By Dan Strumpf and Steven Russolillo
HONG KONG--The escalating trade fight between Washington and
Beijing is sending a chill through investors in Chinese technology
companies that sell to the U.S.
Hong Kong-listed shares of Lenovo Group Ltd., the Chinese maker
of PCs and servers, fell 15% on Friday, while shares of ZTE Corp.,
which makes smartphones and telecommunications equipment, shed
11%.
The selloff comes as the U.S.-China trade dispute ratchets up,
bringing renewed scrutiny of the global technology supply chain and
the potential vulnerabilities and security risks it entails. A
report in Bloomberg Businessweek on Thursday said Beijing spied on
the U.S. using microchips inserted in computing components built
for an array of American tech companies.
Concerns about Chinese spying "will likely be a big part of the
next phase of the trade war," Mati Greenspan, an analyst at online
trading platform eToro, said on Friday.
Other Asian internet and hardware companies fell Friday,
following a decline in U.S.-listed peers overnight. Taiwan's
tech-heavy index, the Taiex, dropped nearly 2%, with Taiwanese PC
maker Acer Inc. dropping more than 5%.
Lenovo said the chip maker linked in the Bloomberg report to
Beijing's spying efforts, Super Micro Computer Inc., "is not a
supplier to Lenovo in any capacity. Furthermore, as a global
company we take extensive steps to protect the ongoing integrity of
our supply chain."
Super Micro Computer said it "has never found any malicious
chips, nor been informed by any customer that such chips have been
found." ZTE declined to comment.
For years, U.S. authorities have expressed concern that some
Chinese products could be used to spy on Americans, with the
attention falling largely on telecom giants Huawei Technologies Co.
and ZTE. Both companies have long denied that they act on behalf of
Beijing, and Chinese authorities have voiced similar concerns about
American companies operating on their shores.
More recently, the industry has been caught up in the
intensifying spat between Beijing and Washington. The U.S. tariffs
on roughly $250 billion in Chinese exports have fallen heavily on
China's technology sector, which builds a vast range of components
for major Western tech firms. China has responded with tariffs on
$110 billion of U.S. exports.
On Thursday, Vice President Mike Pence aired a long list of
grievances with Beijing and criticized Google-parent Alphabet Inc.
for trying to develop a censored version of its search engine in
China, where internet access is restricted. He also reiterated
concerns raised by President Donald Trump that Beijing is meddling
in the coming U.S. midterm elections.
A spokeswoman for China's Foreign Ministry on Friday said Mr.
Pence made "unwarranted accusations" in accusing China of
interfering in U.S. internal affairs. "This is nothing but speaking
on hearsay evidence, confusing right and wrong and creating
something out of thin air," she said. A Google spokeswoman declined
to comment
Separately, a White House report on Thursday said U.S.
industries tied to national defense faced an "unprecedented set of
challenges" that have curbed their ability to quickly make crucial
military components.
U.S. military officials have in recent months become vocal about
their concerns over the vulnerability of weapons systems to
embedded hardware and software attacks.
Ellen Lord, the Pentagon's chief weapons buyer, told reporters
Thursday that 90% of the printed circuit boards used by the U.S.
military came from Asian plants, half of them in China. The
Pentagon has adopted a two-pronged approach to address potential
threats, auditing U.S. defense companies for their cybersecurity
measures and taking steps to promote more domestic production,
including direct investment to expand U.S. output.
In Hong Kong, attention was on the steep pullback in shares of
Lenovo. The company is a top seller of PCs and a major supplier of
servers world-wide, which it sells under the IBM brand name.
Lenovo bought the server arm of International Business Machines
Corp. in 2014, and the unit has been its key driver of growth in
recent years. About a third of the company's revenue came from the
Americas region in its last fiscal year.
Kevin Tam, an analyst at Core Pacific Yamaichi International in
Hong Kong, said supply chain worries "could have an adverse impact
on Lenovo's overseas sales."
Shenzhen-based ZTE has for years been a top seller of
smartphones to the U.S. The company has long been the subject of
scrutiny by Washington due to concerns its equipment could be used
by Beijing to spy on Americans, which the company has consistently
denied.
This year, the U.S. slapped ZTE with an order preventing
American suppliers from selling to the Chinese firm, for violating
the terms of a settlement agreement resolving its evasion of U.S.
sanctions. The U.S. Commerce Department later reversed the order in
exchange for more than $1 billion in penalties and a change of
senior leadership.
Hong Kong-listed shares of ZTE have lost 57% this year.
Doug Cameron contributed to this article.
Write to Dan Strumpf at daniel.strumpf@wsj.com and Steven
Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
October 05, 2018 08:19 ET (12:19 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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