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Tom Holland

IF STRICTLY ENFORCED and sustained, the United States government’s ban on sales of US technologies to Huawei will drive the Chinese telecoms equipment giant out of business.
And if extended to a broader range of Chinese companies, as rumoured, Washington’s export controls will do great economic damage not just to China, but also to US and international businesses. In the long run, they could even split the world into two incompatible – and hostile – technological blocs, with potentially catastrophic effects for future international relations.
But the US-China tech cold war has not yet become an economic ice age, and there are still good reasons to believe these troubling scenarios can be avoided.

However, the risks are great. Last week, the mainland media was full of strident nationalistic rhetoric about how Huawei can prosper despite the US ban, and how China will develop indigenous substitutes for US technologies to its own economic advantage. Neither assertion stands up to examination.
Huawei’s network equipment and smartphones are heavily reliant on US components, notably semiconductors, and software. Some of these components cannot easily be replaced by non-US parts. And where others can, for example by Korean or Japanese products, the substitutes are typically manufactured using US intellectual property.
This means Korean and Japanese suppliers would be subject to US penalties if they sold to Huawei, which explains why Panasonic and Hitachi last week halted shipments of key components to the Chinese company.
Much has been said about Huawei’s supposed ability to survive export controls because it owns its own semiconductor company, HiSilicon, making it independent of US-made chips.




It’s not. HiSilicon’s products rely on foreign design. For example, its “system on a chip” uses a processor designed by ARM of Cambridge in the UK. Indeed, pretty much every smartphone in the world runs on ARM designs. And last week ARM suspended all links with Huawei, because its designs contain US intellectual property.
Chinese officials claim to be untroubled. Faced with US export controls, Beijing is planning to pour vast resources into a “long march” programme to develop its own home-grown designs, semiconductor chips and software.
If Trump kills off Huawei, do Asia’s 5G dreams die?
But China’s record in this area is not promising. In the late 1990s and early 2000s, the Chinese government pursued a programme of “indigenous innovation” to design and fabricate its own chips, investing billions in companies like Grace Semiconductor, headed by no less than Jiang Mianheng, son of China’s then president Jiang Zemin.
However, not even a bottomless purse and political backing at the very highest level could make a success of Grace, which has long since been folded into an equally uninspiring competitor.

Attempts to build national chip champions based on foreign technologies have also struggled. DRAM memory chip hopeful Fujian Jinhua Integrated Circuit collapsed last year after being hit with US export controls following allegations it conspired to steal designs from US chip giant Micron.
And more than 12 years after it was set up to produce NAND memory chips, would-be Samsung competitor Yangtze Memory Technologies remains at least five years behind the Korean giant. Sceptics say the Chinese company’s bosses have made more progress in real estate development than in chip-making.
China has not had any more success in software development. After almost 20 years of state-backed effort, China has yet to come up with a home-grown operating system for personal computers to challenge Microsoft Windows. Its best attempt to date looks a lot like Windows XP, which Microsoft discontinued more than 10 years ago.
And despite frequent bold statements over the last decade, success in building a smartphone operating system has proved similarly elusive.
Trump’s biggest mistake: not realising China will never genuflect again

All this explains why Huawei cannot survive a long-term US export ban. It relies on US intellectual property to remain in business and compete. This also explains why the Chinese economy cannot prosper by pursuing technological self-sufficiency, no matter how much President Xi Jinping promotes the idea.
Huawei founder Ren Zhengfei admitted as much last week. “China cannot succeed if it is entirely dependent on indigenous innovation,” he told mainland media. “It will waste a lot of time on indigenous innovation.”
Ren’s point was that reinventing the wheel – no matter how lavishly funded the attempt – is a poor substitute for the open international exchange of know-how.
My way or the Huawei: how US ultimatum fell flat in Southeast Asia
In the long run, the most China could achieve by pursuing such a policy would be technological isolation. It might create a bloc of allied countries using its systems, standards and software. But cut off from the rest of the world, the countries of that bloc would forever be technological poor cousins – at an enormous opportunity cost to their economic development.
Happily, this grim fate may yet be avoided. While there are hawks in Washington who would like to drive Huawei to the wall, this would hardly be to the US’ advantage. Huawei and other Chinese tech firms are major customers for US companies, which would suffer greatly from a rigorously enforced export ban. Moreover, it would still be in the US’ best interests to strike a deal with China on tariffs: a hope Washington can kiss goodbye if it drives Huawei out of business.
As a result, the US administration is likely to be aiming not to destroy Huawei, but merely to clip its wings. By enforcing a partial ban on sales of advanced US technologies, Washington would make the Chinese company less attractive as a partner for US allies around the world and leave it significantly weakened. This may be enough to satisfy the US intelligence community, which regards Huawei’s international prominence as a threat to US national security.




And by requiring Huawei to plead guilty to outstanding US criminal charges over its business links with Iran, as a condition of any relaxation, Washington could place monitors inside the company to ensure compliance with resulting US penalties, allaying long-standing concerns about Huawei’s opacity.
Of course, all this might be too much for proud Chinese officials to swallow. But let’s hope not. It’s probably the best outcome for everyone involved: Huawei, China, the US and the rest of the world. ■
Tom Holland is a former SCMP staffer who has been writing about Asian affairs for more than 25 years


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Chinese claims that Huawei can prosper without the US are given the lie by Beijing’s past attempts to foster innovation
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China’s claims that Huawei can prosper without the US are given the lie by its past attempts to foster innovation. But it’s in Trump’s interests to reach a deal.


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.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Chinese claims that Huawei can prosper without the US are given the lie by Beijing’s past attempts to foster innovation But it’s in Trump’s interests to reach a deal

Chinese claims that Huawei can prosper without the US are given the lie by Beijing’s past attempts to foster innovation

But it’s in Trump’s interests to reach a deal