Huawei is under a lot of pressure.
© Geert Vanden Wijngaert / Bloomberg / Getty Images
An employee works at the customer service center inside the Huawei Technologies Co. store in Brussels, Belgium on Tuesday February 4, 2020. Huawei is in talks to invest in European tech startups and contribute to research in an attempt for securing your supply. as tensions with the United States mount, people familiar with the matter said. Photo credit: Geert Vanden Wijngaert / Bloomberg / Getty Images
New American sanctions have cut the Chinese tech company’s access to vital American technology more than ever. Countries and mobile network operators around the world are now wondering if Huawei will be able to deliver on its 5G promises. And the growing anti-China sentiment in India and elsewhere is not helping.
United States Secretary of State Mike Pompeo stated last month that “the situation is changing against Huawei as citizens around the world are waking up to the danger of the surveillance state of the Chinese Communist Party.”
Those comments were “a bit preemptive,” said Carisa Nietsche, a researcher at the Center for New American Security, a Washington think tank.
Pompeo praised countries like the Czech Republic, Poland and Estonia for “only allowing reliable vendors on their 5G networks.” But Nietsche noted that many of those countries made up their minds last year, when they noted that they would not work with Huawei. And European countries with much larger economies, such as the United Kingdom, France, and Germany, have yet to announce a total ban on Huawei.
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Huawei’s headquarters in Shenzhen. Your 5G business is in jeopardy as the company fights a long-running American campaign against your business.
But there is “the beginning of a radical change in Europe,” Nietsche said.
European countries and mobile phone operators are now concerned that Huawei may not be able to provide 5G infrastructure as promised given the “massive blow to your business” from the new US export controls, he said.
Huawei’s 5G business in ‘grave danger’
Huawei has been here before. Last year, the US government banned American companies from selling technology and supplies to the Shenzhen-based company without first obtaining a license to do so. Huawei stockpiled inventory and found alternative suppliers, and as a result, continued to do business despite the United States’ ban. However, the company’s overseas smartphone sales were hurt as it was forced to launch new models that were unable to access popular Google apps.
However, even after reporting a solid ending to 2019, Huawei warned that 2020 would be “difficult.”
That would prove to be too true.
The latest US sanction announced in May cuts much more than last year’s ban. It applies to any global company that uses American equipment to make semiconductors. The new rule restricts companies like TSMC, a Taiwan-based company, from exporting computer chipsets and other key components to Huawei.
Without those chipsets, Huawei cannot build 5G base stations and other equipment, according to analysts at brokerage firm Jefferies.
“Based on the current direct export rule the United States put in, I really believe Huawei’s 5G equipment business is in grave danger,” Jefferies analyst Edison Lee said in a recent call with investors.
“If the law does not change, and if the tension between the United States and China does not decrease, then I think there is a great risk that Huawei will no longer be able to provide 5G equipment” early next year, he added.
When asked for comment for this story, Huawei spokeswoman Evita Cao said, “We continue to receive support from our customers,” without going into further detail.
The company said in May that it “is categorically opposed” to the latest US sanction and called the new rule “discriminatory.”
“It will have a serious impact on a large number of global industries” and will harm “collaboration within the global semiconductor industry,” Huawei said in a statement. “We hope that our business will inevitably be affected,” he added.
That may already be happening in the UK.
On Saturday, the UK-based Telegraph newspaper reported that Prime Minister Boris Johnson is ready to start phasing out Huawei 5G technology in Britain “as soon as this year,” withdrawing a decision that gave Huawei a limited role in building that network.
Earlier last week, Oliver Dowden, the country’s digital and media secretary, said the US sanctions “will likely have an impact on the viability of Huawei as a provider of the 5G network.”
“I am not a synophobe, I will not be carried away by sinophobia,” Johnson said Tuesday. But “I do want to see our critical national infrastructure adequately protected from hostile state vendors, so we must strike that balance.”
Huawei said earlier this year that it has won 91 5G commercial contracts, more than half (47) are in Europe, 27 are in Asia, and 17 are in other parts of the world.
Tensions in China
The United States has long viewed Huawei cautiously, wary of how closely the company is tied to the Chinese Communist Party. The company maintains that it is a private company owned by thousands of its employees.
Critics also say that Beijing could force Huawei to spy on other nations. Huawei says that never happened and if it did, the company would reject such orders.
However, despite asserting its independence from Beijing, Huawei has been embroiled in clashes between China and the United States, and to an increasing degree, the European Union and countries like India, increasingly cautious with China.
The coronavirus pandemic has only further strained relationships. Some countries, like the United States, have blamed China for the outbreak, and others have been discouraged by what they see as Beijing’s aggressive response to criticism.
There was a time during the pandemic “where China was able to assert itself on the world stage as a leader, and I think they were wrong,” especially in Europe, after China sent dodgy-quality masks and respirators to countries experiencing outbreaks, Nietsche said.
EU countries are concerned about their unequal trade and investment relationship with China, and have taken steps in recent months to prevent Chinese subsidized companies from taking over the bloc’s industrial champions or winning public contracts. Beijing’s crackdown on the Uighur ethnic minority in the northwest province of Xinjiang is another major area of concern.
Now there are “excellent signals” from Germany and the UK “that they will move to exclude or at least take Huawei out of the core [5G] Nietsche said. Germany, for example, is analyzing Huawei’s data streams to see if the company is violating European law, he said.
Meanwhile, India had been coming and going on whether to include Huawei equipment in the country’s 5G network, said Chaitanya Giri, an analyst at India Gateway House’s foreign policy think tank. Huawei received the green light to participate in 5G testing at the end of last year.
But tensions between New Delhi and Beijing have increased dramatically in recent weeks after at least 20 Indian soldiers were killed in border clashes with Chinese troops stationed in the Himalayas. China has also been singled out in India for the coronavirus pandemic, according to Giri.
Some Indians have been calling for a boycott of Chinese products. And in a move widely seen as retaliation against China, the Indian government last week banned TikTok and several other Chinese apps, saying they pose a “threat to sovereignty and integrity.”
Huawei can now find itself caught up in mounting tensions, according to Giri. Public sentiment has now “been consolidated, that we are not going to use any of the Chinese teams,” he said.
What Europe and India share, according to Giri, is a growing sense of unease after years of substantial investment by China.
“The big democracies right now are singing in a choir,” he said. “They understand what is at stake.”
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