[Research Report] What is the core contradiction in the Sino-US trade war?
Amid trade frictions, the trend of industrial transfer in the electronics industry remains unstoppable
On March 22, local time, the United States announced additional tariffs on $60 billion worth of Chinese goods to restrict China's investment in purchasing technology from American companies. The tariffs involve more than 100 Chinese products including electronics, telecommunications equipment, furniture, etc. Among them, the technology and telecommunications industries will receive special attention.
Regarding the impact of trade frictions on my country's electronics industry, we have four main views. 1. Trade frictions use high tariffs as the main weapon, which makes product sales prices rise across the board. At the same time, the decline in the share of overseas brands will greatly promote the process of domestic substitution. The electronics industry is not only China's export advantage industry, but also has the attribute of domestic substitution. 2. We have sorted out the overseas income and sales in the United States of various sub-sectors of electronics. Generally speaking, the downstream of the industrial chain of most products is in China, and the sales in the United States generally do not account for a high proportion. The core industrial chain remains in China, and the trend of industrial transfer in the electronics industry is unstoppable. 3. Intellectual property issues cannot be avoided. The United States can use this method to attack my country's electronics sector, which has global competitiveness. my country's panel, LED and other sectors have risen significantly, the number of patents of leading enterprises has increased year by year, and the ability of independent control has been improved. At present, the weakest integrated circuit link in my country's electronics sector has a higher level of strategic significance for localization, and it is expected to accelerate catch-up with policy support. 4. In the last century, the United States went from launching a trade war against Japan to Japan's negotiation and compromise, and the stock market experienced a process of confidence damage to repair. China's counter-strategy for trade frictions is equally powerful, and the two sides are expected to eventually reach a new balance. It is recommended to pay close attention to long-term blue-chip stocks with steadily growing performance.
Trade friction is a double-edged sword, accelerating the independent control of semiconductors
Developing the integrated circuit industry is an important way to accelerate industrial transformation and cultivate new economic growth points, and it is the cornerstone of the new economy. We believe that under the influence of trade frictions, both sides will suffer in the short term, but in the long run it will accelerate the localization process in core areas, and we continue to be strategically optimistic about the rise of the domestic semiconductor industry. On the one hand, my country's integrated circuit imports are huge, and it has been subject to others for many years, which affects the progress of my country's development of high-tech industries; on the other hand, my country's electronic terminal market is huge, and it is the world's largest electronic terminal processing plant and chip consumption market, which has the soil to cultivate the local IC industry. At the policy level, the government work report puts integrated circuits first in the development of the real economy, and the second phase of the Big Fund is in preparation, and the policy intensity is increasing.
Target recommendation
Consumer electronics: Lens Technology, Han's Laser, OFILM Technology, Luxshare Precision; semiconductors: San'an Optoelectronics, Changdian Technology, Huatian Technology, Yangjie Technology; display: BOE A, Precision Measurement Electronics; passive devices: Aiwa Group, Fara Electronics, Torch Electronics.
risk warning
1. Sales of electronic products are lower than expected;
2. The progress of localization of semiconductors in my country is slower than expected.
Table of contents
Core Viewpoint
Special Research - Analysis of the Impact of Sino-US Trade Friction on A-share Electronics
The core contradiction of Sino-US trade friction
The logic behind the impact of trade friction on the industry
Impact on A-share electronic companies
Trade friction is a double-edged sword, accelerating the independent control of semiconductors
The integrated circuit industry is the foundation of the new economy and is also the largest import commodity in my country.
China has the soil to develop the semiconductor industry
The importance of localization of integrated circuits has been raised to a higher level, breaking the situation of being controlled by others
Trade friction has limited short-term impact on the semiconductor industry, but will benefit the development of independent manufacturing in the medium and long term
Industry key data tracking
Market Review
Report Content
Core Viewpoint
On March 22, local time, the United States announced additional tariffs on $60 billion worth of Chinese goods to restrict China's investment in purchasing technology from American companies. The tariffs involve more than 100 Chinese products including electronics, telecommunications equipment, furniture, etc. Among them, the technology and telecommunications industries will receive special attention.
Regarding the impact of trade frictions on my country's electronics industry, we have four main views. 1. Trade frictions use high tariffs as the main weapon, which makes product sales prices rise across the board. At the same time, the decline in the share of overseas brands will greatly promote the process of domestic substitution. The electronics industry is not only China's export advantage industry, but also has the attributes of domestic substitution. 2. We have sorted out the overseas income and sales in the United States in various sub-sectors of electronics. Generally speaking, the downstream of the industrial chain of most products is in China, and the sales in the United States generally do not account for a high proportion. The core industrial chain remains in China, and the trend of industrial transfer in the electronics industry is unstoppable. 3. Intellectual property issues cannot be avoided. The United States can use this method to attack my country's electronics sector, which has global competitiveness. my country's panel, LED and other sectors have risen significantly, the number of patents of leading enterprises has increased year by year, and the ability of independent control has increased significantly. At present, the weakest integrated circuit link in my country's electronics sector has a higher level of strategic significance for localization, and it is expected to accelerate catch-up with policy support. 4. In the process of the United States launching a trade war against Japan in the last century and Japan's negotiation and compromise, the stock market experienced a process of confidence damage and repair. China's counter-strategy for trade frictions is equally powerful, and the two sides are expected to eventually reach a new balance. It is recommended to pay close attention to long-term blue-chip stocks with steadily growing performance.
Semiconductors: The government work report puts the development of integrated circuits first in the real economy. At the same time, we are about to see the launch of the second phase of the National Integrated Circuit Industry Fund, so the domestic integrated circuit industry has ushered in clear development opportunities. At the same time, the global industry will continue to maintain good growth in 2018, and the global IC industry will continue to shift to mainland China. In addition to smartphones, new IC applications are also rising rapidly, and the demand for chips such as AI, automobiles, blockchain computing, and 5G is also growing rapidly, which will become a new driving force for the growth of the global semiconductor industry. We recommend paying attention to Sanan Optoelectronics , Changdian Technology , Huatian Technology , and Yangjie Technology .
Display: We believe that grasping the two major chains of large-size and flexible OLED is the key to understanding changes in the display industry and insight into investment opportunities in the sector. This year, the price of large-size panels has fallen back to a suitable range, and the average size of TV shipments has increased, which will be conducive to the digestion of new production capacity. We can pay attention to companies with higher cutting economy in the large-size field. In the field of flexible OLED, domestic panel manufacturers benefit from their geographical advantages and can more intuitively feel the strong demand from downstream. If the production capacity can be effectively opened, the price can be gradually reduced to a reasonable range, and the penetration rate of flexible OLED can be increased. As a model for China to achieve independent control, the panel industry has a more prominent strategic significance in the context of trade frictions. We recommend paying attention to BOE A and Precision Electronics .
For other aspects, we recommend paying attention to Lens Technology , Han's Laser , O-Film Technology and Luxshare Precision in consumer electronics; San'an Optoelectronics is recommended for LEDs ; passive components are currently out of stock, so we recommend paying attention to Aiwa Group , Fara Electronics and Torch Electronics .
Special Research - Analysis of the Impact of Sino-US Trade Friction on A-share Electronics
The core contradiction of Sino-US trade friction
1. The comprehensive impact of the huge foreign trade deficit
The United States has been facing a huge trade deficit that has been growing since the 2008 economic crisis. In 2017, the U.S. foreign trade deficit was close to $800 billion, of which the deficit with China was $375.2 billion, accounting for 46.9%. The long-term foreign trade deficit has led to a series of unfavorable factors, including a decrease in foreign capital inflows and a continuous increase in foreign debt.
2. China's manufacturing transformation and upgrading poses a threat to the foundation of the US manufacturing industry
本轮贸易摩擦并非针对的是长期存在的中低端产品贸易逆差，因此从贸易层面很难理解美国政府的用意。但从产业角度看，维护本国产业特别是高精尖核心科技产业的意图十分显著。
The logic behind the impact of trade friction on the industry
The focus of sanctions in trade frictions between the two countries must be the other party's export-oriented advantageous industries. In the case of Sino-US confrontation, China's restricted industries include electromechanical products, textiles and clothing, steel, photovoltaics, etc., and as a counterattack strategy, the United States' industries with a greater chance of being restricted are automobiles, aviation equipment, electronic terminals, agricultural products, etc.
Considering that trade sanctions usually use high tariffs as their main weapon, the cost of imported goods will increase significantly and product sales prices will rise across the board. At the same time, the decline in overseas brand share will greatly promote the process of domestic substitution, which is beneficial to industries with domestic substitution and industrial transfer attributes.
In general, since China and the United States have complementary trade, consumer products exported by China to the United States and capital and technology products exported by the United States to China may become bargaining chips for the other side.
Impact on A-share electronic companies
1. Electronic products account for the largest proportion of goods imported from China by the United States, and restrictions are inevitable
Among the goods imported by the United States from China, the top three categories are: motors, electrical, audio-visual equipment and their parts and accessories (29.1%); nuclear reactors, boilers, mechanical equipment and parts (21.7%); furniture, bedding, lamps, and mobile homes (6.3%), with electronic products accounting for the largest proportion.
2. Electronics companies have a high proportion of overseas business, and most of them are export-oriented, but their dependence on the United States is limited.
Through analysis, we found that among the electronics companies, 25% had overseas revenue exceeding 50%. Electronics is the sector with the largest number of companies with high overseas revenue in the A-share market, followed by machinery, chemicals and medicine. In 2016, China's electronic product exports to the United States amounted to US$128.95 billion, equivalent to RMB 894.527 billion. During the same period, the total output value of the domestic electronics industry was RMB 8730.468 billion, and exports to the United States accounted for 10.25%.
3. The downstream of the industry chain is located in China, and the direct sales to the United States account for a small proportion, so the direct impact on performance is limited
According to our classification of A-share electronic sub-sectors, they can be roughly divided into: consumer electronics, semiconductors, panels, LEDs, PCBs, passive components, and security. Industry characteristics are divided into three categories:
Category A: Yes in China, no/very weak in the U.S. - The industry itself is unlikely to be hit hard by trade tariff policies, but indirect impact from overseas terminal brand sales is inevitable;
Category B: China is strong, the United States is weak - this type of industry is the biggest beneficiary of the industrial transfer trend. If there is a possibility of substitution, it is likely to be affected by trade tariff policies;
Category C: China is catching up, while the United States is stronger - this type of industry is in the development stage of domestic substitution. If it becomes the focus of China's trade counter-measures, the process of domestic substitution is expected to accelerate.
In summary, we believe that:
1. Generally speaking, the downstream of the industrial chain of most products is in China. Therefore, although the sales customers are in North America, they are not directly sold to the United States, which makes the sales in the United States generally not high, and there is no fear of the direct impact of tariff increases;
2. Most A-share listed electronic companies are parts and components manufacturers. Their performance is most correlated with downstream demand and product added value, and has a low correlation with the geographical distribution of demand.
3. The related industrial chains such as PCB and passive components have strong advantages in China where environmental protection costs are relatively low, and the trend of industrial transfer remains established.
In the last century, the US launched a trade war against Japan and Japan negotiated a compromise. The stock market experienced a process of confidence damage and then restoration. It is expected that under China's trade countermeasures, the two sides will eventually reach a new balance. We are optimistic about high-quality blue-chip stocks with steady performance growth: Sanan Optoelectronics, Han's Laser, Lens Technology, O-Film Technology, Luxshare Precision, and BOE Technology Group.
Trade friction is a double-edged sword, accelerating the independent control of semiconductors
Recently, the market has paid more attention to the trade friction between China and the United States. Trade friction is a double-edged sword. It will harm both sides in the short term, but in the long run it will accelerate the localization process in core areas. We continue to be optimistic about the rise of the domestic semiconductor industry.
The integrated circuit industry is the foundation of the new economy and is also the largest import commodity in my country.
In 2017, China's integrated circuit industry sales reached 541.13 billion yuan, a year-on-year increase of 24.8%. The import amount was 260.1 billion US dollars, still the largest import commodity, far exceeding the import scale of crude oil of 162.3 billion US dollars. There is still a huge space for import substitution. The semiconductor industry is the foundation of national information security and economic security, and it is also the foundation of future artificial intelligence, intelligent driving, new original vehicles and other industries.
With the development of China's economy, China's demand for semiconductors has increased significantly. However, due to its late historical start and other reasons, my country's localization rate in high-end chip manufacturing, core semiconductor equipment and core semiconductor materials is low, and the situation of being dependent on others is very prominent.
China has the soil to develop the semiconductor industry
In the downstream market for integrated circuits, China accounted for 75% of the world's smartphone production capacity, nearly 80% of pads, and 93% of notebook computers in 2017. The chip demand in the Chinese market accounted for more than 40% of the world's total, making it the world's largest electronic terminal processing plant and chip consumption market.
The importance of localization of integrated circuits has been raised to a higher level, breaking the situation of being controlled by others
As an industry with high capital barriers, high technical barriers and rapid replacement, it is difficult to achieve rapid breakthroughs and catch up with leading companies by relying solely on the development of enterprises themselves. In this case, government support is particularly important. In 2015, the State Council proposed "Made in China 2025" and listed the integrated circuit industry as the first of the key areas for breakthrough development. In 2016, the State Council promulgated the "13th Five-Year National Informatization Plan", proposing to build a modern information technology and industrial ecological system and promote core technology transcendence projects, among which integrated circuits were placed first.
Recently, the government work report listed integrated circuits as the first in the development of the real economy, showing the top-level determination. In addition, we are expected to usher in the second phase of the National Integrated Circuit Industry Fund, and local funds are also in full swing. The domestic chip industry is facing an unprecedented good situation. At present, the second phase of the National Big Fund is being prepared. According to Jiwei.com, the total scale of the second phase of the Big Fund is 150-200 billion yuan. The National Big Fund is an important factor in promoting the rise of the domestic IC industry, not only because financial support will bring about talent introduction and technological breakthroughs, but more importantly, under the unified leadership of the Big Fund, there are more and more opportunities for win-win cooperation in the domestic IC ecosystem.
Trade friction has limited short-term impact on the semiconductor industry, but will benefit the development of independent manufacturing in the medium and long term
As the semiconductor industry has a huge import volume, this trade friction is expected to accelerate the localization substitution in some catching-up areas, including domestic companies that already have strength in the fields of domestic semiconductor equipment and domestic semiconductor materials are expected to gain a larger domestic market share. In the medium and long term, high-end chip design, manufacturing, and core semiconductor equipment and materials companies with large gaps are expected to receive more government support, thereby accelerating the narrowing of the gap with leading foreign companies.
We believe that trade frictions bring more opportunities to the domestic chip industry. We are optimistic that China's local IC industry, with the support of national policies and funds, will gradually achieve technological breakthroughs and realize domestic substitution.
Related targets: North China Huachuang, Yangjie Technology, SMIC, Changdian Technology, Huatian Technology
Industry key data tracking
Market Review
Securities Research Report: [Changjiang Electronics Weekly] Analysis of the impact of Sino-US trade friction on A-share electronics
Release date: March 25, 2018
Research report rating: Maintain "optimistic"
Report issuing agency: Changjiang Securities Research Institute
Participant information:
Mo Wenyu SAC No.: S0490514090001 Email: mowy@cjsc.com.cn
Yang Yang SAC No.: S0490517070012 Email: yangyang4@cjsc.com.cn
Wang Pingyang SAC No.: S0490517050002 Email: wangpy2@cjsc.com.cn
Sherman Email: xieem@cjsc.com.cn
Zhou Di Email: zhoudi1@cjsc.com.cn
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