It doesn’t seem long ago that American sanctions, together with the many countries who excluded them from the process of building their 5G networks, threatened to put Huawei out of business. Since 2020, most American firms have been barred from doing business with Huawei and other countries have been persuaded not to use Huawei’s equipment in their mobile-phone networks. As a result, Huawei’s revenue tumbled 30% in 2021 and net profits collapsed by 70% in 2022. In November last year, I visited Huawei’s HQ in Shenzhen and many people were writing them off. At the time, there seemed to be little hope.

 

However, according to a recent Economist article America’s assassination attempt on Huawei is backfiring “Huawei has not just survived; it is thriving once again. In the first quarter of this year net profits surged by 564% year on year to 19.7bn yuan ($2.7bn)” and its headcount has grown by 12,000. How has this happened? “Its business has become more concentrated in China, for one thing, with foreign sales now only a third of the total, down from half in 2017. It has also been forced to focus more on innovation, to find technological fixes for its political problems. Some 114,000 employees, more than half the total, work in R&D. Most striking of all, it has become more vertically integrated, as it seeks to develop replacements in-house for components or software snatched away by Uncle Sam”.

 

The underlying message here is that “to survive existing and potential future American sanctions, Huawei has been systematically seeking substitutes for American intellectual property in its products and internal systems”. Sanctions, tariffs and bans can often become a double-edged sword and Huawei is just one example of a Chinese company who can see the writing on the wall. The whole China market is adapting and pivoting to new markets, more R&D and new innovations. As the Economist concludes “if Huawei was a worry when America first declared war, it is a bigger one now”.