Richard Yu, the CEO of Huawei Consumer Business Group, at the launch of the new P20 smartphone in Paris last month. Photo: Reuters / Gonzalo Fuentes
Richard Yu, the CEO of Huawei Consumer Business Group, at the launch of the new P20 smartphone in Paris last month. Photo: Reuters / Gonzalo Fuentes

Cybersecurity, cutting-edge technology and chips. This curious mix has taken the trade row between China and the United States to a whole new level.

Just days after telecom titan ZTE was hit by new US sanctions in the ongoing Iran and North Korea export scandal, smartphone giant Huawei faces similar accusations.

At the heart of the dispute are US-made components, which are crucial to the operating systems in a range of smartphones, laptops and other vital telecom equipment.

Yet the news of the Huawei investigation appeared to come as no surprise to the State-owned Assets Supervision and Administration Commission, or SASAC, which regulates China’s state-owned enterprises.

In a rare, blistering attack by the government-backed body, it branded ZTE, whose largest shareholder is a state-owned conglomerate linked to China Aerospace Science & Industry Corporation, as “stupid and passive” for tarnishing the country’s global image.

“Many domestic enterprises are paying a terrible price for ZTE’s short-sightedness and dishonesty,” the SASAC internal report, which was dated April 20, stated. “Our country’s diplomatic layout and image will inevitably be affected.”

Two days later, it appeared briefly on the Chinese news portal Sina before the article was quickly deleted, according to the Quartz online news site, which is part of the Atlantic Media Group that owns the influential magazine, The Atlantic.

Illegal exports

SASAC has since refused to confirm the authenticity of the report. Still, the fiasco threatens to engulf China’s prestigious high-tech sector.

Last week’s decision by the US Commerce Department to ban ZTE from buying US-made components was seen as punishment for violating an earlier sanctions settlement involving illegal exports to Iran.

The company had pleaded guilty to the charges and agreed to pay US$892 million in fines. But since then, Washington has accused ZTE of breaking the deal, and has ordered American firms to stop selling parts and software to the group for seven years, threatening its very survival.

“Even though [this has happened], we are still a first-rate global company that adheres to export control compliance standards, and that begins with me,” Yin Yimin, the chairman of crisis-hit ZTE, told China’s state-owned People’s Daily.

Significantly, the Huawei inquiry grew out of the ZTE probe, according to Reuters news agency, with the US Justice Department investigating suspected violations of Iran sanctions.

Glenn Schloss, a spokesman for Huawei, declined to comment about the ongoing investigation but insisted the company had complied with all “applicable laws” and regulations “where it operates.”

“We pose no security threat in any country,” he told Bloomberg news agency. “US authorities should not base government decisions on speculation or rumor. In 30 years, not a single operator has experienced a security issue with our equipment.”

In Beijing, the Foreign Ministry spokeswoman Hua Chunying told a media briefing that China opposed countries imposing their “own laws on others” when asked if Huawei had violated US sanctions in Iran.

“China’s position opposing nations using their own domestic laws to impose unilateral sanctions is consistent and clear,” she said. “We hope that the United States will not take actions that further harm investors’ mood towards the business situation there.”

As trade tensions escalate, even Jack Ma, the billionaire founder of e-commerce behemoth Alibaba, has waded into the controversy.

He has called for other nations, such as China, to create their own technology as the US tightens its grip on the global microchip market.

“America was the early mover [while] China [needs] a lot of things. The market for chips is controled by Americans,” he told students during a presentation at Waseda University in Tokyo.

“And suddenly if they stop selling – [you know what] that means. That is why China, Japan and [other countries] need core technologies,” Ma added.

Global brand

If Huawei is hit by a US supplier ban, the shockwaves would ripple across the entire industry in China.

A leading global brand, the group is a major player in the smartphone sector and is valued at around $100 billion.

“Chip suppliers such as Skyworks and Qorvo, each with about 10% sales exposure to Huawei, would be affected,” Woo Jin Ho and Anand Srinivasan, analysts for Bloomberg Intelligence Technology, said. “Optical suppliers, including NeoPhotonics, Oclaro and Lumentum, may also be exposed.”

Against this backdrop, Beijing is preparing to host talks in the next seven days with US Treasury Secretary Steven Mnuchin, Trade Representative Robert Lighthizer and Economic Adviser Peter Navarro in a bid to avoid a trade war.

The meeting with President Xi Jinping’s confidante and economic guru Liu He and his team will try to resolve tit-for-tat tariffs spiraling out of control. So far, both sides have rolled out $50 billion-worth of added taxes on an array of imported goods.

“We’re having very substantive discussions on trade. I believe the trade will work out, but I also think that China has never treated us with more respect than they have over the short period of time that I have been president,” the US President Donald Trump told a joint news conference with the French President Emmanuel Macron at the White House earlier this week.

Indeed, but will chips be on the menu when trade talks kick off in Beijing?

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