Huawei accused of using affiliates to skirt US chip sanctions

The Semiconductor Industry Association (SIA) claims that Huawei is secretly involved in an effort to build chip factories that could flout US export controls.

Rather than come out and say it directly, a presentation on the subject given by SIA to its members found its way into the hands of Bloomberg.

Since being subject to trade restrictions, Huawei has generally looked to Chinese suppliers for chips to use in its smartphones and other related gear. However, these homegrown products currently can’t match the performance of what’s on offer from the likes of Taiwan Semiconductor Manufacturing Company (TSMC) or Samsung, putting Huawei at a distinct disadvantage.

At the same time, Beijing has mobilised considerable resources in an effort to end its reliance on foreign imports and catch up technologically. Reports last December claimed as much as CNY1 trillion ($143 billion) over five years has been earmarked to support domestic chip production, including subsidies for building new fabs and overhauling existing ones.

According to SIA this week, Huawei has received funds totalling $30 billion from central government and the administration of its home town of Shenzhen to spend on chip manufacturing. To that end, it has reportedly acquired two fabs and is constructing a brand new third one.

SIA asserts that these purchases were made through a network of affiliates, and that by keeping its involvement a secret, Huawei’s partners will be able to import components currently subject to sanctions on its behalf.

According to Bloomberg, the US Commerce Department’s Bureau of Industry and Security (BIS) said it is monitoring the situation and is ready to take action if necessary.

History tells us that aiding and abetting sanction-breakers is not something the US takes lightly. In 2017, ZTE was found to have violated sanctions by supplying US-made technology to Iran via a network of shell companies. It paid a $1.2 billion fine and was subjected to a five-year period of compliance monitoring.

US-China relations have soured significantly since then, so it’s anyone’s guess as to what punitive action might be taken and how effective it might be.

This week’s development comes as trade tensions between Washington and Beijing show no sign of abating.

Earlier this month, the Biden administration published an executive order banning US investments in a range of Chinese industries on grounds of national security.

The order bans private equity firms and venture capitalists from investing in companies involved in quantum computing and advanced semiconductors. US companies and individuals will also be required to notify US authorities about any direct investments made in Chinese AI companies or other chip makers.

A Wall Street Journal report at the time said the Chinese embassy in Washington said Beijing “opposes the US’s overuse of national security to politicise and weaponise trade, scientific and technological issues and deliberately making obstacles to normal economic and trade exchanges and technological cooperation.”

But if Huawei really is trying to illegally acquire US tech through a network of associates, it gives the US an easy means to justify not just this most recent crackdown, but future measures too.

Get the latest news straight to your inbox. Register for the Telecoms.com newsletter here.