Microsoft likens Chinese AI threat to Huawei in 5GMicrosoft likens Chinese AI threat to Huawei in 5G

For years, Huawei's critics have accused it of accepting lavish subsidies from the Chinese government, funds that enabled it to overtake western rivals and ultimately replace them in many countries' telecom networks. But the accusation is rarely aired in public statements from major US corporations, especially when they supply products to the Chinese equipment maker. That Microsoft felt sufficiently emboldened to do so at the start of 2025 is a sign of the worsening geopolitical climate just weeks before Donald Trump resumes the US presidency.

A blog published by the US software giant late on January 3 is mainly a plea to the incoming US administration for supportive policies around artificial intelligence (AI). Written by Brad Smith, Microsoft's vice chair and president, it warns the US could lose out to China in AI, as it did in 5G, without the right level of government support. The implication is that Microsoft could become tomorrow's Lucent Technologies, the AT&T manufacturing spinoff that merged with France's Alcatel in 2006 before it was eventually bought by Finland's Nokia after years of turmoil.

Hard to imagine? The analogy is clearly drawn by Smith in his write-up. "Initially, American and European companies such as Lucent, Alcatel, Ericsson, and Nokia built innovative products that defined international standards. But as Huawei invested in innovation and China's government subsidized sales of its products, especially across the developing world, adoption of these Chinese products outpaced the competition and became the backbone of numerous countries' telecommunications networks," he wrote.

The consequence of its meteoric rise was a much bigger national security threat in countries where operators had bought Huawei's 5G products, according to Smith. "This created the technology foundation for what later became an important issue for the Trump administration in 2020, as it grappled with the presence of Huawei's 5G products and their implications for national and cybersecurity."

AI capex splurge

Sucking up to an incoming political leader is standard practise for any company based in his or her jurisdiction, and Smith proves he can flatter. "President Trump's 2019 executive order rightly emphasized the need to promote an international environment that 'opens markets for American AI industries while protecting our technological advantage in AI and protecting our critical AI technologies from acquisition by strategic competitors and adversarial nations,'" he said.

Trump probably needs little encouragement. If the presence of a Chinese company in the world's 5G networks was deemed risky, the prospect of a China-developed AI as the default option for many countries – US allies included – will sound far more terrifying to the people about to take charge in America, along with many US politicians in the opposite camp.

Smith is not, however, calling for a major injection of US public funds in AI. Microsoft, he notes, is due to invest about $80 billion globally in AI data centers this year. This would mark a huge increase on the $55.7 billion it pumped into capital expenditure in its previous fiscal year (ending in June 2024), and that figure represented a 75% increase on spending the year before. Amazon and Google, Microsoft's chief US "hyperscaler" rivals, are making similarly big investments to kit out those facilities. Private capital is also in play. Smith's assessment is that "it will be difficult for China to match America's private sector investments and these international capital funds."

The call he makes for supportive export policies and an investment in AI skills at apprenticeship and university levels sounds more reasonable. And after Smith's comments about Huawei, asking Trump to match China on state subsidies would smack of hypocrisy. But the subtext of his blog should alarm other countries and anyone who worries that AI is already out of control.

Huawei turns to AI

It essentially points to an AI arms race between the US and China in which the main protagonists are the hyperscalers, on the American side, and possibly Huawei for the Chinese. While better known for its network equipment and smartphone activities, the Chinese company controls a small but growing share of the world's public cloud market and has enjoyed success there in parts of Asia and Latin America, besides China.

Through HiSilicon, its semiconductor subsidiary, it is also in the vanguard of China's efforts to produce AI chips that can rival the graphical processing units made by Nvidia, the main supplier of AI silicon to Amazon, Google and Microsoft. Mass production of the Ascend 910C, Huawei's newest AI chip, is reportedly due to begin this quarter.

The main challenge for Huawei, it seems, is overcoming trade sanctions that have restricted its access to advanced chipmaking tools. As new rules are enforced under Trump, China could retaliate by making life hard for US companies that export to China or use it as a manufacturing base.

While Microsoft secured an export license to serve Huawei in late November, it does not look very exposed to a Chinese backlash, reportedly generating less than 2% of its annual revenues in China. But the same cannot be said for numerous other US tech companies. Applied Materials, an important US manufacturer of chipmaking equipment, reported a 40% increase in sales to China for the nine months to July 2024, to nearly $8 billion, for instance. That was a much bigger increase than it saw in the US, Europe or any other big Asian economy, with China revenues accounting for 40% of the global total. The unintended consequences of an AI war could be numerous.