Circumvention of US sanctions
Huawei builds secret chip factories
08/23/2023 4:33 p.m
With billions in support from the Chinese state, Huawei is pushing ahead with its own chip production. In order to undermine the tough US sanctions against the company, the world’s largest telecom equipment supplier is probably not playing with open cards.
Huawei, the world’s largest maker of telecommunications equipment and subject to wide-ranging US sanctions, is apparently building a secret network of chip factories to secure its supply of semiconductors. This is reported by “Bloomberg”, citing information from the international industry association Semiconductor Industry Association (SIA). As a result, the Chinese have taken over two chip factories and are involved in the construction of three more. The name of the controversial group does not appear in publicly available information on any of the projects.
Among other things, Huawei is accused of using technological backdoors to enable the Chinese state to engage in espionage, for example in modern mobile networks in which the company’s technology is used. Huawei strictly rejects this accusation. Several states have now banned the use of Huawei components in their telecom networks. The USA has also imposed far-reaching sanctions on the group. Since 2020, American companies and those that use US technology or preliminary products have only been allowed to supply Huawei with special permits from the USA. This applies to almost all chip manufacturers, including Chinese ones. Even Huawei’s own subsidiary, the semiconductor manufacturer HiSilicon, can no longer deliver its state-of-the-art chips to the parent company.
In addition, last year the US government banned the sale of the latest generation microchips and the technology used to make them to China altogether. Washington justifies this with the danger to the security of the USA, because of a possible military use of such chips. Beijing sees this as an attempt to slow down China’s economic and technological development.
Huawei’s efforts to build its own covert supply chain show the difficulty of enforcing American sanctions. It is true that the large Western corporations that control the production chain of modern microchips – from the design to the construction of the factories and machines to the manufacture of the chips – have stopped the banned deliveries. Nevertheless, the technology apparently reaches China and Huawei via detours. The companies named by SIA are not pure shell companies, but mostly state-owned technology companies, which therefore work closely with Huawei or are even part of the group. Huawei did not respond to inquiries from Bloomberg and Reuters news agency about the report.
The Chinese state supports the efforts of domestic companies to build up their own modern semiconductor industry with a lot of money. According to SIA information, Huawei alone will receive the equivalent of 30 billion dollars. Overall, China’s central and provincial governments will invest $100 billion in the semiconductor industry in the coming years. That’s about the same as the rest of the world’s subsidies in this area over the same period. According to an SIA estimate, by the end of this decade China will have more than half of the world’s production capacity for conventional microchips, that is, for those other than the latest generation, whose sale to China has been sanctioned by the US.
But even this embargo could soon lose its effect. With such a massive expansion of production and development capacities, Chinese companies are also gaining more and more know-how that is necessary for the production of the latest generation of chips. Huawei itself has now announced that it will resume production of 5G smartphones, which the company had to temporarily interrupt as a result of US sanctions. According to its own description, Huawei developed the necessary chips from Chinese production itself, with software that was also developed in-house.
When asked by Bloomberg, the US Department of Commerce said it was aware of the SIA information and was following developments. In addition to Huawei, more than 100 of its subsidiaries are already on the relevant sanctions list, including two of the companies named in the “Bloomberg” report. If necessary, the list and the sanctions would be adjusted, the ministry said.