Huawei’s fortunes have hit a major roadblock following the Trump administration’s merciless crackdown on the Chinese smartphone maker. But the Chinese Communist Party (CCP) cannot let Huawei come down so easily. Therefore, Beijing seems to be going against the tide to somehow save the telecom giant.
However, it seems that Huawei is becoming too big a gamble for China. By saving it, China is virtually trying to save what is bound to become a non-performing asset in the near future. Yet, the CCP is making all efforts to save Huawei because it cannot allow the smartphone maker to go down in face of American pressure.
In fact, the company has reportedly recorded 3.7 per cent growth in quarterly revenue on Friday. The growth is being rightly described as meagre in comparison to the double-digit growth that the Chinese telecom major enjoyed earlier.
Huawei’s growth rate has got dragged down owing to the demand and supply bottlenecks that it is facing in several countries led by the United States of America. The Trump administration has been running a campaign against Huawei’s global 5G ambitions for more than a year now.
The United States and several other democratic countries have even shunned Huawei’s 5G technology over security and espionage concerns. Anyhow, this year the Trump administration went a step further and banned Huawei from using semiconductors based on secret American designs which is the dominant model used in the market.
While countries pushing Huawei out of their 5G markets was only hurting the Chinese telecom giant’s 5G ambitions, the semiconductor ban is turning out to be much more harmful. A tech company cannot survive without semiconductors, as they are used in every kind of tech equipment from smartphones to satellites.
As per a report by famous analyst Ming-Chi Kuo, the effect of the semiconductor ban is that Huawei, which was competing for global domination two years ago, is now considering an exit from the market.
And then, Google has also prohibited Huawei and Honor phones from using Google apps and services. So, Huawei phones will neither have efficient American semiconductors nor Google’s apps and services. As such, the company has lost the cutting edge in both the smartphones sector and the 5G network sector.
Huawei itself sounds somewhat cynical. The company said, “As the world grapples with Covid-19, Huawei’s global supply chain was put under intense pressure and its production and operations saw increasing difficulties.” However, the smartphone-maker vowed to “do its best to find solutions, to survive and forge ahead”.
Huawei’s overseas sales have, in fact, remained sluggish. But then how has it remained afloat and also managed to grow marginally? The answer lies in Huawei’s domestic Chinese sales. According to Reuters, customers have rushed to purchase Huawei smartphones due to concerns about the availability of newer models.
So, while the US has pushed the company against the wall, so much so, that even the survival of Chinese smartphone giant is admittedly at stake, the CCP has tried to use domestic sales to keep it afloat.
The Xi Jinping regime is fuelling artificial domestic demand for Huawei, in order to somehow keep it alive. At the end of the day, it is China’s largest private company and a prized jewel. For the Chinese President, saving Huawei is not a matter of economics, but a subject of prestige. And therefore, heavy domestic demand is being created for Huawei.
But does it make any commercial sense for the Chinese Communist Party to pump hordes of money into Huawei? The Chinese telecom giant continues to face an uncertain future, as the Trump administration shows no signs of easing the mounting pressure on the Chinese company.
The Xi Jinping administration is clearly creating a White Elephant for itself by trying to keep the company afloat. Financing Huawei’s survival is not going to be easy for the Chinese Communist Party. The telecom major is absolutely humongous and had registered a revenue of US $123 billion last year. Now, the CCP will have to arrange a sizeable portion of the billions of dollars required to keep the company afloat.
Saving Huawei is a gamble fraught with risks and the CCP’s efforts to ensure the telecom giant’s survival is thus going to cost China heavily.