$30 Billion Subsidy to Huawei at Center of US-China Tech War

People arrive to attend the Huawei keynote address at the IFA 2020 Special Edition consumer electronics and appliances trade fair on the fair's opening day in Berlin, Germany, on Sept. 3, 2020. Sean Gallup/Getty Images

Commentary

China’s subsidized mega-tech company is in the news again, evading U.S. sanctions, spying on Europe, and generally getting into trouble.

On Aug. 22, Bloomberg reported that Beijing doled out $30 billion to Huawei, which is building a “secret network” of computer chip factories—known as “fabs”—to evade U.S. sanctions. Huawei purchased two fabs in China and is building at least three more. It is expanding from telecom devices and 5G to operating systems and electric vehicles, all of which will presumably be available for export, along with all their national security risks.

An international group of competing fabs—including from the United States, South Korea, Netherlands, and Taiwan—tattled on Huawei’s scheme, which allegedly uses numerous front companies in China to obtain banned technology from the United States and Europe.

While the Biden administration has banned the most advanced 14 nanometer and smaller chip tech for export to anywhere in China, less powerful “legacy” chips and their manufacturing equipment, which produce chips larger than 14 nm, can still be exported to China. No chips, hard drives, or other equipment can be exported to Huawei and its recognized front companies, however, which is why Huawei is reportedly establishing new fronts.

Enforcing the law against Huawei is rough going when U.S. companies appear to be complicit. In April, U.S. authorities fined California-based Seagate $300 million for allegedly shipping 7.4 million hard drives to Huawei despite the bans. Given the $1.1 billion value of the drives, the fine appears to be a slap on the wrist.

Huawei is used by billions of people around the world, with the company’s expansion plans parallel to China’s own. Huawei is focusing on China’s domestic market, including a reentry into the smartphone market as evidenced by expanding chip orders from domestic producers like China’s SMIC, as well as a local government-supported attempt to displace U.S. mobile operating systems, Android and iOS, with Huawei’s own HarmonyOS and EulerOS. Huawei is also expanding into partnerships with China’s electric vehicle manufacturers, BYD and Chery.

Huawei is exploiting China-friendly markets internationally that Beijing pundits like to call the “Global South,” with BRICS countries (Brazil, Russia, India, China, and South Africa) in the lead and Beijing in the vanguard of attempting to use the developing country bloc as both markets for expansion and a cudgel against the United States and Europe.

People walk past a Huawei store below a Pizza Hut in Beijing on Oct. 22, 2020. Greg Baker/AFP via Getty Images

Huawei has made recent advances in Brazil, India, South Africa, and the United Nations. It will be using the new BRICS memberships of Argentina, Egypt, Ethiopia, Iran, the United Arab Emirates, and Saudi Arabia to try and sell its brand further.

Huawei is not doing so well in Nepal. Huawei’s recent bid was canceled this month over concerns about corruption and monopoly practices in the country’s telecom sector. However, that exception proves the rule and indicates the means of Huawei’s success in developing nations.

The Chinese Communist Party (CCP) is attempting to inculcate a sense of resentment in BRICS countries against the United States and Europe in order to transfer global leadership to itself and facilitate Beijing’s power grabs. The CCP is attempting the same strategy in Europe, pointing out that U.S. extraterritorial sanctions have applied to European countries doing business with Iran, for example.

Huawei could have used that resentment concretely in the expansion of its own market access on the European continent and is succeeding to some extent with consumer electronics and limited and naive European government subsidies of its programs.

But overall, Europe is not buying the resentment story. Huawei’s former European successes will degrade as Brussels, and even relatively soft-on-China countries like the Netherlands and Germany, have turned sour on Beijing after Russia’s invasion. The CCP’s support of Moscow is alerting all of Western Europe that it needs to increase its defenses, whether they be military, economic, or cyber, against dictators like Vladimir Putin and Xi Jinping.

Germany’s volte-face on Huawei could be costly, with hundreds of millions of dollars worth of equipment to be ripped from its 5G and rail networks, for example. The German government has stated that if security risks are detected, even in already-installed Huawei hardware, money will be no object to having it removed.

Some in Switzerland may also be considering securing the country’s 5G network from Huawei gear. While Huawei promised Denmark not to spy on the country, reports indicated otherwise in alleged Huawei spying to get an edge on a $198 million telecom contract in the country. In Switzerland, where Huawei attempted to make a similar promise, parliamentarians took notice. One proposed that Switzerland establish a new “zero-trust” relationship with Huawei and other foreign network suppliers.

The news of Huawei’s spying, false promises, and front groups again indicate that targeted sanctions against CCP-controlled individuals and companies in China don’t work well. The CCP is adept at breaking promises, using espionage, and evading sanctions using front companies. Beijing has a seemingly endless supply of bureaucrats who would like to climb the CCP ladder despite its international and human rights abuses.

What democracies really need to divert China to a more peaceful existence is gradually increasing tariffs and sanctions on all of the country, including Hong Kong and Macau, decoupling it and its international supporters from the more vibrant markets and innovation ecosystems of free and democratic societies.

If China wants the innovation of free societies, it should first become free and peaceful.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.