From Deepseek to Game Science, China's tech startups hope Hong Kong can help to circumvent US tariffs

Straits Times

01-05-2025

News analysis 'Breaking through the US blockade': HK backs Zhejiang tech firms but details are scant
HONG KONG – Hong Kong leader John Lee's recent visit to mainland China's tech powerhouse Zhejiang province signalled his commitment to more closely collaborate with Chinese cities amid the global trade turbulence.
Mr Lee , who was accompanied by senior officials and business leaders, was there for four days in late April to find ways to work with industry to circumvent disruptions from the ongoing tariff war between the United States and China.
But while the Hong Kong chief executive's trip was big on its symbolism, it has, for now, comparatively little to show by way of specifics on how it will help businesses diversify their supply chains.
Analysts say it is a first step, however, towards building a broader strategy for Hong Kong and mainland cities to work together to overcome the trade and business obstacles posed by the US, including the latest tariffs imposed by President Donald Trump.
During the trip, Hong Kong and Zhejiang agreed to set up a new mechanism by which Hong Kong will provide tailored supply chain services enabling mainland companies to bypass the US blockades.
Hong Kong is 'well positioned to offer mainland enterprises new supply chain services and lead these businesses in exploring emerging markets, breaking through the US blockade', Mr Lee told a forum of some 600 government and business leaders in the Zhejiang port city of Ningbo on April 25.
'Utilising Hong Kong's advantages as an international trade centre and multinational supply chain hub, along with Zhejiang's strengths in the digital economy' would help Chinese businesses diversify away from the US where investment risks have risen, he added.
Following the visit, the state-run China Daily published an opinion piece describing Mr Lee's move as a smart , 'prudent and proactive response' to the US tariffs. The US has imposed as much as 145 per cent tariffs on goods from China, including Hong Kong.
An editorial in Hong Kong's South China Morning Post described it as 'another feather in (the city's) integration cap'. Hong Kong and Zhejiang 'can only benefit from the new cooperation mechanism, wide range of deals signed and hi-tech push', it added.
Mr Lee also signed agreements with Zhejiang covering more than 50 projects in over a dozen areas including technological innovation, trade and housing.
In addition, he met representatives from the province's top tech startups, known as the 'Hangzhou six little dragons', and toured two of their facilities.
The 'six dragons' refer to AI firm DeepSeek, video game developer Game Science, which made the hit Chinese game Black Myth: Wukong, robotics firms Unitree and Deep Robotics, brain-machine interface innovator BrainCo, and spatial design software maker Manycore.
Few details have been released about Mr Lee's discussions with these tech startups, or exactly what any cooperation would involve.
Hong Kong Chief Executive John Lee checking out a robotic hand at Chinese brain-machine interface innovator BrainCo's exhibition booth at the Hangzhou Future Sci-Tech City Urban Exhibition Centre in Zhejiang on April 23.
PHOTO: COURTESY OF HONG KONG GOVERNMENT
It is understood that the engagement was for the Hong Kong team to learn what they would need to expand internationally and mitigate the disruptions brought about by the Trump administration.
Signalling the importance of his visit, Mr Lee brought with him seven top Hong Kong officials, including commerce minister Algernon Yau and technology and innovation minister Sun Dong.
Professor Sonny Lo, who is with the University of Hong Kong's politics department, said that despite the lack of specific details , the visit was of 'important technological, economic and political significance' for Hong Kong.
'John Lee's trip to Zhejiang is just the beginning of a more comprehensive plan to strengthen the logistical supply chain between Hong Kong, the GBA and the rest of mainland China,' Prof Lo told The Straits Times. The GBA, or Greater Bay Area , refers to Hong Kong, Macau, and nine cities in Guangdong province.
Technologically, Hong Kong – which is building up its tech and artificial intelligence (AI) industry – can learn from Zhejiang, whose provincial capital, Hangzhou, is already home to many of China's biggest AI startups , he said.
'Meanwhile, Chinese AI firms relocating to or setting up branches in Hong Kong will be able to leverage the city's free flow of information and its universities' advanced research databases to further develop their AI models,' he added.
Economically and politically, the partnership with Zhejiang would see Hong Kong accelerate and deepen its integration with the mainland.
This not only aligns with the Chinese central government's goals for Hong Kong, but also goes beyond the target that Beijing had set for the city to penetrate just the GBA, Prof Lo said.
'One big area that Hong Kong can help Zhejiang enterprises with is in the financing supply chain,' said Mr David Yin, a partner at Silicon Valley venture capital firm Informed Ventures.
It was a good move for Hong Kong to 'start the relationship early on' with Zhejiang's tech startups, Mr Yin told ST, so that these firms can pick the city over the more restrictive mainland Chinese and US stock exchanges or other locations when they decide to list.
Mainland exchanges have stricter financial performance requirements for listing, while US exchanges require greater financial transparency. Hong Kong, meanwhile, provides more flexibility for companies such as those in emerging sectors.
Another area where Hong Kong can help Zhejiang's tech startups is in accessing AI chips, particularly those from US tech company Nvidia, which have become increasingly difficult for mainland firms to get, according to a venture capitalist familiar with investing in the Chinese tech industry.
The US has since 2022 banned exports of Nvidia's most-cutting-edge chips to China. The ban covers Hong Kong as well, although the city has a small black market for these chips.
Hong Kong Chief Executive John Lee at the Black Myth: Wukong Art Exhibition in Zhejiang on April 23. Black Myth is the hit Chinese video game developed by Hangzhou tech startup Game Science.
PHOTO: COURTESY OF HONG KONG GOVERNMENT
In April, the US further tightened restrictions on exporting Nvidia's lower-end H20 chip to China, months after Zhejiang's two -year-old tech upstart Deepseek revealed in January that it had built a ChatGPT-like AI model powered by that chip.
'AI chips are the biggest thing now in Hangzhou, China's AI hub,' the venture capitalist, who asked not to be named due to the sensitivity of the matter, told ST.
'Hangzhou's AI firms' biggest needs are chips and their ancillary equipment in the whole chip supply chain. That will be the main thing that Hong Kong can help with, especially since the US has been plugging its export control gaps on its Nvidia chips to make it even harder for Chinese firms to access them,' the investor said.
While Hong Kong is subjected to the same US export controls as the rest of China, 'it is still much easier for exporters in the city to get around red tape and capital controls to buy and sell those chips', he added.
Unlike in mainland China, Hong Kong does not impose foreign exchange restrictions nor limit the flow of money in and out of its territory. This, combined with fewer rules on trade documentation and other trade procedures, reduce the kind of bureaucracy often encountered on the mainland and make for easier trade transactions overall.
Magdalene Fung is The Straits Times' Hong Kong correspondent. She is a Singaporean who has spent about a decade living and working in Hong Kong.
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