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Semiconductor Advisors
Posted on by Robert Maire

Is Hong Kong a preview of Taiwan? Will HK embolden China to take Taiwan faster?

Is Hong Kong a preview of Taiwan? Will HK embolden China to take Taiwan faster?
by Robert Maire on 08-15-2019 at 6:00 am
Categories: Semiconductor Advisors, Semiconductor Services
2 Comments

On our recent Asian tour, Hong Kong was our last leg, arriving this past Friday and departing Monday, the day the airport stood still. We were on a 2:20PM flight out of Hong Kong back to the states which was one of the last flights to leave before the airport was shut down. Much like the China trade issue, the Hong Kong problem looks to be getting quickly out of hand for no good reason.

Fake news and censored news

When we arrived, Friday, there were a lot of protesters at the airport, all very peaceful, either sitting on the floor of arrivals or handing out literature stating their concerns and position regarding China’s assertion of control over Hong Kong. We easily walked through on the way to our taxi , taking some flyers along the way. It was certainly not the “rioters” or “terrorists” the Chinese government had described. In the previous week when watching CNN in our hotel in China, every time a segment about Hong Kong came on, the screen went dark & silent until the segment was over. We got uncensored news through a VPN connection to the US.

An excuse for a crackdown

It seems pretty clear that China was coming up with excuses to crack down more harshly on Hong Kong in their description of the protestors. There is now a show of force with a military convoy massing on the Shenzhen side of the Hong Kong border. We saw no protestors during our departure. The airport was shut down right after our departure. China probably wanted to have an excuse to react by complaining about economic damage caused from the airport being shuttered. The protestors went so far as to use thousands of “post-it” notes rather than permanent graffiti or anything that would cause damage at the airport.

Subsumed by the Chinese “Borg”-

The protests started over a proposed law to allow extradition of Hong Kong residents to greater China. Probably not much different than being sent to a gulag in the former Soviet Union. This was seen as the first major step in the elimination of the “one China, two systems” that has kept Hong Kong moderately free. It is clearly the first step of the final “absorption” process.

Taiwan should be scared to death

If we were watching the uncensored news coverage of Hong Kong in Taiwan we would be scared to death that we were next on the hit parade. China has made its intentions and views very, very clear about Taiwan, as it also has about the South China Sea.

The acceleration of the Hong Kong absorption and crackdown on resistance could be both a preview of Taiwan and a test of the US’s resolve to resist these moves. So far the isolationist reaction of the US administration has been more of an invitation for China to increase its pace rather than pause out of concern. If we were a Taiwanese resident, that reaction from the US government would make me twice as scared, that the US would drop Taiwan as quickly as Hong Kong and say “Taiwan was part of China anyway”…..or maybe use Taiwan as a bargaining chip in trade negotiations.

The entire chip industry is at risk

If we were in the Chinese administration and upset that our fledgling chip industry was being attacked and choked off by the imperialist US that sounds like a good enough excuse to react defensively and move up my timeframe to take back Taiwan. Yes, it might be a little higher profile than Hong Kong but what’s the US gonna do about it anyway? Whimper a little bit?

Taiwan is too large a prize to be ignored in the “made in China 2025” game plan as it becomes the ultimate “checkmate” against the US as TSMC is now the leader in chip technology and there is more than enough memory technology in Taiwan as well from Micron. It is a clear existential risk to the US and global semiconductor industry.

“When they came for me, there was no one left to help”

The near term reaction to the Hong Kong issue is much, much larger than just Hong Kong as it is another milestone larger, longer term march. The reaction to this milestone will likely have strong implications for China’s ambitions in many other areas.

While it may be hard for the US to throw stones from their own imperialist, dominant, crystal palace it does seem to be the right thing to do.

The stocks

Hong Kong ratchets up the trade war with China to an even hotter level. If the US does react to Hong Kong the Chinese could further up the ante in the trade war. If the US doesn’t react, its like an open invitation to start absorbing Taiwan sooner rather than later. Not a great choice.

This suggests that the trade issue will remain hot for the near term and continue to negatively pressure stocks, especially tech stocks and semi stocks.

There could also be some direct pressure on companies impacted by problems in Hong Kong or nearby Shenzhen that uses Hong Kong as a shipping port. Some US tech companies, such as AEIS, do a lot of their manufacturing in Shenzhen. However, we are sure that China won’t let Hong Kong impact Shenzhen for long as Shenzhen is a crown jewel in China’s tech ambition.

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