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Sieren's China: Survival of the fittest

Frank Sieren
July 6, 2019

Trump has lifted his trade ban on Huawei, but that won't keep the tech giant from trying to become as independent as possible. The move plays into the hands of Chinese tech and does the US no favors, says Frank Sieren.

Graffiti of Trump and Xi Jinping kissing
Image: AFP/M. Medina

Despite Trump's lifting of his trade ban on Huawei, the tech giant wants to become as independent of the US as possible. The West will not only lose one of its most important markets, but also its competitiveness, says DW's Frank Sieren.

At least China and the US are talking again. That was the upshot at last weekend's G20 summit in Osaka, Japan. After an 80-minute conversation with his Chinese counterpart Xi Jinping, US President Donald Trump declared that he would lift the ban on the Chinese tech giant Huawei, at least partially. This means that Huawei can buy US technology again. In response, China has promised to buy more agricultural products from the US. Microchips for soy, so to speak.

However, the wording is somewhat unclear. China can now buy US technologies that do not raise national security concerns. On May 15, Trump had accused the Chinese company of posing a risk to US national security. After Trump's latest move in Japan, his economic advisor Larry Kudlow quickly backpedaled, saying that Huawei would not be granted a "general amnesty." At Huawei headquarters in Shenzhen, people are waiting for more details. Since nothing is clear, the government in Beijing has not made any comment. Nobody trusts Trump entirely.

A cartoon Donald Trump shakes hands with a golden dragon
DW cartoonist Elkin presents his take on US-China relations

Being dependent on the US is a dangerous game

Whatever happens, the Chinese government and Chinese firms have understood that if they have to depend on US technology, they run certain risks. Since China wants to attain and surpass US hegemony in terms of technology, there is only one solution and that is to become independent. In essence, Donald Trump has shot an own goal. Huawei is now going to step up its research and development. In the past few years, it has already been able to become the world's second-largest maker of smartphones, after Samsung and ahead of Apple. When it comes to 5G technology Huawei is the world leader.

Trump has managed one thing: Huawei customers outside of China are uncertain. Huawei's revenue was forecasted to reach $130 billion (€115.7) this year but will probably end up being some $30 billion less, according to the company's CEO and founder, Ren Zhengfei. The overseas smartphone sales could drop by up to 40%.

Huawei is playing it safe and preparing for difficult times. The struggle between China, a world power on the rise and the US, which is losing its lead, is not likely to subside even if Trump, a Republican, is not re-elected in November 2020. This is clear from the opposition Democrats' reaction: "Huawei is one of the few potent levers we have to make China play fair on trade," Democratic Senator Chuck Schumer recently said.

Near-death experience

Huawei is not an isolated case. In 2018, the Chinese telecommunications giant ZTE came under fire after allegedly violating the sanctions imposed on Iran. A company spokesperson later said that it had been a "near-death experience" for the company. From now on, the Chinese government will provide support to national companies to become as independent and strong as possible. Globally, China is the country that is investing the most in artificial intelligence, microchips and industrial robots. Trump has ensured that such investment increases.

In 2018 alone, China invested some $300 billion, almost 2.2% of the country's gross domestic product (GDP), into research and development. New innovation hubs were established and some 4,000 high-tech pilot projects were launched.

For Huawei, the next important step will be to develop its own smartphone operating system — the first non-Western alternative to challenge Google's Android and Apple's IOS systems. Though there will be problems at first and certain apps won't be able to run, this would be a historic step.

Huawei's name printed on a computer chip
Huawei, like many other Chinese tech companies, is working to decrease its dependency on the USImage: picture-alliance/dpa/Imaginechina/Da Qing

Catch up fast

Microchips also remain an Achilles' heel. China's chip producers still rely on overseas components. The patent fees are high, and China spends more on these than on oil imports. The most important suppliers are based in countries that are allied with the US, such as Japan and South Korea, as well as in Britain, where ARM, an important chip developer for Huawei, is headquartered. It is not yet clear when Chinese engineers will be able to mass produce competitive chips. But there is no doubt that China wants to catch up and make sure that it is not at all behind when it comes to technology. Chinese semiconductor companies have managed to accumulate plenty of know-how in recent years, often thanks to foreign companies that they have bought up or in which they have shares.

Trump sold the lifting of his ban on Huawei as an act of support for US companies that were unhappy about the sanctions. He could have figured this out earlier. Last year, Huawei bought technology worth $11 billion from US companies.

This is likely to change in the foreseeable future. HiSilicon, a Huawei unit, is already China's biggest chip developer. When Trump imposed the ban, President Teresa He Tingbo reacted by saying the US had "mercilessly severed" the technological and industrial systems underpinning global cooperation. But she was confident of victory and touted a long-term backup plan that could be quickly implemented.

Trump has done the US no favors with his Huawei policy.

Frank Sieren has lived in Beijing for over 20 years.

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