Hong Kong Tech Sector Strong despite the ongoing US-China Trade War

1st September 2019

After seeing the recent storming of the Hong Kong legislature, it would be easy to reach the conclusion that the entire city is at a standstill. Is this a true picture, however, or just an angle being promoted by a politicized media? It's in no-one's interest to stifle business; in fact, the city is actively promoting business development and collaboration.

 

Despite the current standoffs between China and the USA, it seems that HK's Tech sector continues to thrive, backed by government incentives and distant from the broader economic downturn and particularly Manufacturing pounding. While China and the USA slug it out, businesses from South East Asia, Australia, Japan, Korea, and Europe have been turning trade barriers into opportunities.

 

Silicon Valley Associates Recruitment looks at some of the factors that are keeping HK's IT industry robust, including the trade war, investment, and international collaboration.

 

Trade War Effects

In March 2018, President Trump directed the US trade representative to investigate the application of tariffs on around $50 billion of Chinese imports. This action sparked a sequence of events, impacting trade and business not only in China and the USA but also in HK.

 

In HK itself, the trade war is now influencing industries related to Manufacturing and retail, but also transportation, supply chain and re-export. These businesses are keeping a close eye on the political situation and the uncertainty is affecting the employment market in those sectors. Recruitment is slowing, with businesses limited to replacing staff rather than new hires and considering temporary staff. 

 

The ban on US firms selling components to Huawei is also affecting the US technology sector. Under DOC rules, US chipmakers and semiconductor manufacturers face the so-called "presumption of denial" when requesting to sell to agents. Despite media suggestions that the ban may soon be lifted, the DOC is continuing to be skeptical of such requests. 

 

Despite all of this, the HK job market for IT, tech and development staff is very healthy. The government is offering incentives for the sector, particularly the development of the Greater Bay Area. Here, the intention is to develop a new Silicon Valley by joining up HK, Macau and neighboring cities. As such, recruiters are once again set to benefit from burgeoning demand fueled by non-US tech companies looking to enter or consolidate in HK. It's an ill wind that blows nobody any good.

 

The introduction of trade barriers is having an unexpected effect in HK. Unexpected to President Trump at least. As US tech and Software companies remain cautious, waiting to see which way the wind blows, other countries are seeing opportunities.

 

Businesses from South East Asia, Japan, Korea and Europe are finding openings from the trade war. Silicon Valley Associates Recruitment has seen a growing demand from non-US tech companies looking to expand and hire in HK. In fact, non-US companies now make up a larger portion of their client base. 

 

Investment and mergers

Another serious impact of the trade war is on investment. In particular investment by Chinese firms in US hardware and semiconductor manufacturers. Here, investment fell almost five-fold during 2018, from around $1 billion in 2018 to $200 million. At the same time, Chinese firms are being constrained on making overseas investments owing to government "deleveraging" restrictions. 

 

Caution is also affecting plans for mergers and acquisitions. In 2016, Chinese firms spent over $15 billion in acquisitions of US tech companies. In 2018 the figure was below $1 billion. US acquisition of Chinese tech companies, although never reaching the same highs, has also plummeted. It seems that uncertainty is causing companies on both sides to hold back, even in non-sensitive sectors.

 

One possible outcome is that the technology sector will develop in separate pockets, each competing with one another and building supplier relationships with its nearest neighbors. This could certainly be the case with the US and China. In the current circumstances, it would be inconceivable that a US business would buy from a Shenzhen supplier or vice versa.

 

But with its close ties to China and good relations with regional powers such as Singapore, Japan and Korea, Hong Kong’s technology sector continues to grow. With hindsight, government incentives to develop a new Technology Hub in the Greater Bay Area look like a masterstroke.

 

HK innovation prowess

HK's tech prowess is being recognized not only by regional powers but also by Europe. Recently, several of HK's leading innovators assembled at MWC Barcelona [1], to present their products to potential partners in Europe.

 

The Hong Kong Technology Pavilion promoted this opportunity for HK tech start-ups to engage with over 100,000 trade visitors and present their innovations in telecoms, wireless technologies, IoT devices, and wearables.

 

International collaboration is a major goal for HK. Part of its strategy [2] is to develop collaborative platforms for educational, research, and tech businesses; the intention being the development of new economic pillars. This will further promote R&D and industrialization in HK.

 

Complementing the collaboration strategy is a mission to capitalize on HK's business-friendly heritage, making the city into a testbed for development. In addition, to encouraging inward investment from businesses, this plan envisages a smarter and healthier city, where tech staff will be happy to work.

 

The trade war may be having a negative effect on HK's retail-related sector, but IT, tech and development continue to thrive, despite (or perhaps enabled by) strained relations between China and the USA. Whichever way the wind blows, HK is well placed when it comes to High Tech. 

 

[1] https://www.scmp.com/presented/news/hong-kong/topics/mission-showcase-hong-kongs-innovativetalents/article/2184685

[2] https://www.smartcity.gov.hk/doc/HongKongSmartCityBlueprint

 

 

 

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Silicon Valley Associates is ideally positioned to support the continual demand from tech companies and IT Departments looking to hire in Hong Kong, Asia, and Worldwide. Please let us know if you would further advise on the above topic or your hiring needs

 

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