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Huawei's problems are China's problems, and the country is now reacting
- Yesterday’s news about legal action from the U.S. towards HUAWEI has China very concerned.
- In response, the country is pledging to help keep HUAWEI growing domestically through a series of programs.
- The vested interest from China in HUAWEI’s success doesn’t help assuage fears about the connections between the two.
Over the past decade, Huawei has turned from a promising Chinese telecommunications company into a global powerhouse. HUAWEI is currently the second-largest smartphone manufacturer in the world, and could very likely become the top dog by the end of this year.
HUAWEI has become so big that the company’s financial reports and China’s economy are becoming ever-more linked together. If HUAWEI struggles, China struggles.
For example, according to data from the Internet Society of China (via South China Morning Post), services and products in China that rely on an internet connection were worth 5 trillion yuan (~$741 billion) in 2018, accounting for about six percent of the entire country’s GDP. HUAWEI products likely make up an enormous chunk of that six percent.
That’s why China has a genuine vested interest in making sure HUAWEI is successful. After the laying of formal charges against HUAWEI from the United States government yesterday, China itself needs to react accordingly.
As such, China recently pledged to ramp up efforts within the country to increase HUAWEI’s profits. Those efforts will include:
- Fast-tracking 5G rollouts around the country
- Fast-tracking the rollout of 4K television channels
- Subsidizing high-definition television sets as well as select VR/AR products
- Encouraging citizens to increase their “information consumption”
In other words, China knows that HUAWEI is going to struggle for the foreseeable future when it comes to global expansion and is responding by increasing domestic consumption of HUAWEI products.
Huawei's problems are clearly China's problems as well, which doesn't help quell fears about the links between the two entities.
Of course, one of the main reasons there’s so much going against HUAWEI throughout the world is the assumption that the company is secretly tied to the Chinese government and builds “back doors” into its products which could be used for spying on foreign countries. The fact that China is responding this way to HUAWEI’s problems doesn’t exactly help in dissuading other countries from thinking that the two entities are so intertwined.
The term “too big to fail” comes to mind when thinking about this relationship, and we all know how well that phrase is viewed here in the United States. However, it’s still unclear just how much these problems HUAWEI faces around the world will affect its bottom line, considering it’s done nothing but grow every quarter for years.
Regardless, HUAWEI (and thus, China) is on its toes as previous issues surrounding ZTE show that the U.S. has a substantial amount of power when it comes to hurting Chinese companies. It will be interesting to see how this pans out.
NEXT: HUAWEI says it could become #1 smartphone maker in the world this year