Page 2: Billions for research and development

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Huawei attaches great importance to research and development, with around a quarter of gross revenue being invested in the development of new technologies. Under the pressure of sanctions, Huawei has intensified its efforts once again. In 2019, Huawei founded the investment division Hubble Technology Investment Co. Hubble's strategy aims to invest in domestic companies in technology sectors that can reduce Huawei's dependence on Western companies, particularly in the semiconductor sector. Since its foundation, Hubble has invested in around 107 technology start-ups. This was done "specifically in connection with the US sanctions against Huawei", emphasized the then Huawei CEO Guo Ping. In 2023, Huawei spent the equivalent of 21 billion euros on research and development, surpassed only by Amazon, Meta, Alphabet and Apple.

Manufacturing and designing its own computer chips became essential for Huawei: Huawei is currently involved in the construction of five semiconductor factories, even if other companies are leading the way, such as Fujian Jinhua Integrated Circuit. Recently, Huawei made its new Ascend 910C AI chip available to Chinese technology giants such as Baidu and ByteDance for testing purposes; it is said to be able to compete with Nvidia's state-of-the-art H100 GPU.

In a study for the Mercator Institute for China Studies, Antonia Hmaidi analyzed Huawei's semiconductor strategy and states: "Huawei is transforming itself from a national telecommunications champion into a company that oversees the entire semiconductor value chain."

An alternative to Android?

The sanctions also led to the Android operating system being banned from future Huawei devices. In May 2019, Google stopped doing business with Huawei insofar as it requires the transfer of hardware, software and technical services. As a result, Huawei accelerated the development of its own smartphone operating system including a digital ecosystem.

Harmony OS was initially intended by Huawei as an operating system for IoT (Internet of Things) devices and was to be used in sensors, smartwatches, cars and mobile devices. Its use in smartphones was not initially on the agenda, with the company relying on Android from Google. However, in May 2019, then Huawei CEO Richard Yu hinted that Huawei could use its own operating system as a plan B if necessary. In September 2020, the time had come and the first Harmony smartphone was launched on the market.

HarmonyOS is now gaining ground in China and is the second-largest mobile operating system platform there. This makes it attractive for the developer community.

Huawei has also turned the tables on this front and turned the handicap into a competitive advantage. In the future, foreign manufacturers will probably consider relying on Huawei's ecosystem in the Chinese market.

The Mate 60 Pro – like "provocation"

Almost exactly a year ago, Huawei presented the Mate 60 Pro smartphone to the public. This device already represented a noticeable step towards decoupling. The Mate 60 Pro is equipped with a Kirin 9000S chip developed by Huawei's chip design division HiSilicon. It is a revised version of its predecessor, this time produced on the mainland by Semiconductor Manufacturing International Corp (SMIC) using their 7 nm process technology. Three years earlier, Huawei was still able to work with the HiSilicon Kirin 9000, which was produced by TSMC in Taiwan using advanced 5 nm technology. With its inclusion in the US government's Entity List, Huawei lost access to TSMC technology.

Although the new Huawei HiSilicon Kirin 9000S processor can keep up with its predecessor in standard tasks, it falls significantly behind the older Kirin 9000 in terms of energy efficiency and graphics performance. It is unlikely to be enough to win back the non-Chinese markets because without Google apps, Huawei phones will remain unattractive for most consumers abroad. Nevertheless, Huawei intends to offer the "Harmony OS Next", which was initially delivered in China this quarter, outside of China in the future, the company revealed on request.

Despite the technological gap, the presentation of the Mate 60 Pro apparently caused irritation in the US government. According to a CNN report, US Secretary of Commerce Gina Raimondo was "annoyed". The US government has no evidence that Huawei can produce smartphones with advanced chips "on a large scale". However, it wanted to investigate how the sanctioned Chinese manufacturer had apparently managed to achieve a breakthrough.

The shot backfired

Just five years after the first sanctions, Huawei has completely repositioned itself. The attempts by the US to weaken Huawei by withdrawing US technology have actually made the company "less vulnerable", writes the business magazine The Economist. And political scientist Adam Tooze says: "The US has tried to put a stop to Huawei. Now the victim is hunting the predator. This is a huge step towards technological independence and innovation."

The sanctions also appear to be having undesirable side effects. Chinese car manufacturers and technology companies are looking for alternatives to chips from Nvidia or Qualcomm on the domestic market. Their products could be subject to sanctions from one day to the next. Chinese semiconductor manufacturers are benefiting from this in turn: their order books are full and profits have recently risen significantly because a large proportion of demand has returned to them.

The USA is also forcing companies from third countries to go along with the sanctions' policy, such as the Dutch company ASML, which is a global leader in lithographic machines for chip production. This threatens them with the loss of important customers and a considerable drop in turnover.

China is not Cuba

The sanctions are also proving to be a boomerang in terms of industrial policy. Sanctions on cutting-edge technologies in which China has deficits are leading the Chinese leadership to focus enormous efforts on precisely these areas and concentrate resources there. This is leading to a rapid race to catch up that is surprising even experts.

Back in 2019, Harvard-educated economist Jin Keyu argued that the trade war initiated by Donald Trump was actually "a gift for China". The author of the book "The New China Playbook: Beyond Socialism and Capitalism" emphasized in an interview that external pressure could force China to tackle systemic problems and deficits in its domestic economy, such as the dominance of state-owned enterprises and the handling of intellectual property.

Today, she sees her assessment confirmed: In China, as a result of external pressure, a "national mobilization is taking place with the aim" of "climbing up the value chain and driving technological progress". In China, tech companies and state institutions are pulling together and trying to avoid the "stranglehold" of the West.

Voices can also be heard in the academic debate within China that emphasize the ultimately positive effect of the sanctions: "External constraints are even helpful for our country – as long as they do not lead to confrontation," explained Zhang Yunling, Director of the Institute of International Studies at Shandong University.

(nie)