02:36 GMT30 November 2020
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    The subsidy of the world's largest provider of IT equipment was established in 2013 but has operated independently of its parent company, and the recent divestment will allow the budget smartphone firm to avoid US sanctions, according to a major report.

    Huawei Technologies will sell its Honor budget series smartphone enterprise via a 100bn yuan ($15.2bn) deal, Reuters reported on Tuesday, citing sources familiar with the matter.

    The Chinese tech giant will sell its Honor phone brand to a consortium led by Digital China, a handset distributor, as well as the investors from the Shenzhen government, it was revealed.

    The news comes after Huawei was forced to move to its corporate business divisions and high-end mobiles amid the ongoing US trade war on China, the sources said.

    One source warned that the Shenzhen-based firm does not expect major changes from US president-elect Joe Biden's  administration on Washington's cybersecurity policy towards Huawei.

    The sale could be announced as early as Sunday, one of the sources told Reuters.

    Huawei mobile distributor Digital China will become a primary shareholder with a roughly 15 percent stake in Honor Terminal Co Ltd, both sources said.

    Digital China also plans to finance most of the sale via bank loans, two sources said, adding three additional Shenzhen government-backed investment firms will own 10 percent and 15 percent in shares.

    Honor aims to keep most management staff and 7,000 workers, with the firm going public in three years, the sources said.

    Huawei and the Shenzhen government have not immediately responded to requests for comment, and Honor has declined to comment on the matter, according to the report.

    “It seems to be a drastic move given the Honor brand has been highly complementary to Huawei’s smartphone portfolio. The interesting synergy with potential buyers actually can be Honor’s IoT (Internet of Things) business, which can see potential upside,” Nicole Peng, vice-president of mobility for research firm Canalys said in a statement.

    But Honor's overseas operations could "struggle" due to Washington's cybersecurity policy towards the subsidy firm and the latter's ending of marketing support, Tom Kang, research director for Counterpoint said.

    Honor, Huawei and Washington's Ongoing Trade War

    The news comes amid the Chinese State Council's massive $1.4tn pledge to back China's domestic technology market, namely in 5G, artificial intelligence, infrastructure and others up to 2025 in a bid to reduce dependence on foreign tech.

    Huawei, ZTE, TikTok owner ByteDance and Shanghai-based Semiconductor Manufacturing International Corp, among others, have been targeted by US president Donald Trump's administration in recent years over allegations of cybersecurity risks, despite the latter not providing evidence to Huawei on the matter.

    Huawei and ZTE were blacklisted along with over 70 Chinese firms by the US Department of Commerce, who accused the Chinese tech giants of potentially using their technologies to spy for the Chinese government.

    The former two companies were also designated as cybersecurity risks by the US Federal Communications Commission in late June, citing the firm's alleged ties to the Chinese Communist Party and military, without providing details.

    Huawei, ZTE and Beijing have slammed the claims as false, with the former demanding Washington to provide evidence.

     

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    Tags:
    divestment, Shenzhen, China, tech wars, US-China trade war, smartphones, Huawei
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