In October 2021, The Economist advised in an opinion article that Chinese tech giant Huawei should dissolve so its talented engineers could leave to become the next generation of high-tech entrepreneurs. At the time, the logic seemed sound.
After a series of knockout punches from America’s judicial and regulatory authorities, Huawei’s 5G telecom infrastructure and smartphone businesses were on their knees. Shut out from Western markets, its wares were met with doubts from consumers elsewhere, too.
After all, why would anyone consider buying a piece of technology that requires after-service if the firm may soon go out of business?
For individual Huawei employees, remaining with what seemed to be a sinking ship looked like a death sentence for their previously promising careers.
Fast forward to 2024, Huawei has bounced back with multiple breakthroughs designed to wean the company off foreign technologies that have become inaccessible due to US-led sanctions and other restrictions.
Consider the list. In September 2023, Huawei released the Mate 60 smartphone powered by the Kirin 9000S, a chip manufactured by China’s fellow sanctions-hit Semiconductor Manufacturing International Corporation (SMIC).
In January 2024, the firm revealed HarmonyOS NEXT, a new smartphone operating system completely independent of Android.
In April, the firm started building a new R&D center to develop chipmaking tools, aiming to catch up and surpass the technological frontier now held almost exclusively by Dutch high-end chip machine maker ASML.
Huawei’s recent successes have also defied financial expectations. After hitting peak revenues of 891 billion yuan (US$123 billion) in 2020, sanctions caused them to slide 636 billion yuan ($87.5 billion) the year after, with no realistic pathway to recover the lost revenue in Western markets.
So why was the firm confident enough to continue increasing its R&D expenditure amid such commercial upheaval and with seemingly slim prospects of matching the largest US tech firms with several times Huawei’s revenue and market value?
A closer examination shows that Huawei’s confidence came not merely from its technological or business acumen but the loyalty it enjoys in local Chinese markets.
Even as Huawei became an overt target for assassination in America’s politicized tech war, the Chinese government did not abandon the company for equally promising but less targeted.
Last year, the government supplied Huawei with some $30 billion in subsidies and support.
Its employees thus did not depart en masse in search of greener – or at least less blacklisted – pastures. Rather than shrinking, the firm’s employee count surpassed 200,000 in 2023, with 55% working in R&D.
And most importantly of all, Chinese consumers have not stopped buying the products Huawei has continued to produce in the face of US sanctions. Tellingly, the Mate 60 outsold Apple’s iPhone, allowing Huawei’s smartphone sales to grow 37% while Apple declined by double digits.
To be sure, the Chinese government’s retaliatory measures have contributed to the shift. Late last year, Chinese state agencies and government-backed firms across the country ordered their employees to stop bringing iPhones and other foreign devices to work, Bloomberg reported.
Chinese consumer purchases of Huawei’s Mate Pro are accelerating despite the industry consensus that the Kirin 9000S is a technically inferior chip to Huawei’s pre-sanction chips made abroad – not to mention the most cutting-edge ones used in iPhones.
As sanctions continue to fly in the ever-evolving Sino-American tech war, the cold logic of commercial success and technological development is arguably being upended by a nebulous emotion.
Whether patriotism or self-sacrifice, Chinese consumer behavior is helping many Chinese firms beyond Huawei overcome commercial and regulatory headwinds abroad.
As more Chinese manufactured products, from electric vehicles to solar panels, face tariff and non-tariff barriers in American and European markets, they will become more and more reliant on the loyalty of Chinese consumers to sustain their operations.
So far, this reliance is paying off across several sectors. Of the top five brands that command 81% of China’s smartphone market, Apple is the only non-Chinese one.
Even so, Apple’s market share has declined from 23% to 16% in the past two years. Meanwhile, BYD became the most popular car brand in China last year after a 43% year-on-year increase in sales while many international marque brands saw double-digit declines.
Even in the cosmetics industry, Chinese brands captured more than half of the market for the first time in 2023, growing 21% year-on-year. If Chinese firms can continue to lure Chinese customers away from foreign competitors in China’s vast market, they will have strong growth potential for years to come.
Questions remain, however, about whether Chinese firms can turn strength at home into a renewed global push. As stronger Chinese brands emerge, the West may respond with wider-reaching sanctions and restrictions.
US sanctions, in particular, could conceivably follow newly successful Chinese ventures wherever they travel, picking off their international businesses one by one as it did with ZTE, Huawei’s main domestic competitor.
As The Economist reassessed Huawei’s fortunes and prospects earlier this month, any US attempt to widen its assassination attempt on Huawei could backfire, as a wider range of Chinese companies implement survival strategies that leverage the loyalty of Chinese consumers.
China should repay the western sanction with sanction of its own against western companies that are operating in China. Meanwhile Chinese companies should focus on expanding their market and production in global south. That’s where the battle will be fought against the western companies. If China can take those market away from western companies, they are finish.
Love to see Chinese mobile brands raising and US brands are falling. I hope it will keep on forever.