Opinion
Mint Explainer: What Huawei's 'US-free' supply chain would mean for China
Summary
- Blocked by several Western countries, Huawei is racing to build semiconductor chips of its own by collaborating with domestic Chinese firms.
Battered, bruised but not yet bested, Chinese technology giant Huawei has been at the centre of a protracted battle between the United States and China as both powers scramble to purge the other from their supply chains. Huawei is now at the leading edge of China’s efforts to build “US-free" supply chain that will cut the country’s dependence on foreign technology and spur home-grown innovation. Mint breaks down Huawei’s efforts and what it means for global economics
Why is Huawei at the centre of controversy?
Founded in the 1980s by a former People’s Liberation Army engineer, Huawei was one of China’s first breakout international brands. It built up a dominant position in the smartphone and telecommunications industries, including in the development of 5G.
The company ran afoul of the Trump administration which accused it variously of committing fraud, violating sanctions against Iran and stealing technology from competitors. The most serious accusation was that Huawei posed a major national security threat given its historically close ties to the Chinese army and government. The Chinese government had designated Huawei a “national champion" in 1996 and has served as a generous financial backer for the company over the years.
What actions did the US government take?
In a series of orders, Washington effectively cut Huawei off from access to American software and technology by forbidding companies to do business with the Chinese giant without government authorization. This was a heavy blow to Huawei given that its electronics and telecommunications business ran largely on semiconductors designed by American companies. Major players outside the US, like British chip designer ARM, also decided to cut ties with Huawei.
The US also lobbied its allies to block the Chinese company from its telecommunications network. Australia, Japan and the United Kingdom came on board with the US plans to shut Huawei out of national 5G networks.
How has Huawei reacted?
Initially, the company struggled as sales of its smartphones and technological equipment cratered. Huawei largely survived by relying on existing reserves of advanced semiconductors. The focus, as company founder Ren Zhengfei put it, was on survival.
Two years on, Huawei is racing to build chips of its own by collaborating with domestic firms, many of which have also been the target of US sanctions in the past. With substantial aid coming in from the government, the company is looking to build semiconductors that can sustain its telecom ventures. It was largely dependent on contract manufacturers like Taiwan’s TSMC before an American government order cut it off from buying chips.
What do these efforts mean for supply chains?
Should Huawei succeed, it would be a limited, but substantially successful attempt at building out a supply chain for a major Chinese firm that does not rely on US technology. While the company would still lack access to the highly advanced chips that it needs for its smartphones, China is scrambling to assemble these capabilities at home. Contrary to widespread assessments, Shanghai-based Semiconductor Manufacturing International Corporation (SMIC) has managed to produce a highly advanced 7 nm chip without the cutting-edge lithography technology used by other manufacturers. While questions surround SMIC’s ability to mass-produce these chips and their processing quality, it does indicate that China has managed to survive American technology sanctions and stagger on.
These successes may also translate to the construction of more expansive “US-free" supply chains. Selling domestic innovations and products to Russia, which has been cut off from high-technology exports from Western powers, may be the next step. China’s ambassador to Moscow exhorted companies to “fill the void" in the Russian market. This would make Chinese firms richer and could also fund the research needed for further technology development.
What are the stakes?
It was long assumed that attempts at decoupling were a bridge too far for the global technology sector. When American technology sanctions effectively cut Huawei from much of this supply chain, many commentators deemed it a death sentence for the company. However, the firm’s survival, combined with China’s rush to build self-sufficiency in other areas of high technology, raises questions about whether decoupling efforts in technology might actually succeed. America’s sputtering efforts to build its own semiconductor alliance, nicknamed Chip Four, may look to rewire supply chains to focus on reliable and trusted partners. With both the US and China determined to untangle the network that has characterised the global technology industry, decoupling may just become a firm reality.
