ANALYSIS-China's sanction-hit tech industry puzzles over impact of Trump, Harris presidencies

By Eduardo Baptista, Anne Marie Roantree

BEIJING, Nov 1 (Reuters) - Donald Trump winning the U.S. presidency next week would muddle the outlook for Chinese technology firms far more than a win for Kamala Harris, with executives saying his unpredictable style could lead as much to a reprieve for the sanction-hit industry as increased restrictions.

The Republican candidate initiated a Sino-U.S. trade war during his 2017-2021 presidency by banning high-tech exports to China citing unfair trade practices and national security. Yet his combative approach coupled with his record of sudden, wide-ranging tariffs could unsettle U.S. allies and undermine any coordinated effort, Chinese tech executives said.

He is tied in voter polls with his Democratic rival who executives expect to continue with the incumbent's policy of regular, incremental changes to export controls and leveraging international alliances to slow China's technological and military development.

Whoever wins, observers widely expect fresh restrictions to curb advances at a time when Beijing is more assertive in territorial disputes in the South China Sea, increasing navy and air force activity around Chinese-claimed Taiwan and strengthening ties with an at-war Moscow.

Predictability makes Harris the pick of the two for many executives yet, ironically, Trump's seemingly erratic approach could work in China's favour, according to opinions in over a dozen analyses published by Chinese industry groups, think tanks and brokerages, reviewed by Reuters.

The analyses provide a more candid window into how China's tech sector is gauging its outlook under the next presidency, unlike state media which toe the government line on political and sensitive issues.

Half of the analyses considered a Trump victory as negative in the short term due to a greater perceived likelihood of intensifying export controls and sanctions on China's semiconductor sector. In Trump's term as president, he imposed tariffs on billions of dollars worth of Chinese goods and sanctioned conglomerates including chipmaker SMIC 0981.HK and telecommunications manufacturer Huawei HWT.UL.

"As the initiator of a comprehensive upgrade in the containment of China's science and technology, if Trump comes to power again ... the domestic semiconductor industry may be further suppressed," Shanghai-based brokerage Topsperity Securities wrote in August.

The remaining analyses were more nuanced in their conclusions. Material Energy Times, writing for Chinese firms supplying semiconductor manufacturers with raw materials, in July said Trump's "unilateralist policies may also encounter opposition and non-cooperation from the international community".

Policies Harris would inherit from President Joe Biden "are more long-term, coordinated and predictable, which may bring more stable but longer-lasting challenges to China's semiconductor industry," the editorial read.

Trump's unpredictability is borne out in statements and social media posts. He expressed willingness during his presidency to reverse course on measures he took against Huawei and peer ZTE 000063.SZ. During his current campaign, he has railed against a ban on Chinese-owned social media app Tik Tok that he himself proposed while in office.

A July editorial in EETop, an information platform and forum for Chinese electronics firms, said Trump's criticism of U.S. trade relations with allies such as Europe, Japan and South Korea - which in turn have interests in China - could jeopardise cooperation. That would mean, "especially in the globalised semiconductor industry chain, unilateral suppression by the United States is ineffective".

"It's possible that Europe and the Netherlands would deliberately make it easy for us (to circumvent restrictions) then we would be able to import EUVs," the editorial read. China relies on foreign extreme ultraviolet lithography machines and is barred from the most capable.

SELF-SUFFICIENCY

Irrespective of who wins the election, China's tech sector is far more domestic-focused and self-sufficient than when Trump or Biden took office, according to analysts and a Reuters review of data.

The trade war has seen a miscellany of tit-for-tat strikes, such as Chinese export restrictions related to rare earth resources, but it also prompted China's tech industry to insulate itself from sanctions.

In 2016, China had four government procurement projects worth over 10 million yuan ($1.4 million), replacing foreign hardware and software with domestic alternatives, showed a Reuters review of tenders. This year, it had 169 such projects - 75 involving over 50 million yuan in state funds.

As such, even if Trump or Harris ratcheted up export controls, domestic manufacturers are now far less dependent on foreign technology and are better prepared to deal with the fallout of change in trading environment.

"We have slowed them down on semiconductors, but the other sectors like robots, you can dream on," said Robert D. Atkinson, president of Washington DC-based Information Technology & Innovation Foundation. "They can get everything they need internally."

The importance of export controls as a marker of toughness on China was evident in a speech Harris gave at the Economic Club of Pittsburgh in August in which she accused Trump of shipping "advanced semiconductor chips to China which helps them upgrade their military".

The comment was a nod to the Biden administration restricting access to advanced chips from market leader Nvidia NVDA.O used for artificial intelligence tasks.

That did not stop Chinese firms investing heavily in AI. As of July, China accounted for 36% of the 1,328 large language models globally, behind leader U.S. with 44%, showed data from the China Academy of Information and Communications Technology.

Biden's broadening of technology restrictions dashed Chinese hopes that he would be markedly less hawkish than his predecessor. As such, this time round, some tech firms have decided to forego predictions.

"We're operating under a new normal now," said an executive at a large Chinese technology company. "We are blind to know what might come next, so we just keep going, as fast as we can."

($1 = 7.1201 Chinese yuan renminbi)

(Reporting by Eduardo Baptista and Anne Marie Roantree; Additional reporting by Liam Mo, Kevin Krolicki and Qiaoyi Li; Editing by Christopher Cushing)

((Eduardo.MonteiroBaptista@thomsonreuters.com;))