What Trump's last punch to Huawei really means for China and Xi Jinping -- China Boss Update 1.22.2021
Update
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What Trump's last punch to Huawei really means for China and Xi Jinping
Just days before Democrat Joe Biden took office as the 46th president of the United States, the outgoing Trump administration revoked Huawei suppliers’ licenses, including that of chipmaker Intel, and, according to Reuters, “intends to reject dozens of other applications to supply the telecommunications firm.” In an email seen by Reuters documenting the actions, the Semiconductor Industry Association said on Friday:
…the Commerce Department had issued “intents to deny a significant number of license requests for exports to Huawei and a revocation of at least one previously issued license.”
…the actions spanned a “broad range” of products in the semiconductor industry and asked companies whether they had received notices.
…companies had been waiting “many months” for licensing decisions and with less than a week left in the administration, dealing with it was a challenge.
The Commerce department had put Huawei on the “entity list” in May 2019, citing national security concerns, restricting suppliers from selling to the Chinese firm. But some sales had been permitted, while others were denied as the US government expanded its authority to require licenses for sales of semiconductors made abroad with American technology. Reuters reports that, prior to the latest action, some 150 licenses “were pending for $120 billion worth of goods and technology.”
I can’t stress enough how significant this is, not only for Huawei, but also for China and Xi Jinping.
As I mention in my report, The National Security, IP/Trademark, Human Rights, and Data Protection Risks of Working with Huawei, the Chinese government employs various methods to protect Huawei, ranging from public threats against countries who consider banning Huawei’s inclusion in their 5G wireless plans to what appears to be the use of hostage diplomacy of foreign citizens, as well as detainment of former employees who may have labor claims against Huawei or knowledge of its illegal acts.
PRC state protection of Huawei is exceptional because it is granted irrespective of charges of illegality, wrongdoing, and dubious ethics, and because Huawei is singled out, in terms of the special efforts the state makes on its behalf: No other Chinese company, including any of China’s state-owned enterprises which have also been banned by the US, has been granted the same comprehensive assistance by the Chinese government.
Why?
First, the People’s Liberation Army (PLA) is, plausibly, Huawei’s most important customer and measures that weaken Huawei could negatively impact military R&D. Although Huawei consistently downplays suggestions that Ren’s military background influences the corporation in any way, and says its relationship with the military is minimal and non-political, it tries too hard to convince us with statements that can be easily refuted as I show in my report. Moreover, in China, the public-private relationship is particularly close-knit because of the CCP’s influence over every sector of the economy, so Huawei’s repeated declarations of political and commercial independence are ridiculous, especially when its ties to, both, the Chinese government and the PLA are easy to document.
Second, Xi Jinping has pinned China’s hopes on Huawei and other Shenzhen-based tech companies to step up and not only lead the country out of the Covid19 pandemic, but also to pave the way for the realization of China’s technological rise. In a speech last October, to mark the 40th anniversary of the establishment of the Shenzhen Special Economic Zone, Xi laid out a number of economic and political missions for the city, which has been a front runner of China’s reform experiment led by Huawei and founder Ren Zhengfei. In his speech, Xi assigned more than 800 Shenzhen officials and leading entrepreneurs the task of building innovation and hi-tech industries with global influence and to come up with strategic plans to build supply chains to nourish future industries and the digital economy, while also creating world-class industries in finance, design, accounting, legal and exhibitions. That’s a pretty tall order.
But beyond that, Xi dreams of China as a technological superpower and Huawei’s inclusion in the world’s next generation 5G wireless infrastructure is central to his plans. The US ban on sales of semiconductor chips to Huawei means the company faces the prospect of losing dozens of critical components that go into its 5G base stations which would throw a wrench in Huawei’s ability to lead the global race for dominance in 5G. It also hinders the development of China’s semiconductor industry by keeping China in a subordinate position as an assembly area for US corporations, something that Chinese leaders, including Xi, have worried about for decades. Put differently, the US ban on doing business with Huawei not only threatens China’s Covid19 recovery, but also its national security and superpower ascent.
Finally – and something I think deserves special mention – an attack on Huawei can also be considered an assault on China’s surveillance state and, perhaps, even the political power of Xi Jinping, himself. China has the largest CCTV monitoring system in the world, a result of significant investment beginning in 2000. However,"Skynet," as the system is called, was dramatically upscaled under Xi's leadership, so that by mid-2018, China had an estimated 200 million surveillance cameras within its national territory, and was projected to have 300 million by 2020. Xi is currently developing Skynet into "a more intelligent and comprehensive surveillance system that includes facial recognition cameras, sensors, and other tools at the disposal of the Ministry of Public Security." As Chinese historian Zhang Lifan succintly notes:
[Four decades of Post-Mao] [r]eform and opening has already failed, but no one dares to say it. The current system has created severe social and economic segregation. So now the rulers use the taxpayers’ money to monitor the taxpayers.
A strong and direct connection exists between Xi's plans to upgrade Skynet and Chinese Big Tech companies, in particular, Huawei's smart cities platform. In 2018, Globe and Mail reported that:
Huawei ha[d] begun working on advanced security technology together with the Public Security Bureau in the country’s far western Xinjiang region, which is becoming a pilot zone for advanced new surveillance and population-control techniques.
…the company [had] agreed to join an “intelligent security industry” innovation lab in Urumqi, the capital of Xinjiang, as part of a government bid to create a cluster of expertise in that field. Such expertise, the local government has said, can serve not only China, but dozens of countries involved in the “Belt and Road Initiative”…
Huawei is not only actively supplying AI surveillance technology to authorities in Xinjiang, it partners with other big tech companies to develop smart Chinese megacities, as well. In 2018, Xinhua reported that Ping An, Tencent, and Huawei gathered in Shenzhen to determine how they could cooperate in artificial intelligence, big data, cloud computing, payment and other technologies with urban security and management scenarios in mind.
But tensions with the West are putting the future of Huawei’s business at stake - as US and European governments prohibit the sale and shipping of crucial components like processing chips. Ultimately, that means the Chinese government’s supply of advanced technology used in its Skynet system to strengthen control over its citizens will diminish, while the party-state’s demand for even greater security, under Xi’s paranoid leadership, has started to rise. As Xi moved to rein in Hong Kong protesters, citizen journalists, and, even, Jack Ma in 2020, he sees threats to China’s security - and quite probably his own - everywhere heading into 2021. Xi needs Huawei to show that national achievements on the world’s stage that were promised to the Chinese people are on schedule at the CCP centennial this year. But he must also have Huawei’s AI surveillance technology to keep tabs on everyone at home.
Viewed as such, the Trump administration’s revocation of Huawei suppliers’ licenses, only three days before the end of the 45th presidential term, was a coherent and strategically aimed strike at Xi Jinping’s technological ambitions as well as the Chinese government’s surveillance power. By significantly diminishing possibilities for Huawei to find new workarounds, the new restrictions are expected to disrupt, both, the rollout and maintenance and operations of Huawei’s telecom networks, as well as the development of its facial recognition systems, smart policing tools, and the establishment of safe city platforms abroad and at home. Finally, while President Biden may tweak Trump’s approach to China policy going forward, he is likely to maintain a similarly hard line on most matters, including export restrictions to Huawei - which will only continue to cause China’s telecom and surveillance tech industries - and Xi Jinping - considerable pain in the foreseeable future.