Ring the Alarm

The backlash has been fierce, and this is just the beginning as Chinese tech companies decouple from the West and hard pivots to Russia.

My good friend, the Founder of Huawei Ren Zhengfei is at the forefront of Chinese tech and can feel this bullwhip effect the most because of his access to critical macroeconomic data at his fingertips.

China isn’t the roaring economic miracle it once was.  

This time it's different.

At some point, building ghost cities leading to snazzy accounting tricks ends in a collapse like a house of cards.

Unproductive capital frittered to waste is actually coming back to haunt the Chinese tech sector.

The Chinese tech sector for decades was the bellwether for global economic growth as its tech giants like Alibaba and Tencent went from producing pitiful products to challenging the US for tech supremacy.

When Ren talks, we listen.

In a leaked memo, Ren confided to Huawei staff “the chill will be felt by everyone” and the company must focus on profit over cashflow and expansion if it is to survive the next three years, indicating further job cuts and divestments.

“The next decade will be a very painful historical period, as the global economy continues to decline.”

Instantaneously, revenue targets and margin expectations were pulled back.

The deep-seated panic within the highest levels of Chinese tech is a warning to the rest of the world.

When China sneezes, the rest of the world catches a virus, no sarcasm intended.

Ren’s talking points was rounded out by “we must make survival the most important guideline.”

If I read between the Hangzhou tea leaves, this most likely means massive job cuts in some of the best tech companies.

The likes of Baidu, Huawei, and Tencent have been trigger-happy cutting jobs as if it’s almost fun.

I can also surmise that his comments will lead to raising the price of existing Huawei products and avoiding big investments into new ideas.

Huawei has found the road to riches rocky as hell as nobody outside of China is willing to buy their smartphone now that Google’s array of apps is banned from Huawei’s operating system.

That means Westerners like me will not be able to use Gmail, Google Maps, Google search, Google Chrome, and Google Cloud.

Going from economic juggernaut to panic mode, “survival” is a huge fall from grace for the Chinese and its best company Huawei.

The country might not even be able to fake the annual pageantry of reaching its annual economic growth target which this year is 5.5%.

It’s that bad in the country that Mao and collectivization built.

Ren’s memo went viral on Chinese social media, shared and discussed by more than 100 million users which freaked out the population considering it's almost taboo to lose face in this biggest Asian nation.

China’s government this week announced a further $146bn in stimulus funding to possibly promote the building of more ghost cities that they can report as economic “growth.”

Youth unemployment reached an all-time high of 19.9% in July which could represent a bad omen to the future of Chinese workers.

It’s looking quite bleak in Asia, and this could be the precursor to the recession felt in the West that is on pace to hit sometime in 2023.

A global recession would decrease the aggregate revenue for American tech companies, meaning as the pie shrinks, there is less to eat.