Will U.S. Sanctions Kill Huawei? – Zooming In

by FDeditor

Narrator: Huawei has to discontinue its popular smartphone productions due to U.S. Sanctions. Can Huawei become self-sufficient in the future by making all the parts by itself?

Declan Ganley: I will not rule it out that they will be able to get there. The thing is will they be able to get there soon enough to be able to stay in the fight?

Narrator: China has benefited from stealing intellectual property to become technologically advanced but there is one problem with that practice.

Simone Gao: Are you saying that a repressive regime fundamentally cannot innovate?

Mr. Ganley: That’s exactly what I’m saying.

Narrator: Amidst U.S. Sanctions against Chinese officials and Chinese companies, my interview with Mr. Ganley, a European tech executive.

Mr. Ganley: Huawei is going to continue to get listened to because its ambassadors, these mobile carrier companies, will continue to make the case for Huawei. That’s how Huawei stay in the game in the West.

Narrator: But can Huawei stay in the game forever?

Mr. Ganley: I think that the days of the Communist Party of China are numbered.

Ms. Gao: Thank you very much Declan for being with us today.

Mr. Ganley: You’re very welcome. My pleasure.

Ms. Gao: Huawei announced that starting in mid-September, it will no longer be able to procure its Kirin 9000 smartphone processors due to U.S. Sanctions. What does this mean for Huawei? How big a blow is it to Huawei’s consumer product sector?

Mr. Ganley: I think it’s a big blow. Huawei is going to have to fill in that gap get those vital components elsewhere, and there isn’t really anywhere else to go. So they’re going to have to produce them themselves. And let me tell you going from zero to having a product of even remotely similar quality, that’s a very, very tough challenge. So that is a big setback for Huawei. No doubt.

Ms. Gao: So it’s not a guarantee. Can Huawei in the long term be self-sufficient? Can they produce all the parts they need inside China?

Mr. Ganley: I expect that eventually they can get there. The question is what methods are they prepared to use to achieve that in terms of taking other people’s intellectual property and various other things, but a country that’s prepared to do some of the things that we’ve seen in places like Hong Kong over the last few days and the things that they do with the Uyghurs and Falun Gong, and so many others, I would not rule it out that they will be able to get there. The thing is, will they be able to get there soon enough to be able to stay in the fight?

Ms. Gao: “Stay in the fight”—what do you mean?

Mr. Ganley: We’ve talked about this before but Huawei’s mission together with the support of Beijing—with the Communist Party of China—has been to dominate the global 5G and cyber domain. That is their mission objective. They were doing a very effective job of it. The thing is, if you don’t have a supply of vital components that you still need to get from outside China, from the U.S., from other places then are you going to be a reliable provider of equipment services, handsets, etc., to those that are going to need to rely on you? We’ve seen carriers that have very close relationships with Huawei in Europe, for example decide to not launch with Huawei handsets. We saw that in the UK last year. So it’s a very, very big challenge. I’m not saying that they can’t accomplish it but it’s a tough one. And the fight is for them to, I guess, do whatever they need to do to be able to replace these components. And as I say, that is very, very hard to accomplish and depending on what tactics they’re willing to use. Let’s see if they accomplish it or not.

Ms. Gao: I think from Huawei to China, the bigger question is, China is turning inwards as well, trying to build and produce everything within its borders because the CCP [Chinese Communist Party] knows America and its allies are pushing back hard on it. So do you think in today’s globalization, China can be self-sufficient industrially?

Mr. Ganley: No, is the short answer. I think China can make a lot of stuff, and I think they can make it quickly and in great quantities, but you cannot sustain a highly innovative cutting edge, disruptive tech economy in a system like China’s. You’ve got to get your ideas from somewhere else. China’s got quite the track record of disrespecting other people’s intellectual property and other programs have covered this. I do not think that communist China has the wherewithal to do that in a sustainable, continuous fashion. Yes, they can make stuff, and they can make a lot of it, and they can make it well, but you have to be able to innovate, to disrupt, to come up with new business models, to do all sorts of things, and I’m dubious that this system that represses freedom can actually accomplish that. I don’t think any repressive system can do that. I think you can do it for a while but I don’t think you can do it. Now, if you took Taiwan or you were to take Hong Kong before the crackdown, if the rest of China became what Hong Kong was then yes, I would say there’s a real possibility. But of course, Hong Kong by its nature was not inward looking, it was outward looking, it was a global city and a free city, and that’s not what communist China is.

Ms. Gao: Are you saying a repressive regime fundamentally cannot innovate?

Mr. Ganley: That’s exactly what I’m saying. They can do it for a while. They can take other people’s ideas, they can steal other people’s ideas, they can copy, they can do all of those things, but when it comes to cutting edge, disruptive innovation, you need a system that permits it. Now I have to tell you, the West is not as good at it as it used to be but the idea that a regime like the Communist Party of China is going to be able to do that sustainably—I don’t buy it. I just don’t buy it. You need entrepreneurs that aren’t robots, that aren’t one dimensional. The thing is that you find about truly brilliant entrepreneurs is they tend to care about more than just the one thing that they’re focused on. They’re complete people with ideas about free society and everything else. They’re people like Jimmy Lai, and Jimmy Lai was arrested and cast it off by the Hong Kong police for breaking, supposedly this ridiculous national security law that’s been imposed by the Communist Party of China on the people of Hong Kong. If you don’t have [people like] Jimmy Lai, you’re not going to have a sustainable economy.

Ms. Gao: After Jimmy Lai was arrested, his company’s stocks went up tremendously. What do you make of it?

Mr. Ganley: I think that was all the other entrepreneurs in Hong Kong sending a message. I think the regime in Beijing with the collaboration of Carrie Lam decided that they were going to try and somehow embarrass or teach Jimmy Lai a lesson. I know Jimmy Lai and he’s not going to be taught any lessons by the Communist Party of China. The guy is a patriot, he is a hero, he is a man of immense faith and immense conviction, an enormous character, and when you do find [that kind of people] in repressive societies, those are the characters that end the repression. And Jimmy Lai is one of those people.

Ms. Gao: Where do you see Hong Kong’s future after this national security law passed? Do you think they will go underground to protest and just wait for their chances or they are going to still go on to the streets to protest?

Mr. Ganley: The national security law was designed to shut down all of the protests, to silence people like Jimmy Lai and Nathan Law, and so many others. But the spirit of the people of Hong Kong, I think about it as the spirit of free China, of the free Chinese people, and that is a spirit that no Communist Party is going to be able to annihilate. Chairman Mao tried it, the Communist Party has tried it for most of a century, and I do not think that they are going to succeed. I think that the days of the Communist Party of China are numbered. They clearly don’t think that but I believe it. And I believe that China, when it throws off the shackles of the Communist Party of China, China will be a nation like no other to be reckoned with. The free Chinese people are unstoppable—they are a great gift to the world, an engine for the world, an example to the world. I have great hope and I’m actually very optimistic about the future of China once it rids itself of this communist tyranny, and I believe that it’s people will do that.

Ms. Gao: Let’S go back to Huawei. Huawei’S total revenue in 2019 was just over $100 billion and over 50 percent of it was from consumer products such as smartphones and computers. Another 35% was from telecommunication technology such as 5G equipment and deployment, and this is exactly the area America has been targeting to warn its allies about the danger of using Huawei technology. So how does this battleground look like right now?

Mr. Ganley: So Huawei was making great progress, unfortunately, up until the UK announced recently that they were going to ban new Huawei 5G purchases starting at the beginning of next year. So that was a blow for Huawei. Now, frankly, the UK’s position still leaves some flexibility because a lot of equipment can still be ordered. It only stops purchases, it doesn’t stop deliveries, doesn’t stop shipments, it doesn’t stop financing. So for example, you could enter into a contract for the next five years, you could make the purchase now, you could buy a service and supply contract, pay for it now, borrow the money from Huawei or from some communist Chinese banks pay the money up front, and you could arguably continue using Huawei for a good number of years to come.
But still the spirit of that rule is that it will be replaced that the Huawei equipment will all be replaced in the UK. That sent a strong message to other countries as well. The big thing that has to happen now and people from Boris Johnson to many others have said, “What’s the alternative model to Huawei,” and this isn’t [about] what’s the alternative supplier to Huawei. We know who the alternative suppliers are to Huawei—Nokia Ericsson and many others, [Samsung,] they do a very good job—it’s the alternative model. How do you finance 5G and subsequent networks without the subsidies that Huawei brings with them? And the answer to that is, you have to change the business model, and that hasn’t happened yet. And until I see that happening, and I hope that we will see it happen, but until I see it happening, Huawei still has an advantage that they shouldn’t have any more at this point, but they still have an advantage.

So the fact that they have things like this UK ban other countries introducing bans despite that fact, these bans, they’ve got to be sustainable, they’ve got to be long term, and you’ve got to understand that the lobbying has not stopped. The mobile carriers who are dependent on Huawei because they get their equipment cheap and they get vendor financing, those mobile carriers still want Huawei. We’ve seen them continuing to make the argument in the UK. They still want Huawei. They want Huawei because Huawei keeps them in business by propping up what is otherwise a non-viable business model.

Ms. Gao: I was going to ask you, if the lobbying forces in Europe has died down but seems like it hasn’t.

Mr. Ganley: No, no. So the most effective lobbyists for Huawei don’t come from communist China. The most effective lobbyists for Huawei are the senior executives and their friends in the big mobile carriers, like Deutsche Telekom, Vodafone, many others who have gone in, and continued to say to their governments and their regulators, “Well, we need Huawei because. But the main reason that they need Huawei is because they need cheap vendor financing, because they don’t have a viable business model for 5G, and unless we shift to this wholesale model, a wholesale open access model, and we stop these stupid spectrum auctions, Huawei is going to continue to get listened to because its ambassadors, these mobile carrier companies, will continue to make the case for Huawei. That’s how Huawei stays in the game in the West.

These people are not going away, they don’t change with the elections or anything else, and will keep wearing away at this unless we change the model. Now, let me put it another way. Governments still auction radio spectrum and these mobile carriers buy it because it gives them a pricing monopoly or oligopoly. And to bid in those auctions, those carriers need subsidies from Huawei so that they can pay more in these auctions. So interestingly, the UK has scheduled a 5G auction coming up shortly and Vodafone—one of the big mobile carriers, the biggest mobile carrier in Europe—after the ban was announced, the forthcoming ban on Huawei in the UK, Vodafone came out and said [that] we need to cancel the 5G auctions because the implication being [that] they’re not going to be able to bid the same way without Huawei supporting that, which is absolutely the case that I’ve made on previous programs with you. So Vodafone validated it with that statement. End these auctions, and move to a wholesale open access model, and a royalty model for paying for the spectrum, and it’s game over for Huawei.

Ms. Gao: You and I talked [a lot] about changing the wholesale model to the retail model. Are you saying that if this model is not changed, even if Huawei is gone from the European market, there will be another Chinese company that does the same thing, right? Is that a realistic potential?

Mr. Ganley: Well, ZTE [is] very like Huawei, more or less the same. So I would say, first of all, all of these bans need to be sustainable. So after the U.S. Election, if Trump is re-elected [or] if he’s not, whatever happens, this lobby is going to continue. It’s going to continue. In Germany, for example, Chancellor Merkel has not shown a real willingness to take on this issue and that’s because Deutsche Telekom and other carriers there have lobbied so hard for Huawei for so long, for the reasons that I’ve explained. Now, we have to create a viable business model so that those deploying future 5G networks can easily buy all of their equipment from secure non-communist Chinese backed vendors.

And to do that, we have to change the model. This auction model, and I’ve said it for a long time, it is the root cause of the problem, and I’m not the only one saying this. I was alone saying it for a long time—I am now not the only one saying it. It is the root cause of the problem and while we continue to do it, we give a massive advantage to Huawei and to Beijing that we do not need to give them. This is a gift to them. I’m not saying that we can’tbeat Huawei and still just through the auction model, I’m not saying that’s an impossible task, but it’s a much harder task to achieve than if we end this stupid auction model. This is like climbing Mount Everest compared to climbing a nice hill on a summer’s afternoon. Right now, with the auction model, it’s like we’re trying to climb Everest without any shoes, without any coat, with no clothes and on a freezing cold day. It’s not a good way to go about this mission. It’s not impossible, it could theoretically be achieved, but why make it so hard on ourselves.

Ms. Gao: I think it all depends on how the Europeans view this. Can you give me a breakdown of Europe’s attitude towards the Chinese Communist Party’s? Who is onboard with America in confronting the CCP, who is not, and who hasn’t decided?

Mr. Ganley: Well, obviously the UK is strongly aligning. I have been very impressed with moves from some other countries. Poland has been very good. The Czech Republic has really been very consistently strong for a long time. Romania seems to be moving very much in the right direction. Italy’s moving in the right direction. And then countries like Sweden and Finland, the Scandinavian countries they’d been very wide awake, and Sweden has been targeted, really, by the Communist Party of China. But in various diplomatic issues, the awareness of the human rights abuses the fact that the public is now much more aware of what’s going on with the persecution of the Uyghurs, with the concentration camps, with religious persecution in China with the whole issue in terms of the sales of organs and trafficking in organs, and the things like the crack down that we are seeing in Hong Kong—the arrest of Jimmy Lai, the raid on really the most greatest example and bastion of the free press in Hong Kong, Apple Daily, the newspaper, when it was raided by the Hong Kong police—I think those create huge issues for any European apologist for communist China. It makes their job much harder to continue to defend the corner of the Communist Party of China. So I think their grip is slipping but it’s deep. They have done phenomenal regulatory capture. They’ve got very, very deep hooks into European academia, into European industry, and into European politics. I think in history, we probably haven’t seen a more effective penetration y a regime like this into our own societies, from top to bottom. It’s been really very effective in our institutions and now people are starting to wake up to that, and I think their jobs got much harder.

If I take Ireland, the country [where] I’m speaking to you from again, the public is very aware. The Irish government still has not rescinded its extradition agreement with Hong Kong although many other countries have now done that. There are vested interests here in Ireland in some businesses that don’t want to do anything to upset Beijing. We saw some very strange words reportedly coming out of Northern Ireland yesterday made to the Consul General of communist China saying that we’re supportive of the Hong Kong [national] security law. So, strange things. So there’s flux and change going on right now. I would like to have seen more leadership out of Angela Merkel. I think Macron is heading in the right direction. I think the UK is very much moving in the right direction—still got some work to do there. And I think countries like the Eastern countries, the countries that knew communism, that where communism is in the living memory of those countries that were behind the Iron Curtain, I think that they don’t need any lessons. They know exactly what they’re up against. I thank God that we have those countries in the European Union now because they can act as a conscience and memory for Europe in terms of what we’re up against when we face regimes like the Communist Party of China.

Ms. Gao: Can you talk a little bit more about Germany? Merkel is going to eb gone pretty soon, right? Where is Germany headed?

Mr. Ganley: Yet to be determined. There are people in German politics, prominent people in German politics, who are saying phenomenal things with regard to what needs to be done to tackle this challenge of the communist regime in China—very brave, very bold, very assertive. And then there are some that are on the opposite side of the fence, that are as close to being rank apologists as you can get who seem to only care about being able to export more things to communist China and really want to turn a blind eye to the rest. You can’t have your cake and eat it with communist China.

I think I’ve said it to you before, the old adage was that in Leninism was where they claim that the capitalist would sell [to] the communists the rope which the communists would hang the capitalists. We’re now in this situation where Chinese communism will sell the rope to the capitalists and then hang the capitalists with it. So it’s quite funny. And the capture of big crony corporations in some of the West is alarming to me and is alarming to a lot of people because some of these corporations really just don’t want to have to think about human rights issues or anything else [about] the Chinese communist regime [and] what they’re doing—that they are amoral organizations. It’s not that they’re just amoral, they just don’t want to know, and their influence in modern politics is immense. So the more that public opinion, that popular opinion, is informed, the better chance we all have of prevailing.

Ms. Gao: This is a very vague question but I want to know what are the European politicians on Donald Trump and Mike Pompeo?

Mr. Ganley: They vary. They are as broad as the ocean. The Europeans, I think, again, in Central and Eastern Europe, you have a very, very strong base of support for Trump and for Pompeo. I actually think [there are] a lot of quiet respect in many places. I think in Western Europe, that is less the case. But certainly there are plenty of very prominent politicians who support and respect them—the president and the secretary of state. The secretary of state and the president both have shown really exemplary leadership on this issue in recent times. In fact, really consistently. One moment that really struck me was Pompeo’s speech but if you listened to that whole speech—and I’m sure you did but for your viewers, I would recommend [to] look at Pompeo’s California speech that was made just very recently—it was a very historic moment. And I think we will look back on it in history and realize what happened. I think that the secretary of state laid down his and the president’s view, [and] expressed the intention very, very clearly. There was no ambiguity whatsoever. It was extremely forthright—recognized the problem, the challenge, how big it was going to be. I thought it was magnificent. I really think it was magnificent. And people listen to that and watch that, and it ran true. And the president and the secretary of state, the whole administration, the way they are taking on the issue of communist China, it’s a shame we weren’t doing this 20 years ago but you know what? Better late than never. I think a lot of people in Europe quietly are really impressed by it.

Ms. Gao: With all the things happening with Huawei, the UK walked away from Huawei’s 5G technology and U.S. Sanctions on Huawei so it cannot produce its smartphones anymore, would you say Huawei is done

Mr. Ganley: Do I think Huawei is done? I think that if we end this one off auction model, which is the last thing that we need to do, and move to wholesale, I think there’s no way back for Huawei. If we don’t, it remains an open question but they’re certainly on the back foot right nowWith Donald Trump as president of the United States [it] was very unlucky for them that he came along when he did because I don’t think anybody else would have taken this on, the way that he did and was just prepared to take this fight to them. The last piece and the vital piece, I think, is that we now need to move to changing the business model to move to wholesale, dynamic wholesale, open access, and these wonderful options need to be done immediately. And if that is done, then I think Huawei is done. If that is not done, then this fight is going to go on for a while.

Ms. Gao: These are all my questions. Thank you very much, Declan. Really appreciate it.

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