Huawei & ZTE – No substance.

The latest ban is all noise and no substance.

• The USA has banned the sale of all electronics from Huawei and ZTE into the USA on the grounds of national security in what is largely a symbolic move but may pave the way for further restrictions in the future.
• The FTC release an order on Friday which also banned surveillance camera makers Dahua Technology, Hikvision and 2-way radio maker Hytera.
• This marks a step up in action by the FTC in two ways.
  • First, scope: Prior to this ruling it was really only mobile handsets and mobile network infrastructure that could not be imported from Huawei and ZTE.
  • Now it is all electronics, meaning that enterprise products such as routers, switches, WiFi and so on will also now no longer be able to be imported.
  • Second, companies: The FTC has moved on from targeting civilian communications and is now also taking action on surveillance and private communications with the addition of Hikvision and its peers.
  • This will have a significant impact as Chinese cameras are used widely across the USA while some US agencies use Hytera radios.
  • This order means no more can be sold and the FTC has asked for consultation as to whether what is in use today should be removed and replaced.
• These new regulations are very unlikely to cause Huawei further significant problems as sales to the Americas are already down to just 4.6% of the total, making these moves fairly symbolic in nature.
• One can make an argument that there is a credible data security threat from using Huawei or ZTE devices and equipment in one’s network, but hard evidence of spying or data siphoning has yet to surface.
• In fact, most of the scandals where an app has been sending user data to China has, in my opinion, been caused by sloppy programming rather than a malicious attempt to steal my mother’s email address, phone number and the fact that she likes playing Candy Crush.
• There had been some hope of a relaxation of the tension between the USA and China after President Biden met with President Xi at the G20 meeting in Indonesia, but this latest action demonstrates that this was just noise.
• The last 6 weeks have seen a significant increase in restrictions that are being placed on China’s nascent semiconductor industry as well as other areas like AI where RFM already considers China to be one of the leaders.
• These new regulations also leave the door open to further restrictions and actions in the future as the new regulations have clearly been designed as a framework rather than a set of exhaustive rules.
• Hence, I think that more restrictions are likely to come and US companies with a lot of revenues in China may end up as collateral damage.
• This is the one area that I think will lead the Department of Commerce and other regulatory agencies to tread carefully as the US and Chinese economies remain tightly intertwined and separating them is going to be painful.
• This uncertainty plus the Covid-Zero-related problems in China will further delay the much hoped-for recovery in the Chinese technology sector.
• There is plenty of value to be had in the Chinese technology sector, but one is going to have to wait even longer to realise it.