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U.S. eases curbs on Huawei; founder says clampdown underestimates Chinese firm

[May 21, 2019] By Brenda Goh and Karen Freifeld

SHANGHAI/NEW YORK (Reuters) - The United States has temporarily eased trade restrictions on China's Huawei to minimize disruption for its customers, a move the founder of the world's largest telecoms equipment maker said meant little because it was already prepared for U.S. action.

The U.S. Commerce Department blocked Huawei Technologies from buying U.S. goods last week, a major escalation in the trade war between the world's two top economies, saying the firm was involved in activities contrary to national security.

The two countries increased import tariffs on each other's goods over the past two weeks after U.S. President Donald Trump said China had reneged on earlier commitments made during months of negotiations.

On Monday, the Commerce Department granted Huawei a license to buy U.S. goods until Aug. 19 to maintain existing telecoms networks and provide software updates to Huawei smartphones, a move intended to give telecom operators that rely on Huawei time to make other arrangements.

Huawei is still prohibited from buying American-made hardware and software to make new products without further, hard-to-obtain licenses.

Huawei founder Ren Zhengfei on Tuesday told Chinese state media that the reprieve bore little meaning for the company as it had been making preparations for such a scenario.

"The U.S. government's actions at the moment underestimate our capabilities," Ren said in an interview with CCTV, according to a transcript published by the Chinese state broadcaster.

The temporary license suggests changes to Huawei's supply chain may have immediate, far-reaching and unintended consequences for its customers.

The Commerce Department said it will evaluate whether to extend the license period beyond 90 days.

CURRENCY FIRMS

China's yuan firmed versus the dollar on Tuesday as news of the reprieve eased some worries that trade tensions would be further inflamed and inflict deeper losses on the currency.

Beijing has struck an increasingly defiant tone as the trade war has escalated, saying it will take measures to safeguard the interests of its companies, but has not said whether or how it may retaliate over the U.S. action against Huawei.

President Xi Jinping's Monday visit to a rare-earth company in southern China sparked speculation that the sector could be the next front in the trade war, driving up shares in Chinese rare-earth related firms on Tuesday.

China produced 80% of rare-earths, a group of 17 chemical elements used in electronics, imported by the United States in 2017.

"Given the Huawei decision, I feel they (China) have no choice but to retaliate, for face sake," Cliff Tan, head of East Asian research at MUFG Bank in Hong Kong, told the Reuters Global Markets Forum on Tuesday.

Chinese Foreign Ministry spokesman Lu Kang, at a media briefing, rebuffed Trump's claim that his tariffs were causing companies to move production away from China, saying foreign investors remain enthusiastic about the country.

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The logo of Huawei is pictured at a mobile phone shop in Singapore, May 21, 2019. REUTERS/Edgar Su

GOOGLE SUSPENSION

Huawei is currently on the receiving end of a U.S. government accusation that it engaged in bank fraud to obtain embargoed U.S. goods and services in Iran and move money via the international banking system. Huawei has pleaded not guilty.

The trade blacklist has added to its woes, following which Alphabet Inc's Google suspended some business with Huawei, Reuters reported on Sunday citing a person familiar with the matter, raising worries about the Chinese firm's smartphones that run on Google's Android operating system.

Monday's temporary license is likely to allow companies such as Google to continue providing service and support, including software updates or patches, to Huawei smartphones that were available to the public on or before May 16.

"Keeping phones up to date and secure is in everyone's best interests and this temporary license allows us to continue to provide software updates and security patches to existing models for the next 90 days," a Google spokesperson told CNBC in an email on Tuesday.

The license also allows Huawei to engage in the development of standards for fifth-generation (5G) telecom networks.

APPLE PRAISE

Ren put up a brave front on Tuesday, reiterating claims that the restrictions will not hurt Huawei's prospects and that no other company will be able to catch up with Huawei in 5G technology in the next two to three years.

China was nevertheless still "far behind" the United States in technology, he said.

Chip experts have called out Huawei on its claims that it could ensure a steady supply chain without U.S. help, saying the technology it buys from American companies would be "hard to replace".

Nearly 16 percent of Huawei's spending on components in 2018 went to U.S. firms including Qualcomm, Intel and Micron Technology, analysts said.

Ren said Huawei was at odds with the U.S. government, not U.S. firms, and in a comment that trended on Chinese social media, he praised Apple Inc's iPhones, saying he gifted the American firm's devices to family members.

"Apple has a good business ecosystem ... We cannot think narrow-mindedly that loving Huawei equals loving its phones."

U.S. firms could lose up to $56.3 billion in export sales over five years from stringent export controls on technologies involving Huawei or otherwise, the Information Technology & Innovation Foundation said in a report. Missed opportunities threatened as many as 74,000 jobs, the foundation said.

(Reporting by Karen Freifeld in New York, David Shepardson in Washington and Brenda Goh in Shanghai; Additional reporting by Diane Bartz in Washington and Angela Moon, Ryan Woo, Cate Cadell and Lusha Zhang in Beijing; Editing by Christopher Cushing, Sayantani Ghosh and Himani Sarkar)

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