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A Huawei Technologies Mate20 Pro smartphone displays an image of the company’s Kirin 980 chip.

Krisztian Bocsi | Bloomberg | Getty Images

China is pushing ahead with the development of its own chip industry as major firms like Huawei face the threat of losing access to American technology.

Experts say the world’s second-largest economy could still be at least a decade off from catching up with U.S. technology. Still, if China successfully develops its own semiconductor industry, that could ultimately hurt American companies that have reaped big profits in the country.

Last month, Chinese tech giant Huawei was placed on a U.S. blacklist that required American firms to obtain government permission to sell to the company. The telecommunications equipment maker relies on some key components from U.S. firms and software from Google and Microsoft. Washington has granted a 90-day reprieve for now, but the threat remains a major problem for the company.

Other firms, including Chinese surveillance titan HikVision, are reportedly also being targeted. Huawei rival ZTE faced a similar situation last year, which significantly damaged the company.

While China has made no secret that it wants to develop its own semiconductor industry in the past couple of years, experts said that recent events have given new priority to that drive.

“The Huawei incident has indeed stimulated the development of China’s domestic chip industry,” Gu Wenjun, analyst at China-based semiconductor research firm ICWise, told CNBC by email. He wrote in Mandarin and his comments were translated by CNBC.

Government push

Beijing highlighted semiconductors as a key area of the Made in China 2025 plan, a government initiative that aims to boost the production of higher-value products. China aims to produce 40% of the semiconductors it uses by 2020 and 70% by 2025. That’s backed by tens of billions of dollars of investment from Beijing into the country’s chip industry.

Last month, the Chinese government also announced tax breaks for homegrown semiconductor companies and software developers.

Currently, only 16% of the semiconductors used in China are produced in the country, and only half of those are made by Chinese firms, according to a report by the Center for Strategic and International Studies. In other words, the country is still reliant on foreign, largely American, technology.

That fact, along with Beijing’s backing, has helped kick China’s tech companies into action. Huawei has its own “Kirin” series of processors for its smartphones and even a 5G modem that can allows devices to connect to the newest version of the mobile internet. Huawei’s chips are designed by its subsidiary HiSilicon, which has said it’s prepared for such a move by the U.S. and can weather the storm.

China’s other technology giants are considering their own silicon. Smartphone maker Xiaomi told CNBC last year that it was exploring developing a chip that could power artificial intelligence products and Alibaba has begun work on its own AI processor.

Design is one part of the puzzle in creating chips. The other is getting the manufacturing right. For example, Huawei’s chips are designed by HiSilicon — the largest semiconductor company in China, according to market research firm International Data Corporation — but then they’re manufactured by a separate company in Taiwan. There are signs, however, that China is even ramping up manufacturing of semiconductors.

“I expect the current tension between the U.S. and China will only invigorate the spending in China on technology including software over the next five years,” said Mario Morales, program vice president for enabling technologies and semiconductors at IDC.

The US could feel the heat

The development of China’s own chip industry could hurt U.S. companies, according to ICWise’s Gu. He said the world’s second-largest economy could build closer ties to other countries like Japan and South Korea and create its own semiconductor “ecosystem” — in which America would play only a small part.

“At present, the global industrial system is dominated by the United States, and there may be a parallel ecosystem … where the United States is not dominant. This is very unfavorable for the long-term development of the U.S. industry,” Gu told CNBC.

“If the United States blocks the Chinese industry for a long time, it will inspire China to lead another ecosystem, which in turn will be a long-term disadvantage to the U.S. semiconductor industry,” he added.

Already some U.S. firms have reported worries about the potential results of Huawei being on the U.S. blacklist. Qorvo, a maker of radio frequency products, said sales to Huawei and its affiliates accounted for $469 million, or 15% of its total revenue, in the fiscal year that ended on March 30, 2019. It lowered its revenue outlook for the year, citing Washington’s actions against Huawei.

Lumentum, another Huawei supplier, said sales to the Chinese firm accounted for 18% of total revenue for the three months that ended on March 30. Lumentum also revised its revenue guidance lower for the subsequent quarter.

China ‘a decade or two’ away

Despite all its advances, China’s semiconductor industry won’t overtake its competitors anytime soon.

One of the biggest challenges for China will be finding and developing new suppliers if American firms remain off limits.

For one, Huawei’s HiSilicon still relies on basic chip design from Softbank-owned Arm. Even though HiSilicon produces processors for its devices, the architecture is from the British firm. The chip designer recently suspended business with Huawei to comply with the U.S. blacklist of the Chinese firm. Huawei will need to find an alternative to Arm, which is the biggest chip design firm by market share.

The next biggest companies are Synopsys and Cadence, but both are American and so are likely to be off limits for the Huawei unit, too.

For Gu, that all adds up to China only closing the gap with the U.S. on semiconductors “within a decade or two.”

Other analysts projected that more investment and an expanded talent pool may grow China’s semiconductor industry.

“This will not be easy, it will be a long journey but I do not underestimate the Chinese ecosystem given the talent that continues to move back into the region to drive more innovation and scale,” IDC’s Morales said.

And, eventually, China might be able to wean itself off of U.S. technology.

“If China as a whole is able to acquire the right human resources talent, companies, and partnerships, it should still be on track to create a homegrown semiconductor industry over the next decade without access to American tech,” said Neil Shah, research director at Counterpoint Research.

CNBC’s Hilary Pan contributed to this report.

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OPEC supply cut not timed for Aramco listing

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Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told CNBC that an agreement to further trim global oil supply wasn’t intentionally timed to coincide with the initial public offering (IPO) of state-owned energy company Saudi Aramco.

On Thursday, Aramco priced its IPO at 32 riyals per share ($8.53), putting it on track to raise $25.6 billion in what would be the largest IPO ever conducted.

On Friday, OPEC and its allies — a wider grouping termed OPEC+ — agreed to cut an extra 500,000 barrels per day (bpd) of their oil production during the first three months of 2020.

Following the announcement, Abdulaziz told CNBC’s Hadley Gamble that the two events weren’t linked. “The fact that they coincided, people try to draw a correlation between the two. Some media outlets tried to use that as a way to explain what we are trying to do at this meeting,” he said.

Abdulaziz said Saudi Aramco’s value couldn’t be evaluated by “a tweak here or a tweak there” in the oil supply. He said that the list of institutional investors for Aramco signaled that organizations were keen to back the firm for the long term.

A small portion of Saudi Aramco will start trading on the local stock exchange on Wednesday, December 11. He described the decision to list locally as the “brightest day of his life,” as the benefit of the listing would go, first and foremost, to “our people” and to others who “believe in Saudi Arabia.”

The prince said he believes those who choose not to take part in the listing will soon be “chewing their thumb” with regret.

Saudi Minister of Energy Prince Abdulaziz bin Salman al-Saud arrives for the 177th Organization Of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on December 5, 2019.

JOE KLAMAR | AFP | Getty Images

OPEC moves oil price

Oil prices moved around 2% higher on Friday, after OPEC and other producing countries agreed the new production limit that will hold back around 1.7 million barrels per day. Saudi Arabia has said it will extend its voluntary restriction of 400,000 barrels to take the aggregate global production curb to 2.1 million barrels per day.

The agreement was provisionally put in place Thursday but needed the acceptance of non-OPEC members, particularly that of oil-producing giant, Russia.

At around 3 p.m. in London, Brent futures were $1.14 cents, or 1.8% higher, at $64.53. West Texas Intermediate oil futures rose 97 cents, or 1.66%, to $59.40 a barrel.

OPEC+ had already reduced output by 1.2 million b/d since the beginning of the year. The current deal, which runs through to March 2020, replaced a previous round of production cuts that began in January 2017.

The energy alliance was prompted to act after global oil prices tumbled in mid-2014 due to an oversupply, but U.S. shale producers are not a part of the deal and shale oil supply has grown exponentially.

The U.S. is now the world’s largest oil producer hitting 12.3 million b/d in 2019, according to the U.S. Energy Information Administration, up from 11 million b/d in 2018.

— CNBC’s Holly Ellyatt and Sam Meredith contributed to this report.

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Bank of Canada Governor Stephen Poloz to step down in June 2020

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Carolyn Wilkins, senior deputy governor of the Bank of Canada, left, and Stephen Poloz, governor of the Bank of Canada, leave the Bank of Canada building for a press conference in Ottawa, Ontario, Canada, on Wednesday, Oct. 24, 2018.

Justin Tang | Bloomberg | Getty Images

Bank of Canada Governor Stephen Poloz will step down when his mandate expires next June, the bank said on Friday, and the front-runner in the race to take his place could become the first woman to head the country’s central bank.

Many economists and market strategists surveyed by Reuters this week said Senior Deputy Governor Carolyn Wilkins could be his successor.

Poloz, who is in the final year of a seven-year term, will not seek a reappointment and a process to select the next governor has begun, the bank’s board of directors said in a statement.

The board of directors oversees the selection process of a new governor, but the finance minister and the prime minister have the final say.

Poloz said that during his tenure the bank had “created the conditions for steady economic growth, low unemployment, and inflation close to target through very challenging times,” according to the statement.

Unlike some of its global peers, Canada’s inflation rate is near the central bank’s 2% target. The Bank of Canada has held its overnight interest rate steady since October 2018, even as several of its counterparts, including the U.S. Federal Reserve, have eased.

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Kudlow says a trade deal with China is ‘close’ amid ‘intense’ talks

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Larry Kudlow, White House National Economic Council director, said the U.S. and China are “close” to a trade deal but that the administration was prepared to walk away if it did not get the terms they wanted.

“The president has said many times if the deal is no good, if the assurances with respects to preventing future thefts, if the enforcement procedure is no good he has said we will not go for it. We will walk away,” Kudlow said on CNBC’s “Squawk on the Street” on Friday. “The president has said that if we can not get the enforcement and the assurances, then we will not go forward.”

The two countries are in talks to finalize a so-called phase one trade deal as 15% tariffs on $165 billion in Chinese imports are set to kick in Dec. 15. Kudlow said the two sides are moving closer to a deal.

“The deal is close. It’s probably even closer than in mid-November,” Kudlow said. “Deputy level met again … The reality is constructive talks, almost daily talks. We are in fact close…There’s no arbitrary deadlines, but the fact remains December 15 is a very important date with respect to a no go or go on tariffs.”

Kudlow characterized the recent talks between the world’s two largest economies as “intense.”

“I say intense because this is a very important matter,” Kudlow said. “There’s so much at stakes here when you go through the various categories… We can’t afford, we must not permit any country, China or whoever, to willy nilly steal our breakthroughs in technology and advanced micro-processing related to 5G.”

Trump said on Thursday that trade talks with Beijing were going “very well.” He added that something could happen regarding those tariffs that are set to be imposed in less than 10 days, but added they are not discussing that yet.

The Wall Street Journal reported on Thursday the U.S. and China still haven’t reached a consensus on the amount of agriculture goods that China would buy.

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