism from Democrats and even by members of his own party.

Republican Senator Marco Rubio tweeted, “The deal would give away the tariff leverage needed for a broader agreement on the issues that matter the most such as subsidies to domestic firms, forced tech transfers and blocking US firms’ access to key sectors.”

According to the media, the deal could also see the 17-month long trade war between the US and China coming to an end.

President Donald Trump started the trade war in 2018 to force China to make changes to its trade practices which were resulting in trade deficit, theft on intellectual property and the forced transfer of American technology into China.

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In fact, Russia was one of the first countries to launch 4G in the region in 2012. Russian operators have been making significant investments in 4G network deployment to improve coverage and speed in recent years. Despite that, it has only covered less than a third of Russia’s network connections, while half of Europe’s connections were 4G, observed the GSMA 2019 report.

GSMA analysts believe that growth in the number of mobile subscribers in Russia will largely remain unchanged in 2025 because of the current high level of mobile penetration in the country.

Russia’s accelerated efforts to migrate to 4G and the first phase of 5G suggests that there will be further data growth. Russian operators have been testing the 5G technology using prototypes and pre-5G standards for many years, the report noted. They are even deploying LTE-A networks which is critical for 5G migration. One of Russia’s mobile network operator MTS carried out a significant 5G trial with demo zones setup at the FIFA World Cup last year showcasing a range of 5G capabilities.

The country’s deep focus on 4G rollouts and 5G launches implies that it could join the second wave of global mobile markets. The report forecasts that the first commercial 5G deployment in the country will reach 46 million by 2025, which represents 20 percent of the overall connections base. The estimated population covered will be 60 percent by then.

By the numbers alone, Russia is expected to be above the global average but behind leading 5G markets such as the US, South Korea and China. The country will adopt a non-standalone deployment approach with 5G positioned as a supplementary capacity overlay to 4G, according to the report.

Currently, Russia has deployed its first 5G zone as part of a five-year deal between Ericsson and European telecommunications operator Tele2. The goal is to drive network transformation spanning Tele2’s infrastructure across Russia. The first 5G pilot zone is on Tele2’s commercial network in Moscow, according to Ericssion’s official press release.

Another manifestation of 5G pilot launch is seen in the country as Huawei and MTS have partnered to introduce a swift network covering the full extent of Moscow. This 5G pilot scheme is reported to have a political significance with Huawei planning to transition its smartphones and tablets to Aurora OS developed by Russian telecom Rostelecom. Rostelecom is controlled by the Russian government — and by definition, Aurora OS has become a state-sponsored software. Recently, the media reported that Huawei will install the Russian OS on 360,000 of its tablets for use in Russia next year.

The current technological divide between the US and its allies — and China and its supporters, including Russia — known as Splinternet — is stoking fear among intelligence agencies and technology giants. Huawei’s first stage of launching the Russian OS on its devices is creating a sense of loss in sector control and revenue for major players such as Intel, Google and Microsoft.

Russian carriers ready for the 5G battle

That said, telecom players in Russia already on the 5G development or investment path. This year, MTS signed 5G cooperation agreements with global equipment vendors, in addition to launching a 5G partnership with the Moscow government. MTS identifies robust growth opportunities in Moscow comprising nearly 20 million residents. At some point, it also plans to setup a 5G lab in the city to incubate startups developing fifth generation connectivity-based products and services. Even MegaFon has started to build small 5G trial zones with 5G field trials in mm band and EMC trials in 3,4-3,8 band.

Russian carriers are rapidly completing field trials of 5G infrastructure and terminal equipment to successfully launch the technology in Moscow and other cities by 2019 end. Industry newcomer Vinsmart is collaborating with Fujitsu to create and deliver smartphones based on Qualcomm Snapdragon 5G mobile platform. The phones will be marketed in the US, Europe, Russia and other markets in April 2020.

5G-compatible smartphones are needed because the Russian Digital Economy has made it compulsory for all cities with over 1 million populations to have only 5G networks by 2024. Russian carriers are already preparing to create operational networks followed by commercial networks in the next two years.

Inessa Galaktionova, MTS first vice president for telecommunications, told International Finance, “In terms of network infrastructure, we are planning to move from pilot zones to a broader rollout over the next several years. In line with previous technology transitions, the first priority will be covering high-density, high-traffic urban hotspots. We will then gradually shift to nationwide expansion, with 5G capex ramping up as investment in 4G phases down. Beyond basic infrastructure, we expect 5G to create fundamentally new business models and monetisation strategies, and we are in a great position to substantially contribute to these developments.”

According to a MegaFon representative, the operator will be working on small field trials in 2020 and 2021, following which a nationwide rollout base will take place depending on the trial results and market development.

Spectrum allocation is a challenge

Because of the persistent absence of n78 (3.3-3.8 GHz) spectrum allocation required to support 5G in the Russian market there are challenges in implementing 5G zones, according to Qualcomm. Even though the existing 5G mm wave assignment will assist the rising demand for enhanced mobile broadband in business centres, airports, railways stations, venues, and stadiums — deficiency of EU industry standard n78 might curb upcoming 5G locations and extend breakeven time for mobile network operators investing in the technology in short to medium term.

“The market is still working out the right business model to deliver 5G services efficiently and at scale. The other challenge is, of course, the regulatory aspect of a new, even revolutionary, technology. Telecom companies worldwide are closely engaging with their respective governments as well as global industry bodies to define the right regulatory approach, and Russia is no exception. MTS is very much involved in the discussions,” Inessa added.

One of the biggest roadblocks for MegaFon was that no spectrum was allocated for 5G in 3,4-3,8 GHz band. However, it is expected that a solution will enable it to launch 5G in this band, MegaFon said.

Geographically, Russia is the largest country in the world with a huge need for connectivity. This year, it launched a five-year programme with with the aim of speeding up digitalisation in the economy which can be achieved by improving network availability, resilience, and security. MTS noted that 5G will play a crucial role in achieving the programme’s goal to boost industrial productivity, stimulate growth, and improve people’s lives. It appears that 5G will speed up digital adoption among consumers. With Russia being one of the few markets globally where domestic digital players outperform international ones — there is a good chance for MTS to venture into new digital segments that complement its core telecoms business. It is working to build its own digital ecosystem involving fintech, media, clouds and cybersports. Speaking of mobile connectivity in the future, MTS explained that 5G will act as a growth platform in those key areas.

In many ways, new digital infrastructure will advance the expansion of economic sectors from ‘classic’ software development and hardware production to science to education to healthcare to entertainment. From Qualcomm’s perspective, 5G services would establish new use cases for millions of mobile users — and encourage the creation of new business concepts — and jobs.

5G rollout and the ‘Digital Economy’ plan

In fact, MetaFon supports the discussion that 5G rollout is associated with the overall national programme ‘Digital Economy’. The operator believes that 5G will provide it with additional throughput and latency reduction to reinforce the cloud services footprint in its mobile network. With that, 5G could become the basic network for the likes of driverless cars and delivery drones.

Russia is anticipated to swiftly scale 5G following the launch of its first 5G networks in 2020, according to GSMA study. Its forecasts suggest that there will be 5G commercial deployment from 2020. Moving forward, the rate of 5G adoption will factor in consumer demand and availability of compatible devices.

Currently, MTS is one of Europe’s largest telecom operators with more than 75 million active users on its network in Russia. MTS further explained that 5G in contrast to the first four generations of mobile connectivity is tailored to enable massive machine-type communication (mMTC).

With IoT expansion, hundreds of millions of things such as cars, wearable devices, and industrial equipment will be connected online. This means, there is a significant scope for growth among telecom operators. MTS, for example, is leading the way with the largest narrow-band IoT network in Russia. The operator is already well established to achieve incremental revenue in industrial automation and process control.

For now, MegaFon only has test users on its network and the majority of them are expected to adopt 5G technology after 2030.

Yulia Klebanova, VP Business Development, Qualcomm Eastern Europe, told International Finance, “The speed of broad 5G adoption in Russia would depend upon multiple factors. Trust me, one of the most critical ones is timely resolution of Sub 6 (n78) spectrum to ensure broad coverage of 5G networks on vast territories of Russia.”

The first use case of 5G will be seen in traditional mobile connectivity, with the launch of high-end 5G-capable smartphones. Inessa said, “As 5G migrates down market and penetration increases, it will play a critical role in ensuring network capacity keeps pace with the ongoing rapid growth in data consumption. Looking further ahead, enhanced mobile broadband (eMBB) will also provide users with fundamentally new experiences and ways to interact with the world around them — for instance in virtual and augmented reality (VR/AR). Beyond mobile connectivity, ultra-reliable low-latency communications (URLLC) will have profound implications for emerging new applications, such as in edge computing, autonomous vehicles, and remote surgery.”

Qualcomm, like most technology companies has the same faith invested in 5G technology. “As soon as the first 5G launches in Russia are driven by priority mm wave spectrum assignment, initial 5G networks would cover downtowns, business centres, airports, and other locations with intense data traffic consumption at megapolises like Moscow,” Yulia explained. After 5G implementation, video streaming in high definition up to 4K will become the technology norm equivalent to what 4G LTE currently delivers on audio streaming.

The China – Russia 5G angle

Russia’s 5G efforts will create huge opportunities for telecom operators and their users. The GSMA report highlighted that the industry will benefit through outcomes involving lower equipment prices as production increases and minimising investment burden in the near future. At present, operators are stifled with investment demands such as the cost of implementing the new Yarovaya law. Meanwhile, a report by China’s official media Global Times noted that Russia has proposed to consider implementing 5G networks with 4.4-4.99 GHz bandwidth primarily used in China and Japan.

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More recently, DBS Bank Taiwan said that its clients operating in Singapore and Taiwan are facing volatility because of a slowing global economy and the looming US-China trade war. 

The bank expects economic ties between Taiwan and Singapore to continue growing, even with uncertainty over the trade war. General Manager Lim Him-chuan told the media “Like Taiwan, Singapore is highly sensitive to changes in global trade as it is an open economy. However, we believe that the two nations would improve in the long term and the economic cooperation between companies would continue as well.”

Even though DBS is a popular bank in Singapore — it is not as famous in Taiwan. The reason is because the local unit does not mention that the bank is from Singapore. 

DBS Singapore said its wealth management business is anticipated to grow in the second half of the year or next year on the basis of capital repatriation. 

In July, DBS Singapore injected $72.21 million as fresh capital into its subsidiary DBS Bank Taiwan to fund digital transformation. This way, the Taiwan subsidiary’s paid-in capital would grow from NT$30 billion to NT$32.25 billion — becoming the third-largest foreign bank in Taiwan after Citibank Taiwan.

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In the onshore market, yuan dropped to 7.1500 pegged against the US dollar. As a result of the trade war, this figure is yuan’s weakest since February 2008. That said, in the offshore market, the yuan fell to 7.1850, which is the weakest since the currency’s international trading in 2010. 

In the last few days, global economic tensions have heightened with punitive tariffs imposed by the US and China on each other’s export goods. 

Takuya Kanda, general manager of the research department at Gaitame.com Research Institute in Tokyo, told the media that China’s economy is slowing, so the yuan will only fall further unless authorities take steps to stop it. 

US stocks fell on Friday as President Donald Trump announced an additional 5 percent tax on $550 billion worth of Chinese goods. This followed after China’s Ministry of Finance announced on its website that it will impose new tariffs between 5 percent and 10 percent on $75 billion worth of US goods. In addition, it announced that there will be a 25 percent tariff imposed on automobiles and parts originating in the US. 

With that, Trump has asked US companies to immediately seek alternatives for China’s products.

The People’s Bank of China is changing the way commercial lenders set interest rates for loans to offset economic slowdown. Before the latest trade war escalation, the International Monetary Fund forecasted China’s growth to stand at 6.2 percent in 2019 and 6 percent in 2020. 

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The Philippines decided to widen its investments amid a slump in the stock market. The net assets of the Pag IBIG fund are worth 570 billion pesos or $10.8 billion.

The Philippines’ Pag IBIG fund has deployed an additional 570 million pesos to its five external fund managers. According to chief executive Acmad Rizaldy Moti, the additional investment allows external parties to invest in total assets worth 4.5 billion pesos.

He added that the volatile market scenario gives the fund an opportunity to diversify its portfolio and it is trying to take advantage of the situation to achieve its goal.

The Philippines Stock Exchange Index saw a 3 percent fall on Thursday which is considered to be the biggest loss in Asia that occurred in a single day. The trading closed at a 0.4 percent lower valuation, the lowest in three months.

“Smart money comes in whenever the market hits extremes that we could be building a bottom at 7,700 already.  Some value is emerging for long term investors,” said Justino Calaycay, an analyst at Philstocks Financial Inc.

The on-going US- China trade war, a devaluation in the Chinese currency yuan and slow economic growth in Philippines have affected the Philippines stock exchange market which has slumped more than 6.4 percent this year until Thursday.

Established in 1978, Pag IBIG is responsible for the administration of the national savings program. The fund provides financing for housing facilities for Filipinos employed by local as well as foreign employers.

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China Mobile reported a 15 percent drop in its annual net revenue in the first half of the year. The company’s  revenue generated from telecom services fell 1.3 percent, according to a statement filed with the Hong Kong Stock Exchange.

The company’s net profit in the six months to June 30 was RMB 56 billion, compared to RMB 65.6 billion in the same period last year. Its subscribers roughly increased 10 million in the first half of the year.

According to the Ministry of Information and Technology report, China’s 4G penetration rate reached 84 percent in the beginning of the year. China has ramped up its efforts in 5G development initiatives with a robust body of research and implementation from Huawei and ZTE. 

That said, other  state-owned network carriers such China Unicom and China Telecom have also invested efforts in 5G development. 

The mainland’s second-largest mobile chip developer Unisoc is preparing to launch a 5G chipset in 2020. There is media speculation that the launch might closely compete with global chip leaders such as Qualcomm and MediaTek in an effort to sever their dependence on US suppliers.

Unisoc is a subsidiary of the Tsinghua Unigroup. Previously, the company had established a partnership with Intel to use x86 cores in mobile processors which did not succeed as expected. 

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