Eye on China is a weekly bulletin offering news and analysis related to the Middle Kingdom. This week we cover the Sino-US tussle over Huawei; Xi’s letter to Modi; Sri Lanka’s purchase of surveillance equipment and much more
I. Trump’s Cards
Over the weekend, report after report told us that a new tech Cold War is upon us as US actions against Huawei constitute the beginning of a new digital iron curtain. This week, there was an adjustment in the steps taken by the US government. First, the Commerce Department granted Huawei a license to buy US goods until August 19 to maintain existing telecoms networks and provide software updates to its smartphones. This 90-day reprieve opens up a window for negotiation. Soon after, Google confirmed that it will be working with Huawei during this period. And then on Thursday, Donald Trump described Huawei as “very dangerous,” but added that “If we made a deal, I could imagine Huawei being possibly included in some form or some part of it.” That’s the kind of rhetoric that undermines Washington’s argument of taking action pursuant to the rule of law rather than for political ends, which is basically what Beijing saysTrump is doing.
Nevertheless, the actions taken against Huawei have had a ripple effect on the company. Reports say that German chipmaker Infineon Technologies has suspended certain shipments to Huawei. British mobile networks EE and Vodafone have announced that they will stop offering. KDDI and SoftBank in Japan have also postponed sales of new Huawei smartphones. Others like Panasonic appeared to be assessing whether the US regulatory changes impact their businesses. The big concern, however, is UK-based chipmaker ARM potentially suspending business with Huawei and its affiliates. ARM chip architecture is at the heart of Huawei’s Kirin processors. A breakdown of business would be a major blow. However, it’s still unclear how this would play out. So far the company has said that it “is complying with the latest restrictions.” It further added, “ARM values its relationship with our longtime partner HiSilicon (Huawei’s chip arm) and we are hopeful for a swift resolution on this matter.” In all of this, the one good news for Huawei is that TSMC says its supplies to Huawei are unlikely to be affected by the US ban.
What’s not good news, however, are the allegations by US start-up CNEX Labs that Huawei Deputy Chairman Eric Xu engaged in a multi-year conspiracy to steal company’s solid-state drive computer storage technology, including with the help of a Chinese university.
Amid this, Huawei CEO Ren Zhengfei spoke to the media this week. His remarks were rather interesting. The big headline from the interaction was Ren’s remarks about how a clash with the US was inevitable. But scratch beyond that, and the picture is quite different. Ren said that the company was ready to deal with the fallout of US actions, and that the ban will not impact Huawei’s high-end products. But he also added that Huawei will continue to buy US products as long as it is permitted. He refrained from any appeal to nationalism or patriotism, saying that people should buy products based on their likes and not politics. He also went on at length about the need for China to continue to reform and open up, attracting international talent and investing in education.
Moving away from Huawei for a bit. There are three other interesting stories to point out. First, reports suggest that the Trump administration is considering Huawei-like sanctions on Chinese video surveillance firm Hikvision. Another Chinese tech company that’s in Washington’s crosshairs is drone-maker DJI Technology. As per this Caixin report, the Department of Homeland Security has said that some Chinese-made drones may “contain components that can compromise” users’ data and share information with servers accessible by the Chinese government. In response, DJI said all data produced, stored, and transmitted by DJI products is “completely” controlled by users. Third, despite all the friction between the two countries, US Ambassador Terry Branstad has been permitted to make a rare visit to Tibet. Do recall that earlier this year, the US passed the Reciprocal Access to Tibet Act of 2018 warning equal and reciprocal measures if Beijing denied access to American citizens, government officials and journalists to Tibet.
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