China won’t sit and watch Huawei get ‘slaughtered,’ exec says as US reportedly preps new sanctions

A Huawei Technologies Mate20 Pro smartphone displays an image of the company’s Kirin 980 chip.

Krisztian Bocsi | Bloomberg | Getty Images

Beijing will not sit and watch Huawei get “slaughtered” and could retaliate if there are further sanctions on the Chinese technology giant, a top Huawei executive told CNBC on Tuesday.

The comments came in response to a Reuters report that suggested senior officials in the Trump administration had drawn up new rules that would require chipmakers to obtain a license if they use American equipment to make components sold to Huawei.

The Reuters article, citing a source, said that the rule change is aimed at curbing the sale of chips from Taiwan Semiconductor Manufacturing Co (TSMC) to Huawei. TSMC makes chips that Huawei designs. 

In the company’s first comments on the issue, Eric Xu, rotating chairman at Huawei, suggested China would take retaliatory action if such a rule came to fruition.

Once the pandora box is opened, it would have devastating chain effect on global eco-system. Huawei would not be the only one to be destroyed.

Eric Xu

rotating chairman at Huawei

“The Chinese government would not sit there and watch Huawei being slaughtered. I believe there would be counter-measures,” Xu said in Mandarin comments translated by CNBC.

The U.S. has argued that 5G equipment from China could be a national security risk. Xu argued that China could use that same logic for American devices using U.S. chips and block them from the Chinese market.

“If China takes counter-measures, the disruptive ripple effects on industries across the globe would be enormous. Once the pandora box is opened, it would have devastating chain effect on global eco-system. Huawei would not be the only one to be destroyed,” Xu said, adding that American companies “wouldn’t be able to stay unscathed.”

The strong rhetoric highlights the potential damage such a rule change could have on Huawei. Last year, the company was put on a U.S. blacklist which restricted the way in which American firms could do business with Huawei. Some loopholes, however, allowed companies to still supply certain components to Huawei. 

This new rule change aims to choke off supply to Huawei where it hurts. The company doesn’t manufacture its own chips. Instead, it designs them and they are made by TSMC. If Huawei gets cut off from that supply, it could be quite damaging. Such a change would be an escalation of tensions between the U.S., Huawei and ultimately China. 

When contacted by CNBC, TSMC said it is unable to answer hypothetical questions and does not comment on any individual customer.

Washington has maintained that Huawei is a national security risk suggesting its networking equipment could be used for espionage by Beijing. Huawei has repeatedly denied the allegations. The U.S. has sought to convince allied countries to block Huawei from participating in next-generation mobile networks known as 5G. 

The blacklist has already hurt Huawei. On Tuesday, the company reported 2019 revenue that fell short of its own internal expectations by $12 billion. 

Xu said the company would have alternative companies to make chips for it should the U.S. rule change come into force, and cited South Korea’s Samsung, Taiwan’s MediaTek or China’s Unisoc as alternatives.

“Even if Huawei cannot make chips anymore, I believe many other Chinese companies will come to the market and make home-grown chips,” Xu told CNBC. 

Semiconductors are a key area of Beijing’s Made in China 2025 plan, a government initiative that aims to boost the production of higher-value products.

China aims to produce 40% of the semiconductors it uses by 2020 and 70% by 2025. That’s backed by tens of billions of dollars of investment from Beijing into the country’s chip industry, though experts told CNBC that China still remains far behind the U.S. in the semiconductor industry. 

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