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For the past two years, executives at Huawei Technologies, the Chinese telecommunications giant, have struck a defiant tone in the face of the Trump administration’s escalating campaign to bar the company from Western markets over national security concerns.
In a high-profile interview with the BBC in February 2019, Huawei founder and CEO Ren Zhengfei famously declared, “There is no way the U.S. can crush us.” When Fortune CEO Alan Murray and I met with Ren at Huawei’s sprawling Shenzhen campus last September, he told us his biggest fear was that “our next generation of leadership may be overwhelmed by the success of our company.”
And until recently that confidence seemed well placed. As this piece in the Associated Press points out, even as the U.S. blocked Huawei’s access to American components and Google’s smartphone services, Huawei ramped up sales in its vast home market, pushed into Europe, Asia and Africa, launched development of its own operating system and unveiled its own design for high-speed chipsets. The result? Huawei widened its lead as the world’s largest manufacturer of telecommunications gear and overtook Samsung and Apple to become the world’s No. 1 smartphone brand. Sales last year soared 19% to a record $123 billion.
But now Trump’s assault on the company appears to be taking a toll.
One clear sign of distress came at an industry event in Shenzhen last Friday, when Richard Yu, CEO of Huawei’s consumer business group, acknowledged Huawei has “no chip supply” because U.S. sanctions announced in May will prevent the company from purchasing advanced Kirin processing chips to power its flagship smartphones. Huawei designed the chips, but it relies on Taiwan Semiconductor Manufacturing Company, a world leader in chip manufacturing, to produce them.
The May rules ban any firm, American or not, from using American software or chipmaking equipment to create custom-made processors for Huawei. TSMC, like many chip makers, makes extensive use of a small number of American technologies.
On Monday, the Commerce Department announced even more sweeping restrictions that prohibit any firm from selling any chips to Huawei, whether custom-designed or not, if they were produced with American technology. This latest measure appears to apply to everyone in the global chip industry.
The consensus among Western analysts is that these last two rounds of U.S. sanctions pose a serious threat to Huawei and might even derail—at least temporarily—China’s plan to roll out the world’s largest telecommunications network using high-speed fifth-generation mobile technology.
“The U.S. government has passed a death sentence on Huawei,” said Dan Wang, an analyst at Gavekal Research. “Huawei is probably finished as a maker of 5G network equipment and smartphones once inventories run out early next year.”
Industry analysts Paul Budde says Huawei is “losing market share quite dramatically outside China,” and the company’s international position “is most likely going to get worse rather than better.”
The Nikkei Asian Review reports that Huawei and China’s second-largest telecom equipment manufacturer, ZTE, have slowed shipments of 5G base stations in China to give them time to redesign products and change equipment to eliminate as much U.S. content as possible.
The Economist weighs Huawei’s options here. They aren’t great. China’s domestic chipmakers, though much improved, are years behind their U.S. and Taiwanese competitors—and may not want to risk running afoul of U.S. sanctions themselves.
And in this equation, the key variables are political. Beijing could retaliate by imposing reciprocal sanctions on Apple. Qualcomm, the San Diego-based chipmaker, is lobbying the Trump administration to allow it to sell to Huawei. Chinese President Xi Jinping might strike a deal with Trump to speed up purchases of U.S. agricultural products ahead of the election in exchange for loosened restrictions on Huawei. Or perhaps Xi will just sit tight, in the hope of a more amicable discussion of Huawei’s predicament with Joe Biden.
This week’s Eastworld Spotlight conversation is with Huawei chief technology officer Paul Scanlan. It was conducted last week before the Commerce Department’s latest round of restrictions on Huawei. Paul, an Australian, makes the case for U.S. and Chinese collaboration on 5G.
More Eastworld news below.
Clay Chandler
clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.
Eastworld news
Ivy intrigue
Elite American universities are considering putting warning labels on classes, creating anonymous discussion groups, and even allowing certain students to refrain from discussion in order to avoid fallout from teaching sensitive topics related to Chinese politics. The new measures are being discussed at schools like Princeton, Harvard, and Amherst, and are meant to help students freely discuss their opinions on controversial subjects like Xinjiang, Tibet, and the Hong Kong protests. The measures reflect the complications in holding sensitive, China-related discussion in an age of easily-recorded Zoom classes and a Hong Kong national security law that applies to speech made anywhere on the planet. Wall Street Journal
Three demands, and maybe more
Thousands of Thai citizens are continuing to take to the streets in the country’s largest anti-government protests in years. The movement rose this spring in response to the government dissolving a popular opposition party and has grown stronger amid backlash to perceived failures of the government in responding to COVID-19. It has ultimately coalesced around three demands: dissolve parliament, stop intimidating government critics, and create a new constitution. Some have even called for monarchy reform, an act unthinkable just months ago in a country where those who defame the king can be sentenced to prison. CNN
Failure to report
After the country’s experience with SARS in 2003, the China Center for Disease Control (China CDC) built a world class reporting system meant to detect emerging viral outbreaks. The China CDC, however, failed to detect and contain the COVID-19 pandemic in the critical early stages of the Wuhan outbreak. According to a new Wall Street Journal investigation, China CDC’s response was plagued by several factors: a failure of hospitals to report cases, cover-ups from both local and national authorities, and financial and personnel problems at China CDC itself, which were exacerbated by the U.S. withdrawing support from the agency in 2018. Wall Street Journal
Red, white, and TikTok
Major U.S. companies like Microsoft and Oracle are in a mad scramble to purchase the video streaming platform TikTok from its Chinese owner, Bytedance, before the Trump administration’s TikTok ban goes into full effect on September 15. Yet Bytedance might not be as Chinese as it appears. The company was once a darling of Silicon Valley's private equity crowd, and attracted sizeable and timely cash injections from firms like Sequoia, KKR, and Susquehanna International Group. These firms now have a "large" stake in Bytedance, says The Wire China, meaning that money from a potential TikTok sale may go straight into the pockets of other American firms.The Wire China
A dangerous jade trade
Hpakant, Myanmar, a small town in the country’s northwest Kachin state, is the jade capital of the world, holding the globe's largest reserves of the valuable stone. Myanmar says that it exports roughly $780 million of jade per year, but the real figure is likely closer to $30 billion when accounting for black market jade, which is largely sent to China. On July 2, disaster struck Hpakant, and a landslide killed roughly 200 people in Myanmar’s largest-ever mining disaster. Yet, as the South China Morning Post reports, the incident marks only the tip of the iceberg as to how the region’s largely illicit jade trade continues to put thousands of miners at risk. South China Morning Post
On-again, off-again
The U.S. and China have agreed to meet and review progress of the January phase I trade deal, according to the Chinese commerce ministry. The talks were originally scheduled for last Saturday but were postponed due to President Trump's frustration with China. "I don't want to deal with them now," he said on Tuesday. His apparent reversal, however, will provide a rare opportunity for the two sides to come together even as overall relations between the two powers continues to deteriorate. China has ramped up the imports of some U.S. goods in recent weeks, but remains behind schedule in its purchase commitments for agricultural goods, energy products, and other U.S. imports, according to the trade deal tracker from the Peterson Institute for International Economics. CNBC
Coronavirus by country
Pakistan
Pakistan has recorded over 290,000 cases of COVID-19 and over 6,000 deaths, making it one of the hardest-hit Asian nations. But Pakistan's struggles could put it close to the front of the line for a vaccine. This week, Pakistan brokered a deal with Chinese state-owned vaccine maker, Sinopharm, to conduct vaccine trials of Sinopharm’s vaccine. In exchange, Pakistan will receive early access to millions of doses if the trials prove successful. Late stage vaccine trials are more revealing in areas with higher caseloads, as researchers compare infection rates among those inoculated with a vaccine versus those given a placebo. In recent weeks, COVID-19 numbers have been falling in Pakistan, but officials say there are enough hot spots in the country to conduct effective trials. Wall Street Journal
Markets and movers
Ant Group – Alibaba founder Jack Ma now controls roughly half of the shares in the Alibaba affiliate Ant Group. Ma plans to reduce his stake in Ant Group to under 10% before the company’s upcoming landmark IPO, according to a recent Alibaba filing. Nikkei Asian Review
Softbank – The Japanese conglomerate has built stakes in American tech firms like Netflix, Apple, and Google, including a roughly $1.2 billion holding in Amazon, according to a recent filing. Softbank also disclosed a stake in the Chinese video streaming site iQiYi, which U.S. regulators are currently investigating for fraud. Reuters
Pinduoduo – The Chinese e-commerce giant tried to sell discounted Tesla cars on its platform, but Tesla refused to send them. The incident marked a clash between Pinduoduo’s strategy to subsidize goods sold on its platform and Tesla’s refusal to allow third-party resales of its vehicles. Financial Times
Reliance Jio – The Indian conglomerate has launched Jio Pay, a mobile payments service, for roughly 1,000 JioPhone users in India. The trial comes as Jio is reportedly preparing to roll out the service to a wider audience “very soon.” BGR India
Final figure
$4.7 trillion
A new round of flooding is bearing down on southern China and placing pressure on China’s Three Gorges Dam for the second time this summer. Yet these devastating floods may only be a harbinger of more extreme weather events in coming years as climate change increases the potential for more heat waves, severe flooding, droughts, and other weather related disasters. In a new report from McKinsey, the global consultancy says that by 2050 climate change will be a $2.8 trillion to $4.7 trillion risk to Asia’s annual economic output. McKinsey says that Asia, in particular, will be vulnerable to lethal heatwaves and will to home to a “substantial majority” of the world’s population in hot and humid climates. McKinsey
