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Huawei’s New Chips: A Bitter Pill for U.S.

Oct 24, 2023
  • Zhong Yin

    Research Professor, Research Institute of Global Chinese and Area Studies, Beijing Language and Culture University

Huawei Technologies, the well-known target of U.S. sanctions over alleged national security concerns, once again caught the world’s attention in August when it released the Mate 60 Pro, the latest 5G smartphone powered by 7-nanometer chips developed by the Semiconductor Manufacturing International Corporation (SMIC), China’s top microchip player.

Will this become a milestone in China’s semiconductor development? And how may this affect the technological relationship between China and the United States in the future?

The event undoubtedly has great significance for China’s high-tech development. It could be a sign that the country has successfully broken U.S. sanctions and achieved technological independence in advanced chipmaking. After more than four years and extreme all-around suppression by the U.S., Huawei has not only survived but thrived. Now it has local suppliers for more than 10,000 parts. The new Mate 60 Pro mobile phone has a more than 90 percent localization rate, the highest of all its products so far.

A Japanese laboratory was surprised after dismantling a Huawei Mate 60 Pro. There were no parts from American companies. By comparison, the Huawei Mate 40E Pro had 5 of its parts coming from American companies, with domestic parts accounting for 57 percent. Bloomberg also confirmed that the chip inside the phone was by a Chinese manufacturer, and the advanced chips were entirely produced domestically.

The breakthrough and sharing of Huawei’s chip technology also means that all domestic smartphone manufacturers, and even automobile and PC manufacturers, may manufacture or own high-end chips without having to worry about supply chain risks resulting from U.S. companies’ chip restrictions or supply cuts. In recent years, America’s chip export control measures have brought huge challenges to China’s semiconductor industry, while at the same time, providing strong motivation for innovation and development.

China’s industrial technology has evolved rapidly, and the gap with the world’s advanced level has narrowed. Today, the country’s chip industry has reached the advanced level in terms of design, packaging and testing. Weak links such as equipment and materials are also catching up. Manufacturing processes are developing rapidly, and the pace of domestic substitution of chip equipment is accelerating.

Calls via satellite with the new phone is another highlight. The technical difficulty of the direct satellite connection technology may be even greater than when 5G was originally developed, but it took Huawei only a year to completely overcome the challenges of the physical size of the antenna, the satellite function of the phone, power consumption and heat generation. Once again Huawei achieved a miracle.

The wonderful debut of Huawei’s new product has undoubtedly dealt a heavy blow to the U.S., which has been busy all these years trying to choke Huawei and block its development. The U.S. media basically believes it’s a big tech breakthrough for China that demonstrates the technical progress China’s semiconductor industry has been able to make without the best tools. The difficulty of this achievement also shows the resilience of the country’s chip sector.

The U.S. media also note that meme makers on the Chinese internet have crowned U.S. Commerce Secretary Gina Raimondo the unofficial brand ambassador for the Mate 60 phone series. She visited China when the phone was launched. It is believed that the release of Huawei’s Mate 60 reflects the company’s intent to nibble away at the high-end market dominated by Apple in China.

Undoubtedly, over the years the biggest beneficiary of Washington’s technology export control was Apple, whose market share of high-end smartphones priced over $600 in China soared to 70 percent in 2022 from 56 percent in 2019. Meanwhile, Huawei’s share fell to 11 percent from 39 percent. According to the Wall Street Journal, Huawei’s new product could end up slashing iPhone production by 10 million units — 4.5 percent of Apple’s total iPhone production last year. So this time, the U.S. figures, it may be Huawei’s turn.

However, the U.S. should not assess gains and losses through the lens of a zero-sum game. After so many years of development, the two countries have already formed a deep symbiotic economic relationship. A sharp production reduction by Apple will harm China’s employment situation. The factory of Foxconn, an Apple smartphone assembler, currently has more than 1.2 million Chinese employees. China doesn’t want to see any further moving of iPhone production lines away from the country during a time of economic recovery.

On the other hand, the U.S. intent to engage China more by setting up two regular dialogue mechanisms also shows the urgency of resolving controversial issues in investment and financial areas between the two. That would stabilize the situation and ensure mutual benefit. Otherwise, the U.S. must prepare for a more costly alternative and rebuild global supply chains. Currently, this is not feasible.

Another concern is that Huawei’s new smartphone could trigger a probe from the U.S. Commerce Department’s Bureau of Industry and Security, create more debate in the U.S. about the effectiveness of sanctions and prompt Congress to include even harsher tech sanctions in the competition bill it is preparing against China. Bloomberg came up with the assessment that “the Huawei chip shows U.S. curbs are porous, not useless.”

On Sept. 6, Rep. Mike Gallagher, chairman of the House Select Committee on China, demanded that the U.S. Commerce Department end all technology exports to both Huawei and SMIC. Experts predict that the technology war may escalate as the U.S. presidential election season approaches, and so it’s good timing: Chinese patriotism gets a boost from this advanced domestic chip.

The U.S. should keep in mind, however, that multiple rounds of U.S. sanctions have failed to prevent Huawei from making progress in key technologies. Instead, sanctions have only brought huge losses to American companies. Huawei’s success is due to its unique innovation model, which the U.S. should be open-minded enough to embrace, rather than isolating the company. It’s all for the good of consumers and the market.

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