State Support Helped Fuel Huawei’s Global Rise | Hacker News Reader

State Support Helped Fuel Huawei’s Global Rise

wsj.com

75 pointsjimmy202084 comments

Ericsson is a dominant player in the standards committee. By making patents that it own a part of the standard, it is able to "compulsorily" license its patents. Through this route it now owns a lot of "essential patents".

So every time you make a call, or buy a phone you pay Ericsson a royalty. Ideally these patents like those backing web technologies should be open. Or at the very least expire after a limited time because it is globally enforced by a cartel.

Ericsson has a lot of R&D labs in the western world working on core technology related to essential patents. But do not do much outside, strangely not even in India or China, which not only has a large pool of engineers but also contribute substantially to the royalty.

It was only a matter of time before the Chinese figured this out. Wireless communication R&D unlike semiconductor is mostly done through computer simulations and experiments with off the shelf equipment and does not require enormous upfront cost.

The genius of Huawei and the hand of China was not in subsidy but the captive market. Huawei was refused entry into the standards club, and China threatened to go with its own standard. This I believe started as early as with 3G standards.

Neither "standardization by a cartel" nor "compulsory licensing" is Free market. MS bundling IE with Windows is just peanuts in comparison. Entire nations have no choice but to pay to this cartel.

Low cost Chinese equipment and technology was what has allowed eg India (and many other countries Im sure) to build up the telecom infrastructure and make cellphones available to the masses at extremely low costs. The economic and social effects of this are simply staggering. I was around when cellphones started being ubiquitous: many families never had a landline jumped directly to using cellphones. It was amazing.

Those last to modernize will be the most modern. Skipping whole generations of tech for the newest.

In my first real IT job we were buying and installing networking equipment for phones, internet in one big government project. It was hard to not choose Huawei when comparing to Ericsson, they completely copied their equipment, even the Ericsson manuals would suit Huawei while the price was 10x lower. Obviously since it was a public tender Huawei won, it did feel wrong though.

The obvious lesson for any Western state is to formally protect its critical industries. Of course, some brain damaged opposite lesson will be taken, such as 'China must liberalize'; good luck with that gents, LOL.

Isn't that predicated on them having a lasting presence? That burning money can propel someone to the top seems given. Keeping them there, though?

Granted, I would think some market protections would also make sense.

that's not how things work in free markets. Not even during the cold war.

I wish you the best in trying to convince China of this abstraction called 'free markets', when mercantilism is working extremely well for them, as it did for Europe too. Free trade is installed intrastate in the Empire, such as British Empire with its colonies, but even during this era the externality that Empire projected was that of mercantilism such as East India Company adventures in China. As it is clear, 'free trade' is a weapon of the strong, and strong isn't a word to call US or Europe of 2019. Certainly nowhere near strong enough to force China for free trade regiment.

Another factor in China's rise is deciding to not care about the environment at all. Western nations spend quite a bit to have clean air, clean water, parks, etc. The cost comes in the form of more costly energy, raw materials, and waste disposal.

True. It's not like when NW Europe cared about pollution when it was gunning for the top of the world. And of course we in Europe and US are making loud noises about pollution after the fact we have made it, so to speak, 'big'. Like another poster pointed out, it's a rather sad attempt to 'pull away the ladder' from still rising nation(s) to use same means to climb the ladder as we in Europe/US did.

I would believe much more into pollution talk by my dear leaders if 1. We were springing up nuclear reactors 2. Stopping third world immigration into Europe 3. Had concrete trade moratoriums against India and China. This would probably cause issues with US defense and military industries though, the situation is rather fragile [1]

> [1] https://www.theamericanconservative.com/articles/americas-mo...

> I wish you the best in trying to convince China of this abstraction called 'free markets'.

Nobody can, that's why US imposing sanctions.

But should America for example support Nokia and Ericsson which are not American. Most of the major American telecom equipment companies were sold off to European companies after the telecom bubble burst.

Nokia and Ericsson are not government entities.

Neither Boeing or Airbus or Bombardier, yet they get astonishing amount of subsidies. Even smaller players get huge preferences.

And not just subsidies either - I've read several accounts, going back decades, of how British and US spies have inserted themselves into Boeing and Airbus respectively, to steal IP and research to provide to Airbus and Boeing respectively, trying to give them an unfair advantage behind the scenes.

The west complains about China stealing IP, but the west were doing the same long before the Chinese - the difference is the scale and brazenness of China's tactics, and indeed the vast success of those tactics.

Well not quite. US/UK/France/Germany all steal IP from each other, but with China it’s asymmetric. It’s a one-way flow of unprecedented scale. And the former countries are allies and the alliance isn’t in any way weakened by this. Again with China it’s different.

With US, NATO backing Ericsson/Nokia can be made trans-atlantic military alliance compliant 5G alternative that can rival Huawei.

Currently, the above is not even a policy choice considered openly by Western governments, not that I know of. We are forfeiting technological lead in this domain despite US making the first big steps in same domain in WW II and later with state backing, history plays jokes like that I guess.

Too many people are brain wormed by ideas stemming from liberal philosophies. China is not benevolent, they're rising power. They don't share same ideas of society as we do. Free markets haven't existed in hundreds of years. Yet all are influential ideas that stop us from addressing China realistically. Talk of bringing democracy to China for example is not realistic. The Communist Party has 90%+ acceptance rate by the populace.

> The Communist Party has 90%+ acceptance rate by the populace.

That statement comes with so many questions. What is meant by “acceptance”? It definitely sounds like a weaker word than say “support” or “approval”. The least favorable interpretation would be that “acceptance” simply means “I don’t currently intend to overthrow the current government ”. If we’re using that definition, trump probably would have a 90%+ “acceptance” rating as well. Definitions aside, getting accurate polls on political topics in totalitarian countries is tricky because the respondents are incentivized/pressured to answer in support of the current regime.

Ipsos pol from July 2019, 90%+ consider country on the right track: https://i.imgur.com/nBuccjq.png

"accurate polls on political topics in totalitarian countries is tricky because the respondents are incentivized/pressured to answer in support of the current regime.

Are we describing China or Brexit/Trump polls from 2016.

>Are we describing China or Brexit/Trump polls from 2016.

Snark aside, there's a huge difference between the two. In the case of brexit/trump, even if there was social pressure to not reveal your real preferences to the pollsters, everyone's real preferences are accurately represented at the polls. Moreover, nobody is risking getting sent to reeducation camps or getting their social credit scores ruined by saying they support trump or brexit. This is as opposed to China where the only measure you have are opinion polls, and the only cross-check mechanism is whether the CCP is still in power or not.

It wasn't a snark; I have yet to witness a liberal definition of totalitarian state that's not a sand castle. A liberal state is a schizo state that has no positive theory of state so it doesn't have a theory of totalitarian state. It's delusions about how oppressive monarchy was, slightly before they started bloodshedding in the name of raison raisonnante, do not apply here.

What the Chinese have is a formal system, and I can't quite tell if the informal liberal system isn't worse. This was a point of contemplation for Andrei Navrozov as an emigrant from USSR to US in the 1970s in his book "The Gingerbread Race" [1]

> [1] https://archive.org/details/NavrozovAndreiTheGingerbreadRace...

US: "You must embrace the free market, open the markets, liberalize everything, avoid protectionism. It's better for you because it's more efficient, you will be richer, blah blah."

Western countries: "OK."

China: applies protectionism, obtains unprecedented growth, steamrolls markets

US, Western countries: "Free market is obviously much better, protectionism and planned economies are inefficient and can't work, but... but... they're cheating!"

At least the US acts in their own interest (anarchy, i.e. the free market, makes sense if you're the strongest). What's pathetic is that European countries believe all the neoliberal dogmatic BS when we don't even benefit from it.

China is the monkey's paw to Western liberalism.

Do you really think the mercantilist model is sustainable in the long run? It seems to me that it works great for playing catch up, but only if there are nations willing to purchase your goods.

China doesn't have the domestic market they could have if they hadn't weakened their currency by transferring wealth from savers to the exporters.

Anything works when you are the strongest, the argument is greater good vs. individual gain. The mercantilist model works well when you are the only one executing it into a free market. If everyone is behaving in a protectionist manner, than it gives no advantage and (in theory) everyone in the market has lower growth. However, the 'strongest' parameter still applies, and we can see this right now with the tariff war between the US and China. The US still has the strongest economy at the moment, so the instant the US began behaving in a protectionist manner the Chinese suddenly became much more interested in (slightly more) serious negotiation.

I actually don't fault China for executing their strategy, it certainly made logical sense and has lifted hundreds of millions of people out of poverty. I also don't fault Europe for executing their strategy and they have benefited from it - Europe was ravaged by wars over its history and one of the ways to avoid that was tight economic integration. Different circumstances require different strategies.

The idea is that if everyone plays by the free market rules, the average country will be better off.

If every country plays by these rules except one, which uses mercantilist tactics to win zero sum games, that one country will have an advantage.

If every country plays by mercantilist rules, that advantage will not be there for everyone, since now the game has changed.

China's "unprecedented" growth was achieved by Japan and Korea during their peak growth period. Britain was the original champion of liberalization while the US was protectionist for much of its history. The EU is still quite a bit richer than China and has done well during this liberal period since nearly destroying itself in WW2. There are so many details you are choosing to ignore.

It's pretty much this. Except that the US seems to try backdoor subsidies, which isn't really addressing the core issue. There was a pretty good analysis of the whole thing about exactly this issue but I just can't remember where it was.

I used to see the Ericsson guys once a year and they seemed to be pretty busy bragging about all the new 5G patents they have.

https://www.sdxcentral.com/articles/news/us-eyes-nokia-erics...

Agreed. Does Ericsson have a comparable 5G offering? I’m wondering why I never see their name come up when articles are written about avoiding Hauwei

That's the whole point of state support. In the end, you will have a winner that being able not only to copy the technology but also have enough capital to create new one. Which is why Huawei is shining in 5G technologies.

There have been many instances of tech like this going through the same cycle where they copy tech after some period of cooperation.

A lot of the execs in various companies downplay this concern, say "it's not going to happen this time" and then dip out with 7 figure bonuses before it happens again, this time. The majority of the people doing actually work seem to see right through it.

A Wall Street Journal review of Huawei’s grants, credit facilities, tax breaks and other forms of financial assistance details for the first time how Huawei had access to as much as $75 billion in state support as it grew from a little-known vendor of phone switches to the world’s largest telecom-equipment company—helping Huawei offer generous financing terms and undercut rivals’ prices by some 30%, analysts and customers say.

Someone’s gotta put up the great surveillance blanket of China

I don't understand why this is written in a complaining or condescending tone. I think it is true for any state that manufacturing be provided protection especially in its infancy. One great thing which China did was to protect their infant industry while simultaneously weeding out non-performers based on global competitiveness. This kind of discipline is really important to build up the skills required to become globally competitive. I think it is better to have regulated free trade first and then open markets once you are competitive. This IMF doctrine on open your freaking markets it is awesome is very stupid. Africa has completely open textile markets, that didn't really work out very well for them.

> I don't understand why this is written in a complaining or condescending tone. As per liberal understanding of history and progress, China was supposed to 'open up'(the silent part: to be open for exploitation by West). China was not supposed to become global techno-military challenger against Trans-Atlantic alliance. Oops, they did.

That was a white lie to justify the strategic necessity and short term macroeconomic benefit of opening China.

The West didn’t have a choice. A chaotic, desperately poor, nuclear armed Chinese state was a wildcard that wasn’t sustainable, which is why Nixon and Kissinger opened the door.

Everything since then has been a great money grab. The price of peace has been selling off everything and shifting the “axis” of power east.

"exploitation"... I guess you consider trade and mutual investment "exploitation". China's integration into the global system was both for their benefit and our benefit.

"China's integration into the global system was both for their benefit and our benefit."

American manufacturing unavailable for reply.

American consumers with limited purchasing power benefiting immensely from low cost goods say hello.

Trading the integrity of military supply chain and infrastructure development for little hedonistic comfort is what'd I'd expect from end-stage liberalism. Just call it what it is, surrendering.

Except nobody did that. Defense manufacturing and procurement is still heavily based in the US and the West. Consumer goods manufacturing, not so much.

> "Hickey told a story of how the United States is even losing its submarine fleet. He had a conversation with an admiral in charge of the U.S. sub fleet at the commissioning of the USS Illinois, a Virginia-class attack submarine, who complained that the United States was retiring three worn-out boats a year, but could only build one and a half in that time. The Trump military budget has boosted funding to build two a year, but the United States no longer has the capacity to do high quality castings to build any more than that. The supply chain that could support such surge production should be in the commercial world, but it has been offshored to China." https://www.theamericanconservative.com/articles/americas-mo...

.. and American infrastructure is in a state of serious decay: https://en.wikipedia.org/wiki/California_blackout

Compare this to Chinese infrastructure and engineering: https://en.wikipedia.org/wiki/Artificial_island#China

I completely agree with you that America's manufacturing is in a deplorable state. My original comment was just pointing out that the intention in opening up China was for mutual benefit rather than exploitation, even though China's ability to undercut us in manufacturing has ravaged us.

American manufacturing output is higher than it ever has been: it's just automated.

Sure, when the company is basically free of government leverage. Or, when the country itself not seeking building entire empire using the economy-based influence. This has to be viewed in wide angle. What a communist party is doing is far from strengthen local company to be competitive globally. It's simulating the soviet model using free market as blanket.

Are there any good articles on how they were making the SOE's compete against each other. It seems like every province seems to prop it's own competing SOE in certain industries, but I always wondered if they act together or if they compete against each other.

They compete against each other. It’s a good question as to how they evaluate different SOEs. I would imagine monitoring for discrepancies in metrics is easier with modern technology so you can’t fudge metrics easily but IDK.

China did exactly what they should have done for their own self interest. However that self interest is not in the best interest of the US and western democracy.

This!!!

Every advanced economy in the world (UK,US,Germany,Japan, NorthEast Asian Countries etc) at one point or the other protected and supported it's industry at infancy till they became globally competitive.

Economic historian Paul Bairoch dubbed the United States ‘the mother country and bastion of modern protectionism’

Why shouldn't China support and protect it's industries?

As a Nigerian living in Nigeria. It's sad to see how a lot of sub-sahara africa countries take certain actions that hurts them in the name of free trade.

My industry forbids purchase of Chinese hardware (Lenovo, Huawei, ZTE, etc.) over security concerns. China has targeted various organizations in my industry and this hardware opens the back door wide open for them.

legit concerns:

https://www.bloomberg.com/news/features/2018-10-04/the-big-h...

That article is likely false.

why is that?

Very strong, forceful denials from the parties involved and no followup from Bloomberg: https://www.bloomberg.com/news/articles/2018-10-04/the-big-h...

Do you expect them to admit that chinese succeeded and they've got users data? don't think so. although i don't think china has any intention to admit the operation. As long as the story online i believe it's true otherwise there will be legal consequences and a lot of money to pay.

> As long as the story online i believe it's true otherwise there will be legal consequences and a lot of money to pay.

Similarly, making a statement like that would have dire legal consequences for the companies involved if they willfully covered this up.

60 of America's biggest companies paid no federal income tax in 2018 - https://www.cbsnews.com/news/2018-taxes-some-of-americas-big...

"Just the 20 companies in our study reported in excess of $175 billion in total deferred tax liabilities at the end of 2013. They do not pay any interest to the government on this amount, even if it takes 20 years to pay it." - https://www.usnews.com/opinion/economic-intelligence/2014/08...

Deferred taxes are different than receiving funds from government. In Huawei’s case, they also received stolen IP and granted a monopoly in certain areas.

I think it’s fair to say that’s “state support”.

Tax deferment is not “support” rather just not burdening the companies directly.

Subsidies and preferential tax treatment are textbook methods of state support for enterprise.

This is acknowledged in the article with literally the first sentence.

> China’s tech champion got as much as $75 billion in tax breaks...

edit:

In any case, state support for American businesses goes way beyond preferential tax treatment.

Boeing, TBTF bank bailouts, farm subsidies and bailouts, wars to open up foreign markets, the list goes on for centuries...

What some are failing to do wrt. to US companies is to drop the legal fictions and instead follow the economical laws, and money. The tax-accountant fiction doesn't mean it's not economically supported (by US state). China does it more openly, in US tradition of procedural liberalism requires legal and theoretical fictions to mask what would otherwise be obvious State support.

> The largest portion of assistance, about $46 billion, comes from loans, credit lines and other assistance from state lenders, the Journal’s review showed. The company saved as much as $25 billion in taxes between 2008 and 2018 due to state incentives to promote the tech sector. Among other assistance, it enjoyed $1.6 billion in grants and $2 billion in land discounts.

My only statement is that I wouldn’t call tax subsidies government support. Support implies giving something to the company. Bailouts are arguably support, not taxing a key industry is not exactly support.

> Support implies giving something to the company.

I can understand that interpretation. From a public policy perspective though, tax subsidies are explicit support.

Take an example that came up a lot in these forums, Amazon's HQ2 deal with NYC and NY state. Tax incentives were the bulk of the deal.

As if state support didn’t build any American based tech\data company

When US still supported its non-welfare industries (and allowed smoking) they put a man to the moon.

We are talking about 75 billion for a single company, not just any support for any tech company. It’s scale that makes it interesting, like comparing a bottle rocket vs a manned spaceship.

The US spends $1 trillion on defense each year. A large component of that money is fuelling the military industrial complex, basically suppoort for the domestic industry. And it isn't just limited to the "classical" military companies. Look up how the CIA helped Oracle.

That trillion dollars for “defense” also includes keeping global shipping lanes open and maintaining a military able to respond to existing treaty commitments across Europe. Seems to be a reasonable deal for some of they money to stay here in US companies if we’re paying for so much of others’ security abroad.

The global shipping lanes are kept open for US and US ally interests for which the US is compensated. Every country that has a US base on their soil pays the US military for being there (exceptions being war ravaged or active battle zones)

What they pay does not offset the total costs of maintaining these facilities, and these allies still levy significant import duties on US goods that traverse these shipping lanes, so I don’t know what point you’re trying to make other than pendantry.

Lockheed Martin had $51 billion in government contracts in 2017 alone. Their total revenue that year was a whole $54 billion. This article is complaining about Huawei getting $75 billion over many years.

Lockheed Martin got contracts of which perhaps 5-8% (2.6B to 4B) is profit, this is more direct funding. $75 billion in tax breaks etc is more like a 750B contract in terms of growth potential. Which is why I am saying this is such a huge amount of money rather than unfair or anything.

PS: Oddly, when bidding large federal contracts you include profit margin as a line item. Past 8% is possible, but starts to raise red flags.

It’s also a bit different when you’re catching up due to interference/imperialism by foreign countries (like the US) in your country’s affairs from the past 100+ years.

Why wouldn’t the state help develop its industries?

China was very much in a similar situation pre-WW2, significantly worse infact.

Just because somebody practiced imperialism against you in the past doesn't make you free from moral responsibility.

China's government is responsible only for its population. Moral responsibility isn't universal contrary to what liberalism says. This is a major, morally disarming agent that has turned pathological in NW Europe and US. What imperialism taught China is what the stick-end of liberalism feels like.

What you said is 100% true, but of course you're getting down voted because China=bad and America=good.

People don't seem to realize the USA has poured billions of dollars into Boeing, Hewlett-Packard Company, Honeywell, GE, IBM, etc. etc

Those companies wouldn't have nearly the global presence they do if the government contracts hadn't paid for billions in R&D over the decades.

Full list here: https://en.wikipedia.org/wiki/Top_100_Contractors_of_the_U.S...

Please keep the swipes about downvotes out of your HN comments. Those break the site guidelines. They also usually end up being wrong. In this case, the GP has been heavily upvoted, but your comment lingers on adding wrong information and noise to the thread.

https://news.ycombinator.com/newsguidelines.html

Do any of the folks writing these articles know anything about ARPA (now DARPA) and the US government's foundational role in funding the development of technologies like radar, transistors, microchips, the Internet...?

Honestly, the United States scolding China's state support for their domestic tech manufacturer is about as ridiculous as a nation founded upon human slavery lecturing the world about human rights!

...

What?

State Department fighting for Muslim rights in China while CIA drone operators bomb them in Middle East is true schizo-politics.

The state has always been a major contributor the long term major tech innovation and evolution.

Private enterprise contributes to the “last mile” but grabs all of recognition. AI is the latest example of this. The Googles and Facebooks of this world have been hoarding AI researchers and experts who have been working on AI for the last 30+ years thanks to public money.

The US DoE invested in Tesla Motors when not a single private investor dared to touch it.

But the masses are not only too ignorant to recognize the state’s major role and contribution, they religiously believe private enterprise alone made it all possible and that the state is a roadblock.

https://outline.com/UGYFJ3

How dare China, a communist government, give a private company billions of dollars in tax breaks? Here in America, where we value free markets and democracy, we always tax our companies heavily, at the tax rate that Nature demands.

This is why we can't let communism come to America - the Reds just want to lower our corporate tax rates.

If a foreign government subsidizes a company that "dumps" its products at low costs on our markets, I think we should pocket the gift and focus on other industries. The overall benefit to consumers outweighs the loss to the affected domestic industry.

"In 1962, Milton Friedman made the case for unilateral free trade as the best and fastest path to economic prosperity" https://www.aei.org/carpe-diem/in-1962-milton-friedman-made-...

Of course he did. All nations make the case for free trade after they have arrived, to pull away the ladder they used to get there.

See Bad Samaritans: The Myth of Free Trade and Secret History of Capitalism by Ha Joon Chang. Highly recommended read.

https://en.wikipedia.org/wiki/Bad_Samaritans:_The_Myth_of_Fr...

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