The gluttonous American market is a mountain that cannot be crossed

Author/Qingfu

Editor/Jia Jia

Source/Treasury Finance

A few days ago, GoPro, Inc. filed an application with the U.S. International Trade Commission under Section 337 of the U.S. Tariff Act of 1930, alleging that certain cameras, camera systems and accessories used in the accessories used in the U.S. exported, imported or sold in the U.S. infringed its patent rights, requesting a Section 337 investigation and issuing a limited exclusion order and an injunction.

It is reported that the Chinese company involved is Shenzhen Yingshi Innovation Technology Co., Ltd. According to public information, the revenue from the U.S. market will account for nearly 20% of the total revenue of Shadow Stone Innovation in 2021.

In fact, Shadowstone Innovation is a microcosm of Chinese companies - the U.S. market represents a huge market opportunity for Chinese innovative companies, but the 337 survey is like a high mountain, once it falls, it means that these innovative companies will lose the world's largest market.

(Source: Internet)

[1] The temptation of $6 trillion won the world in the US market

Who is the world's largest consumer goods market? The correct answer is not China, but the United States.

According to the data, the total annual consumer retail sales of residents in the United States will reach 7.41 trillion US dollars in 2021, and the per capita annual consumption will be about 23,000 US dollars. Not only does it far surpass China in terms of per capita annual consumption (US$4,800 per capita in the same period), but it also surpasses China in terms of total consumption (US$6.83 trillion).

The sheer purchasing power of the U.S. is a market that any brand would want to enter no matter what:

In the field of home appliances, the total sales of home appliances in North America reached 107.9 billion US dollars, accounting for 22% of the global home appliance consumer market, of which the United States alone accounted for 90% of the North American market;

In the field of medicine, the global pharmaceutical market will be $1,476.9 billion in 2022, and the size of the U.S. pharmaceutical market will reach $630.8 billion, accounting for 43% of the global total.

In the field of clothing, the United States is the world's largest clothing market, with the total retail sales of clothing (including footwear) reaching 311.86 billion US dollars, of which China's clothing exports to the United States are about 40 billion US dollars;

In the food sector, the United States is the world's largest snack consumer, with a snack market size of $110 billion, accounting for about 22% of the global snack market;

In the energy sector, the annual primary energy consumption of the United States is 100.4 quarts, accounting for about 30% of global energy consumption;

(Source: Internet)

"The U.S. market means at least 20% market increment, which is not possible in any country or region in the world," an industry observer told Treasury Finance, adding that 20% is a benchmark and the U.S. market can provide a 20% increase in any sector.

The person pointed out that it is precisely because of the ultra-high market share in the U.S. market that Samsung can still rank in the top 2 of global mobile phone shipments after losing the Chinese market.

From Haier and Lenovo in the early days, to TikTok and Genshin Impact in the mid-term, and then to SHEIN and Temu in the recent past, the U.S. market is the most important part of its globalization.

[2] The roadblock in front of the cake, 337 investigation

For example, Lenovo has successively acquired IBM's ThinkPad and Motorola Mobility in order to enter the United States; Huawei has been trying to enter the United States through mergers and acquisitions and joint ventures for many years to qualify for entering the field of communications equipment in the United States.

Although the U.S. market is good, for Chinese companies, the Section 337 investigation is a sniper tool for U.S. peers against domestic companies, and once the application is successful, it will be like a mountain falling.

It is understood that the Section 337 investigation is in charge of the United States International Trade Commission (USITC), and the object of the investigation is the infringement of U.S. intellectual property rights by imported products and other unfair competition in the import trade.

At present, Chinese companies are facing US Section 337 investigations in all walks of life. According to statistics, a total of 90 Chinese companies were sued to the U.S. International Trade Commission in 2021, covering refrigerator filters, smart storage equipment, water filters, video processing equipment, digital smart TVs, cleaning equipment, semiconductors, centrifuges, mobile electronic devices, golf clubs, water guns, pool cleaning robots and many other industries.

"The 337 investigation is just a policy tool to suppress Chinese companies, and there are many such tools," a media reporter told Treasury Finance, such as the Biosecurity Act and the CHIPS Act...... Some of them are the overall suppression of the domestic technology industry chain at the level of the US government, while others are market strategies of competitors to take advantage of existing policies to attack Chinese companies.

Entering the U.S. market is not only the light of the nation, but also means more stable revenue and larger market space for enterprises, which is also the reason why the revenue of North America, especially the U.S. market, is put forward separately in the financial reports of many listed companies.

But now, with the continuous strengthening of the blockade and suppression of China's technology and trade by the United States, the market competition between Chinese and American companies is intensifying, and the revenue contribution of the US market has changed from a flash point of performance in the past to a hidden financial risk point.

(Source: Internet)

In fact, there are many companies like Shadowstone Innovation that rely on the U.S. market:

According to the prospectus of the network communication equipment provider Rapid Innovation, in the first half of 2022, the revenue of the US market accounted for 46.5% of the company's overall revenue;

More than 95% of Vantron Technology, which provides services to companies such as Arrow, Qolsys, Nautilus, Hydrow, and Wayne, comes from the U.S. market.

The revenue contribution rates of JoaStar Holdings and Jingyuan International, listed companies in the garment industry, in the U.S. market were 51.1% and 37.8% respectively;

"Once these companies are suppressed by competing borrowing policies and lose the U.S. market, it is a huge hidden financial danger," said a self-media teacher who tracks listed companies, adding that in the current environment, relying too much on the U.S. market is a financial hidden danger.

[3] The same "disease" is not the same life, some people use their strength to get out, and some people are in constant trouble

It has become a bipartisan consensus in the United States to blockade China's economy and the development of China's technology enterprises through trade wars and technology wars. Under the general trend, Chinese companies that rely on the US market are facing a huge crisis, and some people rely on localization to flee, while others will get into trouble.

As the technical party of optical image module lenses, OFILM has become Apple's supplier, and in 2020, it has received 14.5 billion orders from Apple, contributing 30% of its revenue and a net profit of 881 million yuan.

However, with the inclusion of OFILM in the "entity list" by the United States, OFILM's net loss will reach 2.625 billion yuan in 2021 and 5.182 billion yuan in 2022. Since then, OFILM has caught the wave of Huawei Mate60 and become the exclusive supplier of Huawei lenses and modules, and its financial report shows that it is expected to turn losses into profits in 2023 and achieve a net profit of 69 million yuan to 95 million yuan.

With Huawei's breakthrough in 7nm chips, OFILM has gone ashore, but WuXi as a pharmaceutical company is suffering from the whirlpool of the U.S. "Biosafety Act".

(Source: Internet)

As Chinese pharmaceutical outsourcing companies, WuXi Biologics and WuXi AppTec believe that they are dependent on the U.S. market. According to WuXi AppTec's 2023 financial report, WuXi AppTec's revenue from U.S. customers was RMB26.13 billion, accounting for 64.8% of total revenue, while WuXi Biologics' revenue from North America was approximately RMB8.07 billion, accounting for 47.4% of total revenue.

Similarly, WuXi believes that U.S. pharmaceutical companies are highly bound to WuXi Biologics and WuXi AppTec in R&D, helping U.S. pharmaceutical companies save about 50% of R&D costs through China's "engineer dividend".

But this deeply bound self-confidence is crumbling. In early January, U.S. House members submitted the draft proposed by the companies on the grounds of "protecting genetic data and national security," with the main goal of "ensuring that foreign biotech companies do not have access to U.S. taxpayer funds," in which WuXi AppTec was named, and on March 6, the Biosafety Act passed by an 11-1 vote in the U.S. Senate Homeland Security Committee.

At present, due to the lack of domestic substitution, WuXi Biologics and WuXi AppTec, which are overly dependent on the U.S. market, are in a huge crisis, because once the proposal becomes a reality, WuXi Biologics and WuXi AppTec's revenue will be cut in half. At present, the market value of WuXi has evaporated by 100 billion.

As the largest consumer market, entering the U.S. market and panning for gold in the United States is the dream of Chinese companies, which means at least 20% of the market increment and stable revenue, but now, the deep cultivation of the U.S. market has become a financial thunderstorm.