U.S. and China Show Signs of Improved Relations - Chip Industry Excluded

Over the last seven days, there have been indications of a slight improvement in the U.S.-China trade and financial ties, which have been strained for a long time.

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Investors in Chinese stocks, particularly those listed in the United States and in certain technology industries, have reason to be pleased. However, the chip sector is a different matter, as the rivalry between the United States and China is likely to remain intense. In spite of the economic struggles China is facing, there has been some positive news recently. The long-term dispute concerning the audits of U.S.-listed Chinese companies has been resolved, at least for the time being.

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For the first time ever, Chinese authorities have allowed U.S. audit officials to have full access to certain auditing firms located in the country, which could potentially prevent the delisting of numerous Chinese companies listed on U.S. stock exchanges. A shift towards pragmatism in Beijing has been seen in its tech sector as well. The U.S. Commerce Department was granted permission to conduct on-site inspections of Chinese companies that may be restricted from accessing U.S. technology. As a result, 25 Chinese companies were taken off the "unverified list" after the U.S. Department investigated the end users of their products, with the help of the Chinese government.

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American businesses are still able to work with companies on the unverified list, which is designed to identify companies that cannot prove they are not supplying restricted technology to entities already under U.S. export regulations, such as the Chinese military. Refusal to permit U.S. end-user examinations can result in the addition of these companies to the U.S. trade blacklist.

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Wuxi Biologics, a Chinese company that offers research and manufacturing services to international pharmaceutical firms, has been granted a reprieve. In February, two of Wuxi's subsidiaries were added to the unverified list, with one being taken off in October and the other last week. The Biden administration has expressed its intention to bring back some of the drug supply chain to the U.S., although this would likely increase the expenses of American pharmaceutical companies.

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Unfortunately, the positive news for Chinese tech does not apply to semiconductors. Last week, the Commerce Department added Yangtze Memory Technologies, China's leading memory-chip maker, to the entity list, meaning U.S. companies must obtain a license before engaging in business with them. The U.S. government expressed concern that YMTC could potentially supply products to other Chinese companies already on the entity list, such as Huawei. Though not a surprise, the news is still a major setback for China's chip industry. YMTC is one of the few Chinese semiconductor firms that can rival the likes of Micron and Samsung Electronics from South Korea.

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Chinese investors are feeling a sense of relief as the nation begins to reopen, Beijing is displaying a more practical approach to its dealings with the United States, and the government is once again concentrating on economic growth. The outlook for China's semiconductor industry is still bleak. The rivalry between China and the United States in this sector is likely to remain intense, with the US still having the upper hand.