U.S. should learn from its failure to take down Huawei
Chinese tech company's rebound shows limitations of sanctions strategy
Nina Xiang is managing director at TH Capital, an investment advisory and asset management firm. She is the author of "US-China Tech War: What Chinese Tech History Reveals About Future Tech Rivalry."
Huawei Technologies' return to the smartphone market last August with a 5G model competitive with Apple's iPhone came as a surprise to U.S. policymakers who thought that Washington's sanctions on the company had largely knocked it out of market contention.
This year, Huawei looks set to further confirm its ability to fully compete once more in the global market for smartphones, smart devices and telecommunications equipment. This should be a moment of reflection for Washington to recognize that further sanctions will have only diminishing returns in terms of setting back Huawei and to look for ways to recalibrate American tech war strategy.
This year, analysts are forecasting that Huawei could ship up to 100 million phones. This would still leave it well behind Apple and Samsung Electronics or its own peak level of 240.6 million phones shipped in 2019, but mark a big rebound from the 30.5 million it distributed in 2022. It would also potentially make Huawei once again one of the five largest global phone brands.
Huawei's telecom equipment business, the company's original focus, has held up even better under U.S. pressure, with little global market share loss since 2019.
This is largely because of Huawei's leading role in the build-out of China's 5G networks. The company's huge home market has enabled it to offset the loss of business in markets where the U.S. has successfully lobbied authorities to restrict Huawei's presence as a potential security risk, such as Australia.
With the telecom equipment business holding steady, phone sales bouncing back and new business lines like automotive systems taking off, Huawei's revenues rose 9% to more than 700 billion yuan ($97.7 billion) in 2023, returning to a level last seen in 2020.
This success holds profound significance beyond Huawei, as it suggests that Chinese companies are finding ways to start competitively producing advanced semiconductors at scale despite U.S. attempts to restrict the industry's development.
With the microchips embedded in Huawei's new flagship Mate 60 Pro model, Semiconductor Manufacturing International Corp. (SMIC), China's leading contract chipmaker, last year demonstrated the capability to produce functional advanced chips. Meeting Huawei's own target of shipping at least 60 million phones this year will serve as a pivotal stress test for China's increasingly independent chipmaking industry.
The rebound in phone sales is setting the stage for HarmonyOS, Huawei's self-developed operating system, to potentially displace Apple's iOS as China's second-most-used operating system later this year, behind only Google's Android, some analysts project.
The newest version of the operating system, HarmonyOS NEXT, was shared with developers last month. As a completely Chinese system, it marks Huawei's full independence from Android. As a result, app developers will have to build new versions of their products to ensure compatibility with HarmonyOS devices.
So far, Huawei has brought the developers of more than 200 popular Chinese apps on board for HarmonyOS versions. Already, HarmonyOS is in use on some 800 million devices, including tablets and laptops.
This could be just the start. It is easy to envision HarmonyOS experiencing rapid adoption by Chinese government agencies and state-owned enterprises, leveraging the country's well-tested, whole-of-nation model.
Takeup could accelerate further if China faces tighter sanctions from Washington. If the country's semiconductor supply chain becomes self-reliant and most Chinese devices begin running on domestically produced operating systems, Washington's technology toolbox will become extremely limited.
Why have U.S. sanctions proven so ineffective? The incremental nature of U.S. export controls left loopholes for Huawei to stockpile and prepare supplies. Moreover, decades of integration allowed China to amass sufficient talent and expertise to build a self-reliant technological stack.
More fundamentally, sanctions are simply of limited effectiveness in today's world of tightly integrated economies.
Note that the key person behind SMIC's technological breakthrough with the advanced chips it is supplying to Huawei is co-CEO Liang Mongsong.
Dubbed Taiwan's "chip magician," Liang led research and development at Taiwan Semiconductor Manufacturing Co. (TSMC), the world's chipmaking king, for 16 years. He then helped Samsung build up its chipmaking business before joining SMIC.
Besides Liang, many high-level chip industry veterans with experience at foreign semiconductor industry companies, such as TSMC, Dutch equipment maker ASML and electronic design automation software producers Synopsys and Cadence, have joined Chinese companies or founded startups in the country.
So long as such people and expertise can move around freely, U.S. tech sanctions will be challenging to enforce.
The U.S. must reconsider its approach to technology sanctions, recognizing the limitations of such policies and their detrimental impact. Pursuing ineffective measures, like the sanctions on Huawei, diminishes Washington's standing on the global stage.
A more effective approach would involve reemphasizing increased investment in research to uphold American technological leadership and foster innovation. This tack would be not only more likely to succeed but also help to regain the respect of other nations.