If you had asked a Chinese government official last year if their tech companies were on par with those in the U.S., they would have laughed at you. They are years behind. They are a poor country, they’d tell you.
But what about Huawei, you might ask.
Huawei? That little thing? More “come on, man!”, China style.
Fast forward until the end of 2018 and Huawei is now a household name. It is both the posterchild multinational of Chinese technological advancement and Public Enemy No. 1 in Washington.
Huawei may single-handedly be the biggest disruptor in the U.S.-China trade relationship. It may yet prove to be the biggest disruptor for Apple and Google in China, let alone the world.
Huawei is a case-in-point of how American companies and Chinese intellectual property theft [actually IP is a shekedown] have created a beast. And while Huawei has been accused of spying in Europe, it has never been accused of doing so in the U.S., and its latest fight with the Trump Administration is not over IP. It’s now over national security, something Washington often uses to get its way.
Last Wednesday, the Department of Commerce (DOC) issued a notice stating that U.S. companies had to get written permission from them in order to sell computer hardware, like microchips, to Huawei.
U.S. tech companies have already started cutting off ties with Huawei, Bloomberg reported on Sunday.
Intel makes one of the processors Huawei needs for its 5G telecommunications systems. Huawei uses Intel hardware for its smart city grids, a grid it has built in Bogota, Colombia. Intel has a long history in China, supplying hardware for computing, network data centers, and the cloud. Intel is also a supplier of Chinese telecom ZTE, which ran afoul of Washington sanctions last year.
Like Qualcomm and others, Intel is helping China be a 5G powerhouse. They ran their Intel 5G Network Summit in Beijing last September. Washington thinks U.S. companies are helping China too much, even helping them win in the 5G telecom space.
And so they have pulled the rug out from under Huawei, the largest telecommunications equipment manufacturer in the world. Intel said they were not commenting on the matter.
The Chinese government wants to retaliate by making it more expensive for U.S. companies to import lithium, a key component in batteries, especially electric car batteries. Like other key items needed for world trade (think steel, for instance), China has the market cornered on this one. They produce 90% of the world’s rare earth materials.
Xi Jinping visited a rare earth mine on Monday, prompting media analysts to speculate whether rare earth minerals could be used as a weapon by Beijing in the trade war.
Bloomberg, which seems to be beside itself with a depressing cocktail of grief and frustration as the trade war escalates, noted Xi’s options for retaliation.
The South China Morning Post reported that there was no mention of the trade war in state media articles about Xi’s visit.
Nevertheless, these are all things that Beijing can do to retaliate in its ongoing trade war, a war that most people on Wall Street believed would end this month. Shanghai stocks closed lower again on Monday, threatening a reversal in the A-shares bull market that started the year.
But here is the kicker: Huawei has a secret weapon. Huawei has its own operating system now for smartphones.
Google is being forced to curb some business with Huawei now that it is on the DOC’s Bureau of Industry and Security’s (BIS) dreaded Entity List. All of Huawei’s phones are powered by Android. Their budget brand — Honor — prepares to launch a new handset model in the UK on Tuesday.
Google’s compliance with the U.S. order could mean that future Huawei devices will lose access to popular Google services including the Google Play app store, Gmail and YouTube. That’s not so much a problem for mainland Chinese, but it is for Huawei’s global market.
All Huawei has to do is release a phone on its own operating system. There are hundreds of Chinese that can create the Huawei app store. There are hundreds of developers who would want to populate that store with apps, especially in China, where they may very well be ordered (or subsidized) to do so.
Rolling out the Huawei OS won’t happen worldwide, but it doesn’t need to. If Huawei wants revenge on the U.S., and if Beijing has any say in this as many Huawei watchers believe it has, then what is stopping the launching of the Huawei OS in China? Apps? That’s a losing argument.
If Huawei builds it, they will come.
Five years ago, Huawei was a no-namer in the smartphone space. Now it is No. 2 behind Samsung. Huawei has already dethroned Apple in China.
China is an important market for Apple. A Huawei smartphone with its own operating system is a game changer. Not only does it hurt Apple sales in China, but it also eats into Android’s market share.
Huawei could become the latent Chinese OS, a second or third option after Android and the iOS for other Chinese original equipment manufacturers like Xiaomi, Oppo and even ZTE, a quasi brother-in-arms for Huawei.
The Huawei operating system probably won’t be allowed in the U.S., but does anyone think Europe, no fan of Google, would ban it?
Huawei has a secret weapon in the trade war. It’s aimed right at Apple and Google. And it will remain aimed there, even if the Trump Administration removed Huawei from its blacklist.