US Big Four, textiles, and advanced tech next to decouple; Xi using courts to “pry" sensitive tech away from foreign companies & NATO, EU officials slam PRC's “peace plan" -- China Boss News 2.27.23

Newsletter

Photo by engin akyurt on Unsplash

The Big Story in China Business

US Big Four, textiles, and advanced tech next to decouple

One of the more shocking revelations in China Business, Bloomberg last week reported that “Chinese authorities have urged state-owned firms to phase out using the four biggest international accounting firms . . . even after Beijing reached a landmark deal to allow US audit inspections on hundreds of Chinese firms listed in New York.” Deloitte, PwC, Ernst & Young (EY), and Klynveld Peat Marwick Goerdeler (KPMG) “collectively received revenue of 20.6 billion yuan ($2.99 billion) from all Chinese clients in 2021.”

Bloomberg:

China’s Ministry of Finance is among government entities that gave the so-called window guidance to some state-owned enterprises as recently as last month, urging them to let contracts with the Big Four auditing firms expire, according to people familiar with the matter. While offshore subsidiaries can still use US auditors, the parent firms were urged to hire local Chinese or Hong Kong accountants when contracts come up, one of the people said, asking not to be identified discussing private information.

“While the China-US audit deal last year was hailed as a sign that the competitive superpowers can still work together on some issues, Beijing’s audit guidance is a reminder that decoupling is still proceeding in sensitive areas like SOEs and advanced technology,” Bloomberg analysts said.

Also last week, the Financial Times reported that western fashion brands were diversifying away from China due to "supply chain chaos, higher costs and concerns about working conditions." “The shift away from mass textile production in the country, albeit still in its early stages, marks the reversal of years of outsourcing to a region that has come to dominate the textile supply chain,” news staff noted.

FT:

“We are being deafened by the sound of clothes manufacturers [moving] away from Asia,” said Rosey Hurst, director of ethical business consultancy Impactt.

The relocation was also being driven by stricter laws being introduced in the US and Europe against labour abuses, she added, following the alleged use of forced labour in the cotton-rich territory of Xinjiang in China.

Meanwhile, in a separate report, Hideo Tanimoto, head of Japan's Kyocera, one of the world's largest makers of microchip components, told FT that "the business model of producing in China and exporting abroad is no longer viable."

“Not only have wages gone up, but obviously with all that’s happening between the US and China, it’s difficult to export from China to some regions,” he said referring to US export controls on sensitive chip technology.

FT:

Kyocera’s products include phones, printers and solar panels. The company holds a 70 per cent global market share in ceramic components for chip manufacturing equipment. Tanimoto said US export controls were part of the reason Kyocera cut its full-year operating profit forecast this month by 31 per cent.

“If chip equipment makers stop shipments to China, our orders will be somewhat affected . . . They are now even [being] asked not to ship their non-cutting-edge tools,” Tanimoto said.

But China’s economic support of Russia’s war in Ukraine is another looming risk for tech businesses, according to the New York Times, “U.S. officials” have “pledged to crack down on shipments to Russia that can be used for both civilian and military purposes.”

NYT:

President Biden, speaking in Kyiv on Monday, said the United States and its partners would announce new measures targeting sanctions evasion this week. He did not specify whether those actions would be directed at Moscow or its trading partners.

“Together we have made sure that Russia is paying the price for its abuses,” he said the next day in Warsaw.

For the rest of Bloomberg’s report, China Urges State Firms to Drop Big Four Auditors on Data Risk, click here. For FT’s textile coverage, Clothing companies look to reduce China manufacturing exposure, click here. For FT’s interview with Kycera’s CEO, China no longer viable as world’s factory, says Kyocera, click here. For NYT’s update, China’s Economic Support for Russia Could Elicit More Sanctions, click here.

Law and International Xi

Xi uses courts to “pry” sensitive tech away from foreign companies