Officials in the Biden administration appear to be stalemated on the decision of whether to treat Chinese smartphone maker Honor, a company created when Huawei divested its operations in that segment in order to evade restrictions from the Trump administration’s assignment of the telecom giant to the Commerce Department’s Entity List in 2019.
Huawei sold Honor, its smartphone business, to a company dubbed Shenzhen Zhixin New Information Technology Co in 2019. According to Chinese state-run news outlet Global Times, while the “consortium” is composed of “more than 30 previous agents and dealers, including Beijing Songlian Technology Co,” Shenzhen Smart City Technology Development Co, which is controlled by the Shenzhen City government, owns 98.6 percent of Zhixin’s shares.
Global Times quoted a Chinese telecom analyst as describing the restructuring as, “Basically, it’s a ‘rescue action’ led by the government.”
According to Reuters, citing anonymous internal sources, Huawei scooped what amounted to a 100 million yuan bailout in the deal, the equivalent of $15.2 billion USD.
Huawei was forced to sell its smartphone business after its placement on the Department of Commerce’s Entity List when the Trump administration began to regard the company as a national security risk in 2019.
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The sanction prevented U.S. companies from selling hardware and software to Huawei, which forced giants such as Google and Qualcomm to cut off access.
A Sept. 19 article by Washington Post citing “several people familiar with the matter, who spoke on the condition of anonymity to discuss the confidential process,” said that “career personnel at four agencies [were] split on whether to put the smartphone-maker, Honor, on the Commerce Department’s entity list.”
“Staff members at the Pentagon and Energy Department supported placing the company on the blacklist, while their counterparts at the Commerce Department and State Department opposed it.”
In August, the Republican Foreign Affairs Committee wrote to Biden’s Secretary of Commerce Gina Raimondo, asking the administration to treat Honor as if it were the same as Huawei by adding it to the Entity List, “Analysts have noted that selling Honor gave it access to the semiconductor chips and software it relied on and would have presumably been blocked had the divestiture not gone through.”
“This coordinated divesture and acquisition reveal the extent to which nominally private entities, such as Honor, are deeply embedded within a PRC ecosystem that leverages interconnections among the CCP, state-owned banks, local governments, and venture capital for strategic objectives,” read the letter signed by 13 members of the U.S. House of Representatives, including the controversial Liz Cheney.
“The sale of Honor was not a market-based outcome, but rather orchestrated by the Party-state. The same concerns about technology exports to Honor when it was part of Huawei should apply under its current state-backed ownership structure. If we move too slowly and focus only on discrete entities rather than networks and ecosystems, the CCP’s novel Party-state economy can outmaneuver U.S. sanctions.”
Washington Post noted one roadblock to adding the divestment to the Entity List is that currently, Honor’s products are not being sold in the United States.
The Post nonetheless confirmed the concerns championed by the Republican lawmakers in its article when it said, “Soon after Huawei sold Honor, several U.S. companies began striking deals to sell chips to the new company.”
“Qualcomm, based in California, is selling Honor a high-tech chip that the Chinese company is using in its newly launched 5G smartphones. Qualcomm overall is supplying technology for three new Honor phones, Qualcomm’s chief executive said during a July conference call with investors,” reads the article.
U.S. companies have what seems to be a fetish for dealing with the CCP. In 2016, x86 processor giant AMD, a company on its last legs, resurrected itself after it entered into a joint venture with CCP Military-Civil Fusion initiative partner Sugon that saw an extensive transfer of U.S. intellectual property to the Chinese regime.
Earlier in the year it was revealed that multiple U.S. municipalities and school boards had purchased and installed thermal cameras and various surveillance equipment for the purpose of installing “measures” to fight against COVID-19 from Hangzhou Hikvision, another Chinese company placed on the Entity List by Trump.
In September, it came to light that the Secret Service and Federal Bureau of Investigation had both purchased drones made by Da Jing Information (DJI), a China-based company that is a known national security risk. Over the years, DJI began to dominate the drone market after it knocked several U.S. drone manufacturers out of the market by aggressively undercutting on price.