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Huawei Says 'Survival' at Stake After New US Sanctions

Residents wearing face masks to protect against the coronavirus walk past a Huawei retail store in Beijing, May 18, 2020.
Residents wearing face masks to protect against the coronavirus walk past a Huawei retail store in Beijing, May 18, 2020.

Once poised to become a global leader in the coming advent of 5G wireless networks, Chinese tech giant Huawei warns its survival is at stake following the latest U.S. decision to cut it off from semiconductor suppliers.

"Survival is the key for us now," said Guo Ping, rotating chairman at Huawei’s annual analyst conference on Monday. “We will now work hard to figure out how to survive.”

Washington’s latest ban, announced by the U.S. Commerce Department on Friday, requires foreign manufacturers using U.S. chipmaking gear to get a license before being allowed to sell semiconductors to Huawei.

The United States has long been concerned about the security implications of Huawei’s 5G network, contending that the technology could be used to spy on Americans, allegations the Chinese tech firm has repeatedly denied.

In its first official reaction to the new planned U.S. restrictions, Huawei says it is undertaking a comprehensive examination of this new rule.

"We expect that our business will inevitably be affected," Huawei said in a statement.

Cutting off global suppliers

In May 2019, the Commerce Department added Huawei and 114 of its overseas-related affiliates to the Export Administration Regulations Entity List, requiring U.S. companies wishing to export their items to Huawei and its affiliates to obtain a license.

However, the department's Bureau of Industry and Security (BIS) said last Friday that Huawei has continued to use U.S. software and technology to design semiconductors, undermining the national security and foreign policy purposes of the Entity List.

In an email to VOA, Kevin Wolf, former head of the Commerce Department’s export control section, said the rule thus expands the scope of the Export Administration Regulations (EAR) Entity List-related prohibitions "over otherwise uncontrolled foreign-made commodities, software, and technology outside the United States related to computers, telecommunications, and electronics, particularly semiconductors, in Huawei’s contract manufacturing supply chain.”

Huawei has in recent years successfully developed five series of chips that are used in different products.

Huawei has used Taiwan’s chipmaker TSMC to fabricate some of its key components, and under the new restriction, Huawei’s access to TSMC could be limited.

Because Huawei and its designated affiliates are on the EAR’s Entity List, "applications for licenses to ship such foreign-made items to the listed Huawei entities will be presumptively denied," said Wolf, now a Washington lawyer.

Huawei has been looking to diversify its chip production to the Shanghai-based firm SMIC. However, analysts said that SMIC does not have the ability to produce all the chips Huawei needs.

John Feffer, director of Foreign Policy in Focus at the Institute for Policy Studies, said this new U.S. Commerce Department restriction will hurt Huawei a great deal in the short term, "since it relies on TSMC for 90% of Huawei's smartphone chips."

By some analysis, Huawei has about 50 core foreign suppliers, and TSMC is only one of them. "Other major suppliers would also be subject to the same restriction, since they also use U.S.-made equipment." Feffer told VOA in an email.

Huawei remains defiant

One day after the latest U.S. ban, Huawei posted a headline on its official Weibo account that reads, "Apart from victory, we have nowhere to go." Under the slogan is a photo featuring an Ilyushin Il-2 aircraft that keeps flying, despite being hit by antiaircraft shells and machine-gun fire during World War II.

While Huawei’s chairman said Monday the company is now fighting for survival, Guo also said there is no doubt that the tech giant will pull through.

"Huawei is confident that this aircraft will continue to fly forward, and Huawei will never give up." said Guo.

Gan Bin, Huawei's vice president in charge of the company's 5G development, claims China has a complete supply chain.

"Regardless of base stations and terminals, China has a complete 5G industry chain, including equipment manufacturing," Gan said in a keynote speech at a 5G forum held in Beijing on Sunday.

Shen Dingli, a professor of international relations at Fudan University in Shanghai, said he believes the new U.S. restriction will bring certain challenges to Huawei, but the Chinese firm can survive.

"This might hinder Huawei's competitiveness, but will not suppress its domestic market and certain international market," said Shen.

Hours after the U.S. ban was published on the Commerce Department’s website, a huge package of investment in chipset development, $1.5 billion from China's National Integrated Circuit Fund II, and $750 million from the Shanghai Integrated Circuit Fund II, were announced by the Chinese government.

"In the medium term, it's possible that with an enormous amount of investment provided by the Chinese government combined with corporate R&D spending, the domestic industry can address the current technology gap between the capabilities of the TSMC and U.S. technology supply chain, " said Ross Darrell Feingold, a lawyer and political risk analyst.

US-China relations affected

The latest ban on Huawei has also dealt a fresh blow to the already souring ties between the U.S. and China amid the ongoing coronavirus pandemic.

China on Sunday warned it would retaliate to protect Huawei.

"China will take all necessary measures to resolutely protect the legitimate rights and interests of Chinese firms," an unidentified spokesperson for China's Commerce Ministry said in a statement.

On Saturday, China’s Foreign Ministry called on the United States to stop its “unreasonable suppression” of Huawei and other Chinese companies. The Foreign Ministry told Reuters that it would “firmly defend its companies’ legal rights,” in response to a question about possible retaliation in response to the U.S.

While the Chinese government ministries did not directly threaten to push back in their response, Global Times, a Beijing-controlled publication, Friday quoted an anonymous source as saying China was planning countermeasures, such as “imposing restrictions” against U.S. companies like Apple, Cisco and Qualcomm. The source also suggested China may stop buying Boeing airplanes.

Jin Canrong, associate dean of Renmin University of China's School of International Studies in Beijing, said Monday on Weibo, a Twitter-like social media platform, the

U.S. decision could seriously affect U.S.-China relations.

“It may affect Huawei's bottom line and even survival, but it will definitely actually affect the future direction of the entire Sino-U.S. relationship," said Jin. "The U.S. decision will surely open a Pandora's box."