Huawei Technologies has already been working seven years on the development of its own operating system (OS) for mobile phones, the South China Morning Post reports. The effort has become urgent in the past few months, as Huawei has been put on a U.S. blacklist, prohibiting U.S. companies and foreign companies with U.S. technology in their products from providing hardware and software solutions to Huawei without special U.S. government approval. The company is therefore deprived of future versions of the Android mobile operating system.

Seven years ago, a small group of top Huawei executives headed by founder Ren Zhengfei held a closed-door meeting that lasted for several days. Their mission was to brainstorm ideas on how Huawei should respond to the rising success of Google’s Android smartphone operating system (OS) around the world – software that it used on its own handsets. The underlying concern was that dependence on Android could render the company vulnerable to a U.S. ban in the future. The group agreed that Huawei should build a proprietary OS as a potential alternative to Android. This meeting was later called the “lakeside talks” internally and access to documents relating to the gathering became highly restricted last year, sources said.

A specialist OS team led by executives including Eric Xu, currently one of the three rotating Chairmen of Huawei, was established and began to work on an OS under conditions of tight secrecy. A specialized zone was created on the Huawei campus to house the OS team, with guards at the door. Only employees on the OS team had access to the specialist area, where personal mobile phones were not allowed. The OS project became an important part of Huawei 2012 Laboratories, which functions as the innovation, research and technology development arm of the company.

When the OS project started, Huawei had less than a 5% share of the global market. Now it is the world’s second-biggest smartphone supplier and shipped a total of 206 million smartphones in 2018. Huawei is now facing U.S. charges that it stole trade secrets, violated economic sanctions and concealed its Iran business dealings via an unofficial subsidiary, charges which Huawei has repeatedly denied. Google and Microsoft, whose Android and Windows software Huawei largely relies upon in its smartphones, tablets and laptops, have both suspended access for new Huawei devices. With only a 90-day reprieve from the U.S. government until supplies are completely blocked, the Chinese company has finally had to acknowledge its long-secret plans for an alternative OS.

One of the biggest technical challenges for the Huawei OS – codenamed Hongmeng in Chinese and Ark in English – has been its compatibility with Android. Compatibility would enable a Huawei phone with its own OS to download and run Android apps seamlessly, while app developers around the world would not need to develop extra code for Huawei’s OS. Past attempts by other companies – including Microsoft and Samsung – to create an Android alternative have not been successful. Huawei faces a challenging task: Google’s Android and Apple’s iOS account for 99.9% of the global market for mobile phone operating systems, the South China Morning Post reports.

Huawei, is gearing up to ship almost 225 million devices already running HongMeng or Ark OS by October 2019. A recent report from Rosenblatt Securities revealed that Huawei has already shipped around 1 million devices pre-loaded with the HongMeng OS. It will be compatible with all Android apps and pre-loaded devices will have increased security functionalities to maximize protection of users’ personal data. One source claimed that the Ark OS performed 60% faster than Google’s Android.

Huawei is also considering to use a Russian OS. Russian Telecom and Mass Communications Minister Konstantin Noskov and Huawei’s rotating Chairman Guo Ping discussed the Chinese firm’s switching to Aurora, the Russian version of the Finnish OS Sailfish, and Russian President Vladimir Putin and his Chinese counterpart, Xi Jinping, also touched on the issue during their talks. Sailfish OS was developed in 2012 by the Finnish company Jolla, founded by former Nokia staffers. In 2014, Russian billionaire Grigory Berezkin purchased a share in it after he agreed with the Russian government to develop a Russian mobile Sailfish-based OS. Sailfish is based on Nokia’s and Intel’s aborted MeeGo OS and uses only Android’s hardware layer. If it is installed on Huawei devices, they will not be able to access many Android apps because Sailfish’s compatibility layer is far from perfect. As the U.S. turns the screws on Huawei, launching its own OS has now taken on critical importance. Additionally, China and Russia are negotiating the creation of joint chip manufacturing and software development, according to RT.

Huawei, which has been accused of infringing on U.S. patenst, has now turned the IP case around against the U.S. Huawei holds 56,492 active patents on telecom, networking and other hi-tech inventions worldwide, according to Anaqua’s AcclaimIP, and it is stepping up pursuit of royalties and licensing fees as its access to American markets and suppliers is being restricted. The company is in protracted licensing talks with phone-services provider Verizon Communications and is in a dispute with chip maker Qualcomm over the value of patents. “Given Huawei’s position and the pressure they are feeling, they have nothing to lose at this point than to go after American companies in the patent arena,” said Peter Toren, a Washington-based patent lawyer. “They get poked in one area and they’re going to stick back in another to show there are consequences for this continued pressure. I don’t see how the government can stop them. They have ownership in the patents,” Toren added.

Huawei’s American chip suppliers, including Qualcomm and Intel, are quietly pressing the U.S. government to ease its ban on sales to Huawei, even as the company itself avoids government lobbying. Executives from top U.S. chip makers Intel and Xilinx attended a meeting in late May with the U.S. Commerce Department to discuss a response to Huawei’s placement on the blacklist. The ban bars U.S. suppliers from selling to Huawei without special approval. U.S. chip makers argue that Huawei units selling products such as smartphones and computer servers use commonly available parts and are unlikely to present the same security concerns as the company’s 5G networking gear. “This isn’t about helping Huawei. It’s about preventing harm to American companies,” one source said. Out of USD70 billion that Huawei spent buying components in 2018, some USD11 billion went to U.S. firms including Qualcomm, Intel and Micron Technology, the South China Morning Post reports.

Official ceremony awarding four 5G commercial licenses

On June 6 the Chinese Ministry of Industry and Information Technology (MIIT) officially rolled out commercial 5G licenses to the three major telecom carriers – China Mobile, China Telecom and China Unicom – as well as state-owned China Broadcasting Network Corp. MIIT Minister Miao Wei said China welcomes foreign companies to actively participate in the construction of its 5G market and share in the benefits generated in the market. The move marks an accelerated push by China to apply 5G. Its previous plan was to commercialize the technology in 2020.

“The 5G licensing will help deepen structural reform in the telecom industry, improve the level of social and economic informatization and foster several leading companies with global competitiveness,” said China Mobile Chairman Yang Jie. China Mobile claimed its 5G services will be available in more than 40 cities by the end of September. China Telecom also said in a statement that the 5G licensing will be a key step to build the country into a cyber power. China Unicom noted it will continue welcoming foreign companies to participate in domestic 5G construction. Wang Zhiqin, Chairman of the IMT2020 (5G) Promotion Group, a team established by the Ministry to accelerate the development of 5G in China, said that “issuing a license to China Broadcasting Network Corp, the fourth 5G carrier, will help build a next-generation communication network”. China will lead the world in commercializing the super fast 5G wireless technology, equipment supplier Huawei said. The company has invested about USD2 billion in total in research
and development of 5G since 2009. ZTE Corp, another Chinese telecom gear vendor, also said in a statement that its products are ready for commercial use.

China is set to become the world’s largest 5G market by 2025, with 460 million 5G users, according to a forecast by the Global System for Mobile Communications Association, an industry group. The country’s telecom carriers are expected to spend CNY900 billion to CNY1.5 trillion in total on 5G network construction from 2020 to 2025, according to the China Academy of Information and Communications Technology, as reported by the China Daily.

U.S. President Donald Trump signed an executive order last week, declaring a national emergency, and barring the use of telecommunications equipment made by companies that are deemed a threat to national security, clearing the way for an outright ban on products made by Huawei. The Executive Order did not name China or Chinese companies specifically. However, soon after, the U.S. Commerce Department added Huawei and 70 of its affiliates to its “Entity List” after it concluded that the Chinese company was engaged in activities “contrary to U.S. national security or foreign policy interests”. Inclusion in the list means that a U.S. company, person or government agency purchasing Huawei equipment now requires a specific license “to export, reexport and/or transfer in-country.”

The decision prohibits Huawei from buying parts and components from U.S. companies without U.S. government approval and also makes it difficult if not impossible for Huawei to sell some products because of its reliance on U.S. suppliers. Republican Senator Ben Sasse said: “Huawei’s supply chain depends on contracts with American companies” and he urged the Commerce Department to look “at how we can effectively disrupt our adversary”.

Google immediately suspended doing business with Huawei, including the transfer of hardware, software and technical services except those publicly available via open source licensing. The move could hobble Huawei’s smartphone business outside China as it will immediately lose access to updates to Google’s Android operating system. The Google app store will continue to function for existing Huawei device users, but the next version of Huawei’s Android smartphones will lose access to popular services, including the Google Play Store, Gmail, the Chrome browser and YouTube. Those services are not covered by the open source license and require a commercial agreement with Google. Huawei will continue to have access to the version of the Android operating system available through the open source license, known as Android Open Source Project (AOSP), that is available for free to anyone who wishes to use it. Lenovo denied rumors that it has stopped the sale of PCs and servers to Huawei due to the latest U.S. ban. Taiwan Semiconductor Manufacturing said it will maintain supplies for the time being even though it was assessing the impact of Washington’s decision.

Huawei Founder Ren Zhengfei said he expects U.S. restrictions won’t hurt the Chinese company’s growth much, Nikkei reported. “Huawei’s growth may slow, but only slightly,” Ren told Japanese reporters. “We will not change our management at the request of the U.S. or accept monitoring, as ZTE has done,” he added. Huawei will be “fine” even if it cannot buy chips from U.S. suppliers, as “we have already been preparing for this,” Ren said. He ruled out the possibility of producing 5G equipment in the U.S. “Even if the U.S. asks us to manufacture over there, we will not go,” he said.

The U.S. government claims Huawei’s equipment poses a security risk because the company might allow the government to access networks and private user data – claims that the company and Chief Executive Ren have repeatedly denied. The Commerce Department will spend the next 150 days writing the rules to back up the order, issued under the 1977 International Emergency Economic Powers Act, which will cover any transaction pending or completed as of the order’s signing. The U.S. government has already prohibited its agencies from using devices made either by Huawei or ZTE. Inclusion on the Entity List broadens this prohibition. Huawei unveiled its 92 core suppliers in 2018, of which 33 were from the U.S., including Intel, Oracle, Microsoft and Qualcomm.

China’s Ministry of Foreign Affairs Spokesman Geng Shuang said that the U.S. was “abusing its power to maliciously smear and beat down on certain Chinese companies”. “We urge the U.S. to stop using the pretense of national security to carry out its unreasonable suppression of Chinese companies, and to provide a fair and just environment for Chinese companies investing and operating normally in the U.S. that is free of prejudice.” The latest ban on Huawei reflects Washington’s dangerous Cold War mentality that will lead to further U.S.-China decoupling, which is also casting a shadow over stalled trade talks between the two countries and will hurt the global tech industry, the Global Times newspaper quoted Chinese analysts. China will take necessary measures to safeguard the legitimate interests of Chinese companies, the Foreign Ministry said.

While competitor ZTE was forced to stop most of its business between April and July last year due to U.S. sanctions and paid a USD1.4 billion fine to lift the sanctions, Huawei is in a better position to counter U.S. sanctions. With more than USD15 billion in research and development (R&D) every year, Huawei is ranked among the top five tech firms worldwide in R&D spending, and it has been working to develop its own components from core server chipsets to operating systems. Following Trump’s executive order, Germany and the Netherlands have indicated that they don’t plan to change their stance on Huawei. French President Emmanuel Macron has also cautioned against freezing out Huawei or escalating trade tensions with China. He said that “launching a technology war or a trade war toward any country” is not the best way to defend national interests.

Asked whether China will target U.S. companies, Lu Kang, Spokesperson of the Chinese Foreign Ministry, said that foreign companies should not worry as long as they abide by the law. “But there is something I must emphasize: trade and investment must be based on equality, mutual benefit and mutual respect.”

Increased emphasis on security and surveillance after the attacks in the U.S. on September 11, 2001, have mainly profited three Chinese CCTV makers – Hikvision, Dahua and Uniview – all based in the Binjiang district of Hangzhou, capital of Zhejiang province. Once mostly farmland, the district is also home to Zhejiang Geely Holding, the owner of Sweden’s Volvo Cars. The three companies account for about 30% of global video surveillance revenue. Hikvision and Dahua together have more than half of China’s video camera market. China’s surveillance camera makers have long kept a low profile. Each year, they manufacture millions of cameras used to power surveillance systems both in China and abroad that watch over public and private areas such as prisons, railway stations and airports, and scan roads for vehicular breakdowns.

Hikvision and Dahua came under the spotlight when they were named in the U.S. 2019 National Defense Authorization Act, which banned U.S. federal agencies from purchasing cameras from the two companies on concerns that they pose a risk to national security. Both Hikvision and Dahua have said the ban is not expected to have a substantial impact on their business.

“The increasing demand for safety and security globally after 9/11 is one of the factors driving the growth of the security industry worldwide,” a Hikvision spokeswoman said in a written response to the South China Morning Post. “But the fundamental reasons for the industry’s development are the low police-civilian ratio based on the large population in China, and the challenging situation for public security management in China.” The global market for security cameras has expanded 10% to USD18.5 billion, driven by increased government spending on equipment to fight crime and terrorism, according to IHS Markit. China’s professional video surveillance equipment market grew by 14.7%, faster than the 5.5% growth for the rest of the world, IHS said.

China had about 176 million surveillance cameras in operation as of 2016. By 2022, the number is expected to reach 2.76 billion, in a country with a population of 1.4 billion, according to IDC. One particular growth driver is the Sharp Eyes project, part of China’s Skynet national security network, which raised spending on both urban and rural surveillance systems, the South China Morning Post reports.

ZTE Corp released its 5G smartphone last week, making it the first vendor to offer a commercially ready 5G model. Shenzhen-listed ZTE launched its Axon 10 Pro in Fuzhou, Fujian province, where a trial 5G commercial network is available. The Axon 10 Pro has been tested for all three Chinese carriers, which makes it the first commercially ready 5G model in China. It features a specially designed 5G system of 10 antennas compared with 7 for 4G. About 2% of smartphones sold in China this year will be 5G, or an estimated 8 million units, said Xu Feng, President of ZTE’s Mobile Device Division. By March, ZTE had obtained about 1,000 patents on 5G and had 5G partnerships with 40 mobile carriers globally.

Chinese consumers are expected to be able to buy much-awaited 5G smartphones from other vendors starting in June. Oppo’s 5G smartphone models will enter the market within two months. Huawei’s 5G foldable smartphone Mate X is also scheduled to hit the market by the middle of this year. 5G handsets by Vivo, Xiaomi and OnePlus will become available in the middle of this year, the third quarter and the second half of 2019 respectively, according to statements from the companies. The next-generation smartphones are expected to deliver super-fast speeds, be able to download high-definition movies in seconds, and better enable complicated virtual reality games such as fighting a 3D-dinosaur.

Though some of these initial applications are possible in 4G, “it is 5G that is going to be a significant jump forward for phones because only with the latter’s higher bandwidth can these applications be more sophisticated and adopted by most consumers, delivering a really amazing impact,” said Nicole Peng, Senior Director of market research company Canalys. According to the China Center for Information Industry Development, the prices of the first-batch of 5G smartphones will exceed CNY10,000. But with telecom carrier subsidies, prices are likely to drop to CNY5,000 to CNY6,000 by the beginning of 2020. By September 2020, Apple is expected to unveil its first 5G smartphone and production costs will plummet. As a result, the average prices of domestic products are likely to continue declining to about CNY2,000.

“Starting next year, more consumers will upgrade their handsets to 5G smartphones. The prime time period will last till 2023, triggering an explosive growth in smartphone shipments,” said Kang Jialin, one of the authors of the report by the China Center. It forecast that about 10 million units of smartphones will be shipped this year and the number will hit 250 million in 2023, the China Daily reports.