Cutting the Tail Off to Survive: China’s Tech Companies’ Business Strategy under U.S. Economic Sanctions

Abstract

How have Chinese high-tech companies managed to grow and advance technologically under US economic sanctions? While most research on sanctions focuses on the strategies employed by sanctioning and targeted countries, it often neglects how affected firms adapt. This study addresses that gap by analysing 314 Chinese entities on the US export control list and conducting case studies, with a primary focus on Huawei, to explore how Chinese tech firms respond to these restrictions and the broader implications for US–China competition. The research reveals that Chinese companies employ a ‘cutting the tail’ strategy, which involves reallocating resources, divesting from low-margin businesses and prioritising innovation. Despite initial setbacks, these tactics—bolstered by supportive national policies—have enhanced China’s technological self-sufficiency. The findings highlight potential unintended consequences, as US sanctions may inadvertently strengthen China’s global competitiveness and further fuel its techno-nationalism.