The Huawei Model

The Rise of China's Technology Giant

Yun Wen

• Publisher: University of Illinois Press
• Year: 2020
• ISBN:
  9780252052316
• Topic: Sozialwissenschaften
• Subtopic: Soziologie

In 2019, the United States' trade war with China expanded to blacklist the Chinese tech titan Huawei Technologies Co. Ltd. The resulting attention showed the information and communications technology (ICT) firm entwined with China's political-economic transformation. But the question remained: why does Huawei matter?

Yun Wen uses the Huawei story as a microcosm to understand China's evolving digital economy and the global rise of the nation's corporate power. Rejecting the idea of the transnational corporation as a static institution, she explains Huawei's formation and restructuring as a historical process replete with contradictions and complex consequences. She places Huawei within the international political economic framework to capture the dynamics of power structure and social relations underlying corporate China's globalization. As she explores the contradictions of Huawei's development, she also shows the ICT firm's complicated interactions with other political-economic forces.

Comprehensive and timely, The Huawei Model offers an essential analysis of China's dynamic development of digital economy and the global technology powerhouse at its core.

CHAPTER 1

Huawei’s Domestic Accumulation

A Path Intertwining with China’s ICT Development

Huawei’s developmental trajectory was deeply rooted in the systematic restructuring of China’s national economy and the state’s reinsertion into transnational capitalism. China’s market reforms in forging an ICT-led digital economy in the post-Mao era have shaped the company’s strategies of production, research and development, and modes of accumulation, creating tensions between the state, domestic corporate players, and transnational capital. The reorganization of global corporate power in turn redefined the role of state in national policies. The interaction of local dynamics and transnational accumulation circuits constitutes what Jerry Harris calls “dialectics of globalization.”¹ The rise of China’s corporate power in global digital capitalism, thus, should be examined in such dialectics or, specifically, in the context of a national-transnational nexus. To better understand the making of the Chinese ICT giant, it is vitally important to first examine Huawei’s development within the context of China’s history of industrial development.

Before turning to an analysis of Huawei’s growth in the Chinese domestic market, this chapter provides an overview of the country’s ICT developmental trajectory in order to highlight the domestic roots in which Huawei has been embedded. The transition from the self-sufficient industrial development in the Mao era to export-oriented, FDI-dependent industrialization in the post-Mao reform is examined to provide the historical lessons and structural context that shaped the development of homegrown ICT firms. Against such a backdrop of the Chinese state’s industrial restructuring and reforms, Huawei’s growth followed a multistage path. This chapter then historicizes Huawei’s three crucial stages of domestic accumulation, which to some extent have paralleled the evolution of China’s ICT sector and major domestic policy shifts: (1) the initial stage of capital accumulation in the fixed-line sector from the 1980s to the mid-1990s, (2) the struggling developmental stage in the domestic mobile telecom market from the mid-1990s to the early 2000s, and (3) the stage of strategic reorientation since the mid-2000s.

A Historical Contour of China’s ICT Development

Huawei was founded in the late 1980s, a period of China’s epochal transition that synthesized historical continuities and contradictions. One who upholds neoliberal doctrines might attribute the success of Huawei to China’s reform and opening policy. This assumption amounts to a dismissal of the industrial and technological achievements China made during the Mao period. In essence, the internal accumulation of the Mao era enabled the country to enter the reform era “on relatively favorable terms and with highly successful economic results,”² laying down the foundations for the rise of China’s ICT industry. However, the policy shift of the post-Mao market reform completely changed the trajectory of China’s ICT development as well as the nature of China’s integration into the world system. The capitalist transition generated growing tensions and contradictions for Huawei’s internal accumulation in the domestic market. Before unfolding Huawei’s growth path, it is necessary to gain an insight into the contradictory development of China’s ICT industry by taking a look at the holistic background that shaped Huawei’s initial stage of development in the transition period.

SEARCH FOR AN ALTERNATIVE PATH OF ICT DEVELOPMENT IN THE MAO ERA

China’s electronics and telecommunications industries started from “poverty and blankness” after the Communist revolution in 1949. The telecom infrastructure during this period was extremely poor and unequally distributed. There was no nationwide network across the country. Advanced telecom systems were concentrated in coastal cities, while the vast countryside had low penetration rates of telephone lines.³ No domestic electronics or telecom firms enjoyed independent manufacturing capacities.⁴

Starting in 1953, the Chinese state accelerated the pace of socialist modernization and industrialization. The electronics industry was assigned as one of the priorities of the national economic development.⁵ In the 1956 “Long-Range Plan for the Development of Science and Technology from 1956 to 1967,” several electronics projects were granted national importance, including telecommunications and broadcasting systems, radio electronics, semiconductor technology, and computer and radio technology for national defense. Under the technical and financial assistance from the Soviet Union and East Germany, eleven national projects in the electronics and telecommunications industries were launched with the establishment of a number of pillar electronics enterprises across the country. By the end of the First Five-Year Plan (FYP; 1953–1957), China had been able to produce some key electronics components and products, including wireless communication equipment, automated telephone switches, broadcasting transmitters, and a few consumer products. From 1953 to 1957, the electronics industry grew at the average annual rate of 49.5 percent.⁶ Especially in the field of telecom equipment manufacturing, a breakthrough was achieved by the Beijing Wire Communication Plant in 1957 when the enterprise produced the first automated central office telephone switches in China.⁷ China’s overall capacity of local office switches had improved rapidly, increasing from 320,900 ports in 1950 to 2.31 million in 1960.⁸

At the same time, the central government began to pay attention to the disparity of telecom infrastructure expansion between cities and the countryside. In 1956 the Ministry of Post and Telecommunications (MPT) established the goal of constructing telecom networks at the county and commune levels as one of the central tasks of rural development. Substantial efforts for telecom network construction were made via the nationwide campaign “telephone to every township” (xiang xiang tong dianhua). By 1960 the number of rural telephone subscribers had reached nearly 920,000, almost twenty times the 1951 number, which also greatly outnumbered urban telephone subscribers.⁹ At the same time, 99.1 percent of people’s communes and 86.9 percent of production bridges installed telephones.¹⁰ The rate of telecom equipment installation increased severalfold.¹¹ The rapid growth of rural telephone lines laid a solid foundation for rural industrialization. For example, in 1960 the country launched a mass campaign to construct irrigation systems in the countryside. Along with this campaign, more than seventy thousand kilometers of telephone cables and thirty thousand telephones were installed at construction sites to facilitate the project.¹² In concordance with the expansion of telecom infrastructure, rural radio broadcasting networks developed rapidly. Since the mid-1950s, expanding telephone lines had been used for transmitting broadcasting signals to the vast countryside, fulfilling the country’s effort of constructing national broadcasting networks and providing public service for rural demands. Under the initiative of rural telecom development, the gap between the rural and urban areas was significantly reduced.

However, the deterioration of international relations in the 1960s, especially the Sino-Soviet split, not only undermined developmental conditions inside China but also confronted the country with external military threats. In 1960 the Soviet Union withdrew all technical assistance and terminated provisions of key electronics components and equipment. In response to the risky international environment, Mao placed greater attention to “basic” industry and focused more on industrial construction in inland areas than in coastal cities. In addition, the Maoists also called for China to develop an independent and indigenous technology that combined “old considerations of national pride and new economic considerations.”¹³ In line with this tenet of self-reliant industrial development, the prime task of electronics and telecommunications enterprises was readjusted to facilitate military-related development such as nuclear, missile defense, and aviation technologies.

To carry out this strategy, from the mid-1960s to 1970s China implemented a massive development program, “The Third Front Plan,” to reconfigure China’s industrialization. Increased investment was directed to the southwestern remote region and Western China to construct an alternative industrial base. A large number of existing factories and research institutions were relocated from coastal cities to the mountainous hinterland. The Third Front Plan actually dominated China’s industrialization efforts in the late Mao era. Investment in this plan accounted for 52.7 and 41.1 percent, respectively, of total national investment in the Third and Fourth FYPs.¹⁴ As one of its construction priorities, the electronics industry obtained substantial policy support and played an important role in this military-driven industrialization. From 1960 to 1970, the total number of electronic factories increased from 460 to 2,500.¹⁵ The value of industrial output increased from 2.33 to 10.6 billion yuan, with the average growth rate at 31.4 percent during the Third FYP. From 1966 to 1976, more than eighty national projects were initiated.¹⁶ In the provinces of Sichuan, Guizhou, and Shanxi, large-scale electronics industry bases were established, which were turned into local backbone enterprises under the policy of the “Small Third Front Plan.” These Third Front enterprises played significant roles in restructuring China’s ICT industry and rebuilding the country’s manufacturing capacities in the reform era.

During the period of Maoist industrialization, China made substantial technological breakthroughs in a few strategic sectors such as satellite, telecom equipment, and computer technologies. In 1964 the first Chinese-developed digital computer was launched.¹⁷ In the same year, China’s telecommunications technologies also achieved a major breakthrough with the launch of independently developed symmetrical cable carrier telephone systems and microwave cables. And in 1966 the first Chinese-made integrated circuit was invented, marking a significant progress in electronics technologies.¹⁸ Since then China enjoyed large-scale production of integrated circuits and wide application to other electronics products. These technological advances were noteworthy, indicating the country’s dynamic technological and innovative capabilities under the self-reliant mode of development.

China’s industrial development in the Mao era was not merely a response to external forces but a project of exploring an “alternative modernity.”¹⁹ The country’s self-reliant development, first and foremost, rested on the Chinese state’s rejection of the blind importation of Western technologies as well as “capitalist consumption relations.”²⁰ Apart from military and national defense functions, the construction of China’s electronics and telecommunications industries also included the aims of meeting basic social needs and building the socialist goal of egalitarianism. These social functions were manifest in China’s industrial policies.

In addition, China’s industrialization during the Mao era highly relied on the accumulation of labor resources, the Communist Party’s capability of social mobilization, and the promotion of socialist subjectivity. Because the scarcity of capital input in China’s internal accumulation required labor as a complement of productive resources, massive investment in labor resources was made during the Mao era, which led to the formation of a generally educated, healthy, and disciplined workforce for China’s industrialization and modernization.²¹ The unique Chinese experience of industrialization and modernization also depended on the approach of mass mobilization that fully integrated people’s professional expertise with mass-based production. The Third Front Plan, for instance, was conceived as a mass movement that had mobilized nearly 4 million Chinese people, including workers, technicians, and engineers, to transfer from coastal cities to inland industrial bases. Moreover, it is important to note that the realization of self-reliance was largely built upon the emancipation of Chinese people’s subjectivity, which constituted “the motive force and the end of development.”²²

As Maurice Meisner points out, the masses—who were capable of engaging in “the course of everyday productive work, learning the necessary skills and expertise in the course of doing, studying while working, and applying their newly-acquired knowledge to immediate productive needs, and in ways appropriate to suit local conditions”—were believed to create and master modern technology.²³ From Maoist rural modernization to urban industrialization, this “mass line” approach of technical development was exemplified in numerous practices and mass movements, such as the emergence of “barefoot electronics engineers” (chijiaodiangong), the campaign of developing “people’s computer technology,” and the progress of automation technology achieved at the factory shop floor.²⁴ In contrast to the linear process of theoretical research and laboratory experiments, the result-oriented “learning-by-doing” model emphasized extracting experience directly from production and applying it to local conditions. In terms of organizational structure, the system of expert rotation, which required cadres and technical experts’ participation in production practices to generate insight into various local conditions, was prioritized over the elite-led R&D process.²⁵ Taking the innovation of China’s first integrated circuit, for instance, technicians and engineers who were sent to the shop floor of Shanghai Electronics’ components factory accumulated experience and made breakthroughs in numerous experiments during the course of their production work. This unique approach was essential for bringing collective wisdom and workers’ subjectivity into productive practice. Simply put, these practices amounted to a unique Chinese experience in the country’s self-reliant development, which exerted significant influence on the post-Mao development.

RELINKING TO WORLD MARKETS IN THE 1970S

With the dramatic transformation of the world system structure and international relations in the 1970s, China underwent deep changes in its strategic options in the late Mao period by seeking linkages to world markets. These changes were first marked by China’s regaining a seat in the UN Security Council and its normalizing relations with the United States, Japan, and a few former foes, such as some Western European countries, in the early 1970s. The repositioning of China’s role in the world’s geopolitical landscape in turn geared the country toward reorienting its national economy. Specifically, the domestic development strategy was gradually shifted away from the autarkic, military-dominated strategy and toward the civilian economy.

Meanwhile, a number of top Communist Party leaders, including Zhou Enlai, Chen Yun, and Li Xiannian, proposed to rebuild the country’s foreign trade system and to strengthen economic relations with Western countries. In the early 1970s the Chinese government launched the “Four Three Plan,” investing $4.3 billion in technological transfer and machinery importation from Western industrialized countries. This plan was seen as the People’s Republic of China’s (PRC’s) second “opening-up” policy after the Soviet-assisted “156 national projects” in the 1950s as well as a prelude to China’s outward-looking market reform after 1978.²⁶ The investment mainly concentrated in productive material industries such as the chemical fiber, fertilizer, and petroleum industries, aiming to revive the Four Modernizations developmental strategy, which had been superseded by the Third Front Plan, and to balance the light and heavy industries in the national economic system. The electronics and telecommunications sectors were also involved in this wave of “opening-up.” In 1972 Canadian telecom giant Nortel Networks became the first Western telecommunications company to sell transmission equipment in China,²⁷ which was later used in televising the historic meeting of Mao and Richard Nixon by Chinese broadcast media.²⁸ Moreover, in the domestic market, production lines of consumer communication goods, such as color televisions, were established based on technological transfer and imports of key electronics components from Western countries. At the same time, China started to reestablish its network connectivity with the outside world, especially with the West. In 1971 China restored direct telephone and telegraph lines to the United Kingdom and the United States.²⁹ In the following year, the first data transmission circuit connecting Beijing, Shanghai, San Francisco, and Toronto was launched.³⁰ In the same year, the International Telecommunication Union restored China’s seat, which strengthened China...