2020 in Review: Chinese Companies Suffer as Global Technology Tensions Intensify

Lauren Dudley is a Research Associate for Asia Studies at the Council on Foreign Relations.

2020 was not an easy year for Chinese tech companies. Officials around the world became warier of the potential national security threats posed by their growing power. A slew of bans, restrictions, and sanctions on Chinese tech companies strengthened China’s resolve to shore up indigenous innovation and self-reliance. And while the Biden administration will likely take a more measured policy approach than the Trump administration, it is unlikely that things will get much easier for Chinese tech companies in 2021.

The year started out with a few major wins for Huawei. In January, the United Kingdom (UK) decided to allow Huawei to play a limited role in its 5G network. Officials in Italy and South Africa also indicated they would allow Huawei network equipment in their networks. Kenya outright rejected U.S. security warnings and warmly accepted Huawei. Chancellor Angela Merkel, more in favor of tightening security requirements for all telecoms, pushed back against more hawkish German legislators aiming to ban Huawei outright and delayed Germany’s decision on 5G security standards.

Unfortunately for Huawei, the winning streak did not last long. In May, the U.S. Department of Commerce amended export controls rules on the telecom giant to close a loophole in the original sanctions that allowed it to continue designing semiconductors using U.S. technology—effectively preventing it from making the advanced chips needed to power its higher-end products. As a result of these additional sanctions, the UK’s National Cyber Security Centre determined that Huawei could be forced to use untrusted technology, raising unacceptable risks to the UK’s network. Boris Johnson’s government reversed the decision, banned purchases of Huawei network equipment, and declared that all Huawei network equipment must be removed from the UK’s network by the end of 2027. In the fall, Italy vetoed a 5G deal involving Huawei, and reports suggested that Germany, while not banning Huawei outright, could raise bureaucratic obstacles that would make it impossible for the company to participate in Germany’s 5G network.

The cards continued to fall as the U.S. government increased its lobbying efforts against Huawei 5G abroad. In Central Europe, the U.S. Department of State convinced several countries to sign on to its “Clean Network” initiative and reject Huawei. In September, the Czech Republic denied Huawei’s request to participate in its 5G tenders as the company failed to receive the security clearance necessary. A few weeks later, Romania came to a similar conclusion. Below the equator, U.S. officials aggressively worked to convince their Brazilian counterparts to exclude Huawei. After offering up to $1 billion in financing for Brazil to buy 5G equipment from Huawei competitors, reports suggest Brazilian President Jair Bolsonaro’s government is considering using a presidential decree to ban Huawei from Brazil’s 5G networks.

Despite the heavy focus on Huawei, other Chinese tech companies did not escape 2020 unscathed. In July, the U.S. Department of Defense released a list [PDF] of Chinese companies with connections to the Chinese military for the first time since initially required by the 1999 National Defense Authorization Act. The list includes SMIC and Hikvision, whose securities will be removed from U.S. stock exchanges under an executive order signed by President Trump.

The Trump administration also used executive orders to target popular Chinese-made apps. In August, President Trump signed executive orders banning TikTok and WeChat due to the risks posed by Chinese censorship and collection of U.S. users’ data. These efforts are being fought in the courts, and the U.S. government has not extended the now-passed deadline for ByteDance to divest from TikTok nor enforced the ban.

Sparked in June by skirmishes in the Ladakh region of the China-India border, India banned more than 200 Chinese apps this year, including TikTok, PUBG mobile, Baidu Maps, AliExpress, DingTalk, Taobao Live, and WeChat. The Indian government cited national security risks posed by these apps’ collection and transmission of Indian user data to servers outside of India. Chinese tech investment in India has cratered.

In the face of all these developments, the Chinese government has routinely criticized actions that restrict Chinese tech companies’ access to foreign markets. The Chinese Ministry of Foreign Affairs has argued that the national security justifications that foreign countries use to restrict Huawei, TikTok, WeChat, and other products are baseless and infringe on market competition principles and global trade rules. The irony that Beijing has used similar arguments to block foreign tech companies seems to be lost on them.

While Chinese companies have lobbied foreign officials to reverse decisions that ban or restrict them from foreign markets, many of these companies have worked to insulate themselves from geopolitics by increasing R&D investment in critical components. The Chinese government has supported these efforts, with self-reliance and dual circulation, an economic strategy that aims to reduce dependence on foreign markets, displayed prominently in a communique outlining objectives for the upcoming Fourteenth Five-Year Plan.

The world will not become more hospitable for Chinese tech companies in 2021. While the Biden administration will be less volatile than the Trump administration, global tech competition will remain. It is unlikely that the Biden administration will remove U.S. export controls on Huawei, raising questions about how Huawei will be able to operate after its semiconductor stockpile runs out sometime in early spring.

In addition, the Biden administration is poised to bolster the United States’ technological dominance by ramping up investment in basic research, reducing immigration restrictions for high-skilled workers, and working with allies on export controls, investment restrictions, and technical standards to put up a more “united front” against Chinese technology. These efforts are likely to accelerate global technology tensions and China’s pursuit of indigenous innovation.