ZTE's Collapse Reveals China's Over-Reliance on U.S. Technologies

The US-China trade war escalated again with US announced the punitive sanction on ZTE, one of the Chinese high-tech giants, which had illegally shipped telecom equipment to Iran. On April 16th, US has officially banned American companies from selling telecoms equipment to China’s ZTE, further exacerbating tensions between the top two economies and potentially devastating for the telecoms equipment manufacturers.

Beijing responded swiftly, warning it is prepared to take action to protect the interests of Chinese firms. “The action of the US is apparently aimed at China, but ultimately it is the U.S. itself that will not only lose tens of thousands of jobs but also affect hundreds of thousands of U.S. affiliated companies.” Gaofeng, spokesman of China Ministry of Commerce said.

Regarding to the sanction, ZTE Corp expressed its strong protest in the latest statement:” It’s extremely unfair to ZTE and we won’t accept it.”

While there are alternative components can replace the US-made components in ZTE’s phones, other components cannot. As a result, ZTE will no longer be able to look to Qualcomm, for its SoCs (system-on-a-chip), which serve as the heart of the smartphone. Since all ZTE phones sold in the United States are equipped with a Qualcomm chip, as do more than 50% of its phones sold in other countries, if ZTE loses Qualcomm, it loses the entire US market.

Despite ZTE’s violation to the agreement, another reason that sparked the market-shaking decision is to thwart ‘Made in China’ 2025 plan, including the key technologies of new computing, high-speed interconnection, advanced storage, 5G innovation, etc.

Aiming directly at China’s high-tech industry, the sanction on ZTE is interpreted as a move to cut off the Chinese firm’s supply chain, since China has not yet fully master the core technology of chip manufacturing.

It’s the over-reliance of China on US-made chips results in the “passive and embarrassing” situation of China, as well as ZTE’s internal management issue. For China, it’s indeed a problem, the majority of technology giants are deeply dependent on US technologies for their existence, not only ZTE, but also well-known companies like Alibaba, Baidu, Tencent, etc.

This concern gave birth to the ‘Made in China’ 2025 plan, which is a 7-year plan to create Chinese industry leaders in IT, artificial intelligence, electric vehicle, renewable energy, and robots. However, what do you do while waiting for your technology industry to catch up?

There’s a plan B, copy American technologies. Although it’s illegal and infringe on the intellectual property of U.S. companies, Chinese tech companies would duplicate the latest US core hardware components and software in 3 to 6 months after they are available in open source. Apparently, this is not the ultimate solution to reduce China’s reliance on foreign technologies.

The ZTE ban warns China the importance to master core technologies, 2025 seems too far to rely on. With the escalation of the trade war, more industries will be involved in the crisis, if US keep aiming at technologies, China would go through more tough time.