SHENZHEN SHUTDOWN TO FURTHER UPEND TECH SUPPLY CHAIN: The Chinese government's decision to impose a Covid-related lockdown on Shenzhen, a city of 17.5 million people in southern China, will likely have a disruptive impact on the global supply of high-end software and crucial tech components. Roger Entner, the founder and lead analyst at telecom consulting group Recon Analytics, called Shenzhen "the premier tech center [in China], both from an R&D and manufacturing perspective." "Of all the cities in China that shouldn't be shut down, this was the one," Entner said. — Global reverberations: Both the Chinese and global tech ecosystems are heavily reliant on Shenzhen, which Beijing — operating on its strict "zero tolerance" policy for Covid-19 cases — shut down on Sunday after 60 new cases were reported in the city. Shenzhen is the headquarters of many top Chinese companies, including internet giant Tencent and telecom company Huawei. It's also the home of major R&D and manufacturing facilities for companies like South Korean titan Samsung, German tech company Siemens, American hard-drive producer Western Digital and Taiwan's Foxconn, which makes iPhones and other consumer electronics for Apple. Paul Triolo, the technology policy and China lead at consulting firm Albright Stonebridge Group, said the output of these companies' factories "could be partially or wholly curtailed" by the citywide shutdown, with the impact "rippling through supply chains." — Timing is crucial: In response to earlier disruptions caused by the pandemic, most global tech companies have built some added flexibility into their supply chains. But Entner said the global flow of both advanced components and finished consumer electronics could be significantly disrupted in the coming weeks and months — especially if the shutdown drags on. He noted neighboring Hong Kong has struggled for months to rein in rising Covid cases, and said China's lackluster vaccination effort leaves Shenzhen vulnerable to repeat outbreaks. "The moment this goes into a month or longer, things get hairy," Entner said. — Broader decoupling concerns: The news of the Shenzhen shutdown came the same day the Washington Post reported the Russian government is asking China for help in circumventing strict U.S.-led sanctions, including on advanced tech components. Any effort by Beijing to assist Moscow will likely be met with U.S. sanctions against China — and coupled with the threat of rolling pandemic-related shutdowns, that could significantly accelerate efforts by U.S. and other foreign tech companies to relocate. FIGHT BREWING OVER DIGITAL TRADE IN COMPETITIVENESS CONFERENCE: Lawmakers are soon set to square off over competitiveness bills passed by the House and Senate — and digital trade is almost certain to be a key sticking point, with tech-friendly trade provisions found in the Senate bill unlikely to be met with enthusiasm by House leaders. The burgeoning conflict comes in the midst of a broader debate over how foreign governments should treat American tech companies, with the Biden administration taking flak from progressives for defending U.S. companies against antitrust proposals and other regulatory efforts now under discussion in Europe — even as some U.S. lawmakers consider similar reforms. And House leadership is worried that delays due to disagreement over digital trade provisions could make it much harder for lawmakers to reach consensus on other elements of the bill. — Tech industry weighs in: Tech trade group BSA | The Software Alliance is sending a letter this morning to House and Senate leadership to lay out their priorities for an impending conference reconciling the Senate's U.S. Innovation and Competition Act (S. 1260) with the House's America COMPETES Act (H.R. 4521 ). The group asks congressional leadership to preserve a provision that would boost the U.S. Trade Representative's ability to confront developing countries over alleged barriers to digital trade, such as censorship, data localization requirements or a lack of privacy protections. BSA also urged passage of a separate provision that would support the Biden administration's effort to promote an Indo-Pacific Economic Framework by providing "clear congressional guidance" on how negotiations over digital trade should proceed. — Between the lines: Both the Chinese government and the European Union are currently engaged in efforts often characterized by the broader tech industry as barriers to digital trade. Beijing is routinely accused of censoring U.S. tech platforms, and the EU is now pursuing tough new competition and consumer protection rules under the still-developing Digital Markets Act and the Digital Services Act, measures the industry claims unfairly target U.S. companies. — Chambers at odds: Sens. Ron Wyden (D-Ore.) and Mike Crapo (R-Idaho) inserted the digital trade provisions into the Senate's competitiveness bill ahead of its passage last June as part of a broader trade title included ahead of the bill's passage last June. Senate leadership worried the provisions could upset lawmakers in the House but ultimately acquiesced, and progressive tech groups pushed back at the time against the effort to include them. The House notably did not include similar digital trade provisions in its own competitiveness bill, which it passed in early February. And there's widespread expectation across industry and advocacy groups that progressive House members will attempt to strip those provisions out of the Senate bill in conference. A senior Democratic aide, who requested anonymity to describe sensitive and ongoing discussions, said any inclusion or exclusion of trade-related provisions in the House bill was "carefully crafted to have the votes to be able to pass the House." The aide added that any trade measures negotiated in conference "will have to thread the same needle to become law." — Progressives gear up: Left-of-center tech groups will likely keep pressing lawmakers to oppose many of the digital trade provisions in the Senate bill. Lori Wallach, the director of the Rethink Trade program at the American Economic Liberties Project, said the bill is "weighed down with controversial Big Tech giveaways" and would characterize many of the digital regulations and antitrust efforts now being pursued by Congress and U.S. agencies as "illegal trade barriers." The provisions would also mean "annual USTR reviews of other countries' digital governance policies," said Wallach. She added that the "public interest safeguards" now being pursued by EU regulators would come under especially heavy scrutiny for allegedly targeting U.S. tech companies. CONFUSION SPREADS AS UKRAINE KEEPS PRESSURE ON TECH: Ukrainian President Volodymyr Zelenskyy called Sunday for Microsoft, SAP and Oracle — three global providers of bedrock enterprise and IT software — to avoid "'half' decisions" and stop any and all support for their products in Russia. But Oracle had already committed to "suspend all operations" in the country on March 2. On Sunday, the company hastened to explain that meant it had "entirely cut off business in Russia" — but it still hasn't explained how many Russian customers it once had, or how much revenue it has lost due to the ban. — A widespread problem: Zelenskyy's apparent Oracle mix-up is the latest sign of ongoing confusion about how deeply key IT and software providers are enmeshed in the Russian economy, or how far they're willing to go to punish Russia (and give up revenue from their Russian clients) in order to support Ukraine. It's a problem that extends beyond the three companies singled out by Zelenskyy on Sunday — Amazon's AWS cloud services, for example, has also banned new sales to Russia and Belarus, but the company has said nothing about cutting off its current customers, despite escalating calls for it to stop supporting existing Russian websites. — SAP straddles the fence: The German software company said last Wednesday it would suspend sales of its products in Russia and Belarus. But the company has not said how deeply its software is embedded in the Russian economy, and has avoided answering whether it will extend the ban to its existing Russian customers. Spokespeople for SAP did not respond to a request for comment. — Microsoft too: When asked about the company's penetration into the Russian economy and whether it would go beyond suspending new sales in Russia or cut off support for existing clients, a Microsoft spokesperson would only point MT to blog posts touting its earlier efforts in support of Ukraine.
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