Huawei Hunting, The Wire China, Feb. 19, 2023.
The Chinese telecoms giant faces a new existential threat from U.S. sanctions. But Washington is still finding international support for its campaign against Huawei hard to come by.
To ring in 2023, Huawei’s chairman Eric Xu declared that the embattled telecommunications giant had finally achieved a semblance of normalcy. “In 2022, we successfully pulled ourselves out of crisis mode,” Xu said in a New Year message to employees. “U.S. restrictions are our new normal, and we’re back to business as usual.”
Such optimism was a far cry from the death spiral analysts predicted Huawei would enter in 2020, after the Trump administration issued sanctions designed to starve the company of advanced semiconductor chips.
Those restrictions have crushed Huawei’s ability to compete in smartphones with rivals like Apple, Samsung, and Xiaomi. In 2020, Huawei was China’s top smartphone seller, accounting for 41 percent of all sales; by last year it had slumped to sixth place, with its market share plummeting to 7.9 percent.
Yet Huawei’s other business lines have proven more resilient, including its core product of building IT infrastructure networks, where it has significant advantages on both cost and technology.
Despite outright bans in the U.S., Australia, Japan and parts of Europe, Huawei still operates in over 170 countries, with its technology underpinning 4G and 5G networks across Southeast Asia, the Middle East, South America, and Africa. Its influence has grown among key U.S. allies in Europe, in spite of Beijing’s souring relations across the continent: Huawei now supplies nearly three-fifths of the infrastructure behind Germany’s 5G networks, according to one recent study.
Huawei has continued expanding in new sectors such as electric vehicles, enterprise technology and automated ports. The firm even appears to have regained enough confidence to appoint Meng Wanzhou, the daughter of Huawei founder Ren Zhengfei and alleged violator of U.S. sanctions against Iran, to a six-month rotation as the company’s top leader starting in April, according to reports. Huawei did not respond to The Wire China’s questions on Meng’s appointment.
“The U.S. government thought that they had finished off Huawei. And, yet, here we are,” says Jay Goldberg, founder of consulting firm Digits to Dollars. “They have spent the last few years finding their way back to stability and now they are starting to think about having a real business again.”
The question now is whether Huawei can maintain that stability, by continuing both to innovate and diversify, and to exploit loopholes in U.S. sanctions — or whether Washington’s apparent determination to crush the company will prevail, despite an ongoing lack of concerted international support for its efforts.
The latest threat looming over Huawei is the possibility that the U.S. will fully implement sanctions that would hinder the company from obtaining the basic chips it needs for its core business lines. The Commerce Department has recently stopped renewing licenses for exports to Huawei from some U.S. companies, according to the Financial Times. Neither the department nor Huawei responded to requests for comment.
If the Commerce Department makes its export restrictions permanent, it could once again threaten Huawei’s existence, some say. The U.S. government would be “in a sense finishing the job on Huawei by taking a more stringent interpretation of existing restrictions,” says Reva Goujon, director at the Rhodium Group.
THE LOOPHOLES
Huawei’s survival efforts began even before the U.S.’s sweeping 2020 sanctions went into effect. Over the prior year, it built up a stockpile of semiconductor chips worth tens of billions of dollars — enough to contribute to a global chip shortage, says Sara Hsu, a supply chain management professor at the University of Tennessee Knoxville.
Until recently, Huawei has also found ways to maneuver around export controls, in part thanks to U.S. government leniency: the Commerce Department has granted waivers to firms like Qualcomm and Intel that supply Huawei with less advanced chips. Such suppliers received licenses to sell $61 billion worth of equipment from April to November 2021, according to U.S. congressional documents.
Huawei’s rap sheet is extensive. If companies threaten U.S. national security, then they shouldn’t have the privilege of benefiting from our technology and innovation.
“Those licenses were granted in part because there was no guidance in the market. Now there’s a feeling [in government] that that was all a mistake,” says Paul Triolo, a senior vice president at Albright Stonebridge Group.
Huawei may also have found murkier sanctions workarounds through routing chip supplies via shell corporations, analysts say: the company did not respond to The Wire China’s request for comment on whether it has deployed such a strategy.
“The more corporate shells you put between Huawei and whoever is selling, the harder it is for that seller to know who the ultimate user is. And the more that could potentially be obfuscated to both the seller and to U.S. authorities,” says Martin Chorzempa, senior fellow at the Peterson Institute for International Economics.
U.S. regulators, meanwhile, have been scrambling to ensure that American chips do not wind up in Huawei’s hands. “The U.S. government is playing Whack-a-Mole” in finding firms that may be indirectly supplying Huawei with chips, says Goldberg, the consultant.
GAME OVER?
Permanently blocking license renewals for U.S. chip suppliers to sell to Huawei would represent a step-change in those efforts, strangling the Chinese company’s ability to deliver on its IT infrastructure and other projects around the world.
Huawei may be able to partially survive by replacing U.S.-sourced chips with domestic supplies. But China lacks strong alternatives in critical areas like memory chips, while Chinese chip suppliers are themselves struggling to navigate sweeping U.S. sanctions put in place last October, says Triolo. “[Blocking license renewals] would be equally, if not more, catastrophic to Huawei over time [than the initial 2020 restrictions],” he adds.
If you put Huawei on the SDN list then anyone dealing with them, transacting with them, or banking them is suddenly at risk of becoming radioactive to the global financial system.
U.S. officials have justified their assault against Huawei by claiming it can build ‘back doors’ into its IT infrastructure that the Chinese government could use for spying. Huawei has consistently denied that its products are used for espionage.
“Huawei’s rap sheet is extensive. If companies threaten U.S. national security, then they shouldn’t have the privilege of benefiting from our technology and innovation,” Congressman Michael McCaul (R-TX), chairman of the House’s Foreign Affairs Committee, said in an email to The Wire China. Rep. McCaul said that he believes that the U.S. government should revoke all existing licenses it has granted to U.S. firms to supply Huawei.
Even so, several factors could mitigate the U.S. campaign against Huawei. Washington has long argued that Huawei’s networks may jeopardize U.S. communications with foreign governments. But it has struggled to persuade most other countries to ban Huawei, both because other firms struggle to match Huawei’s low-cost offerings, and because many see little concrete evidence proving a threat to their national security.
“The national security risk of having Huawei in your telecoms network is mainly a theoretical one,” says John Lee, director of Berlin-based East West Futures Consulting.
Moreover, the U.S. government has held back on wielding its most potent weapon against Huawei — the Treasury Department’s Special Designated Nationals and Blocked Persons List (SDN) that has been weaponized against Russian oligarchs and terrorists. Adding Huawei to this list would mean any American citizen or company would be barred from doing business with the firm, Huawei’s U.S.-held financial assets would be seized, and it would become virtually impossible for Huawei to transact in U.S. dollars — the dominant currency of global trade.
“If you put Huawei on the SDN list then anyone dealing with them, transacting with them, or banking them is suddenly at risk of becoming radioactive to the global financial system,” says Chorzempa.
By making Huawei a pariah through the SDN list, though, the U.S. would risk angering dozens of governments that rely on Huawei infrastructure to power their IT networks and would suddenly be falling afoul of U.S. sanctions.
“Huawei’s global partnerships definitely raise the international costs of the U.S. of trying to actually eliminate the company,” says Chorzempa.
China can probably cobble together a homegrown semiconductor industry. But they are looking at at least a ten-year window.
Amid U.S. pressure, Chinese leader Xi Jinping has pledged to redouble efforts for technological self-reliance and boosted investments into domestic chipmakers. But Huawei will not be able to exclusively count on Chinese chips any time soon.
“China can probably cobble together a homegrown semiconductor industry,” says Goldberg. “But they are looking at at least a ten-year window.”