Huawei's Mate 60 Pro Smartphone Deals a Decisive Blow to the US Sanctions Regime Against China's Semiconductor … – International Banker
By Samantha Barnes, International Banker
From Beijing’s perspective, the timing could not have been any sweeter. With U.S. Secretary of Commerce Gina M. Raimondo in the middle of a four-day trip to China at the end of August, Huawei Technologies unveiled its new 5G smartphone, the Mate 60 Pro. But this was not the launch of just any new model. Rather, with more than 10,000 components inside the phone reported to have been locally sourced, Huawei’s new smartphone is being celebrated in China as a scarcely believable breakthrough against the bitter sanctions regime imposed by the United States on key tech industries of its economic adversary.
Delivering world-leading 5G technology applications is nothing new for Huawei, of course. As China’s biggest tech firm, it has been on the cutting edge of smart-technology solutions that are today revolutionising 5G, artificial intelligence (AI), cellular technology, cybersecurity and cloud services across many important industries and applications. It is also no stranger to being on the receiving end of coercive US economic measures. Since 2008, Huawei has repeatedly faced the wrath of American lawmakers, intent on containing the firm’s advancement of 5G applications within US borders, often based on purported threats to national security, and severely restricting the firm’s ability to operate within the country freely.
Indeed, the treatment of Huawei became so hostile that, at the request of the US, Canadian officials arrested the company’s chief financial officer, Meng Wanzhou, in December 2018 on allegations of bank and wire fraud, detaining her under house arrest for nearly three years. In response, Chinese authorities imprisoned the “two Michaels”: Canadian businessman Michael P. T. Spavor and former diplomat Michael Kovrig.
The US has also ramped up sanctions to hobble China’s semiconductor industry, particularly after the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS and Science Act) was signed into law in August 2022. The U.S. Department of Commerce’s Bureau of Industry and Security then amended its export controls in October to restrict China’s ability to purchase and manufacture certain high-end chips. China also crucially remains blocked from acquiring the extreme ultraviolet (EUV) lithography tools that can condense several transistors onto a single chip, which are manufactured by ASML(Advanced Semiconductor Materials Lithography), due to US pressure on the Dutch firm.
While such belligerence has undoubtedly inflicted substantial damage on the company—especially its mobile consumer business—Huawei has not only survived but thrived in recent years as domestic support from the Chinese state and consumers and the sheer ingenuity of the company itself have all helped it emerge as the world’s leading 5G company. And it is against this challenging backdrop that the Mate 60 Pro is being viewed in China as a resounding triumph, whereby Huawei managed to bypass the punitive US measures to unveil to the world what appears to be an indigenously (and ingeniously) manufactured product, one that has refrained from importing chips and other vital components and instead reflected the surprisingly advanced nature of domestic industries.
Its single most significant achievement, as revealed from reported “teardowns” of the device, is that it is powered by a new Kirin 9000S chip manufactured by China’s top chipmaker, Semiconductor Manufacturing International Corporation (SMIC), and developed by Huawei’s chip-design unit, HiSilicon. According to TechInsights, a Canadian semiconductor intelligence firm, the 7-nanometre (nm) chip represents “a made-in-China design and manufacturing milestone for the most advanced Chinese foundry”.
Although not quite on par with Apple’s recently launched iPhone 15, the world’s first smartphone device to use the new 3nm chip from Taiwan Semiconductor Manufacturing Company (TSMC), the Mate 60 Pro’s chip technology is still more than respectable. Indeed, tests have shown the device can register ultra-fast 5G cellular speeds, and unlike the iPhone, the Mate 60 Pro even has satellite calling capabilities. With both SMIC and Huawei still subject to US trade sanctions that prevent them from accessing advanced international chipmaking resources, moreover, the fact that Huawei could assemble a phone with a 7nm chip purely from its local industrial capabilities under such circumstances is nothing short of astonishing. Indeed, a report from broadcaster CCTV confirmed that more than 10,000 components in the Mate 60 Pro were manufactured domestically.
Not surprisingly, the sheer existence of such an advanced device has been widely celebrated across China. Beijing can certainly take some of the credit, having backed Huawei and local chipmakers, including SMIC, via state subsidies and accessibility to state-backed research. And the device’s launch has been accompanied by long queues extending out of Huawei stores comprising customers intent on getting their hands on this landmark model, which was priced at 6,999 yuan (approximately US$960) on the opening day of sales.
“Huawei’s launch of its Mate 60 Pro—based on a made-in-China, 7-nanometre SoC [system-on-a-chip]—has created huge Chinese consumer interest in the product, and it has likely sold more than 2 million units since August 31,” Jefferies equity analyst Edison Lee wrote in a research note on September 25. According to Ming-Chi Kuo, an analyst at TF International Securities, Huawei is expected to sell at least 12 million units of the Mate 60 Pro during the year after its launch. If true, this would dwarf the 2.5 million sales of last year’s Mate 50 Pro but remain well short of the mammoth 90 million units of Apple’s new iPhone 15 model expected to be sold.
The Mate 60 Pro has also been widely viewed as a failure of the US sanctions regime against China, with export controls formulated to keep China at a 14nm process node, leaving it around a decade behind the most advanced foundries, such as TSMC. However, according to one report, the Kirin 9000S 7nm chip leaves China only four years behind the leaders. Tilly Zhang, an analyst at research agency Gavekal Dragonomics, recently noted that the Mate 60 Pro is “embarrassing for the US Department of Commerce”, with the Kirin 9000S exceeding technology thresholds that the US wrote into its semiconductor sanctions against China.
And while Zhang also acknowledged that the Kirin chip is “still a few years behind” the most advanced chips being rolled out in rival devices at present, it nonetheless represents “more of a symbolic victory for Huawei that will not fundamentally change the trajectory of China’s technology sector under US sanctions”. As such, many see the sanctions as having backfired against the US—not only has the rival failed to contain China’s chip development, but it also seems to have spurred a dramatic acceleration in China’s domestic chipmaking capabilities. In turn, this could have significant negative consequences for exporters of chipmaking equipment to China, such as Japan and the Netherlands.
Commerce Secretary Raimondo has since described Huawei’s chip breakthrough as “incredibly disturbing” and requested more resources for the Commerce Department to enforce its export controls. “We need different tools,” she urged at a U.S. Senate Committee on Commerce hearing on October 4. “We need additional resources around enforcement.” Raimondo has already appeared in front of US lawmakers on two separate occasions since she returned from China, having told a U.S. House of Representatives hearing on September 20 that she was “upset” by news of the Mate 60 Pro’s launch during her visit to China.
But Raimondo added, “The only good news, if there is any, is we don’t have any evidence that they can manufacture 7-nanometer [chips] at scale.” But other analysts disagree, including Dylan Patel of SemiAnalysis, who is more bullish on China’s chipmaking prowess. “There’s no reason they can’t produce tens of millions,” Patel told Bloomberg on September 28, adding that he expected Huawei to ship 40 million phones with the SMIC-manufactured chip next year.
But the US response to these events could become even more aggressive, particularly if Republican lawmakers get their way. “We are extremely troubled and perplexed about the Bureau of Industry and Security’s [BIS] inability to effectively write and enforce export control rules against violators, especially China,” a recent letter signed by U.S. House Committee on Foreign Affairs Chairman Michael McCaul and nine other Republicans read. “For more than two years, our committees and numerous members of Congress have written you regarding loopholes in BIS rules attempting, unsuccessfully, to restrict technology to Huawei and SMIC, among others. Despite this knowledge and continued Congressional pressure to adopt stricter policies, BIS has continued to grant licenses to Chinese Communist Party [CCP] controlled companies, such as SMIC, worth hundreds of billions of dollars.” The letter also called for revoking all existing export licences for Huawei and SMIC.
“Because of US crazy crackdown against China, the US has caused unnecessary greater costs and consequences for both China and the US,” an August 30 editorial written by Chinese state-media outlet Global Times stated. “If the naturally developed global division of labor was not artificially disrupted, both China and the US can better leverage their respective comparative advantages and create more wonderful things that can change the world.”
Michael J. Hsu – Office of the Comptroller of the Currency
Vera Daves de Sousa – Ministry of Finance of Angola
Yazeed A. Alnafjan – Saudi Central Bank (SAMA)
Hacina Py – Societe Generale Group
Francesco Di Salvo – World Bank
Simon Paris – Finastra
Owen Young – Standard Chartered
Steve Morgan – Pegasystems
Indranil Pan – YES Bank
William C. Handorf – George Washington University
Sanjay Sharma – University of Southern California
Zhiguo He – Stanford University
Sheila Jiang – University of Florida
Douglas Xu – University of Florida
Paul P. Schaus – CCG Catalyst
Juan Pablo Córdoba – nuam exchange
Nicolas Charnay – S&P Global Ratings
Mehdi El Mrabet – S&P Global Ratings
Anish Ailawadi – Acuity Knowledge Partners
Adam Hammond – IBM
Kat Kravtsov – PwC
Alessio Mazzanti – Latam Investment Banking LLC
Keith Berry – Moody’s
Chris Spedding – PA Consulting
Marcel van der Schenk – PA Consulting
Teresa Cameron – Clear Junction
Simon Treacy – Linklaters
Charles Roberts – Fine & Country Portugal
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