{"id":47612,"date":"2019-05-15T15:00:56","date_gmt":"2019-05-15T05:00:56","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=47612"},"modified":"2019-05-15T15:00:56","modified_gmt":"2019-05-15T05:00:56","slug":"5g-xi-and-huawei-looking-beyond-trump-and-the-china-price","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/5g-xi-and-huawei-looking-beyond-trump-and-the-china-price\/","title":{"rendered":"5G, Xi and Huawei: looking beyond Trump and the \u2018China price\u2019"},"content":{"rendered":"
<\/figure>\n

There\u2019s a right way and a wrong way to think about 5G networks in a nation-state. Right now, according to Bloomberg<\/a>, 40% of the world seems to be thinking the wrong way.<\/p>\n

The debate on 5G and Huawei has descended into a simple binary choice: \u2018Do you want to \u201cfollow the US\u201d and ban Huawei?\u2019 or \u2018Do you want cheap 5G from Huawei, while sending comforting messages about trade and investment to Beijing?\u2019<\/p>\n

The second of these ideas has been stoked at telco-world events such as Barcelona\u2019s Mobile World Congress, where corporate CEOs like Vodafone\u2019s<\/a> said banning Huawei will bring higher costs (and disturb commercial relationships).<\/p>\n

This sets up an attractive rationale for national leaders who want to show their independence from Donald Trump\u2019s America, and get plaudits from companies that have commercial relationships with Huawei\u2014all while signalling a desire for more Chinese investment. Nationalism and cash: what a delightful result.<\/p>\n

If only it were that simple and that attractive. It\u2019s not, as the 30 nations\u2019 representatives at the recent security discussions in Prague<\/a> are no doubt thinking.<\/p>\n

The national security issues involved in 5G are fundamental, and the commercial implications from the combination of national decisions on it will shape global communications technology development and markets.<\/p>\n

None of this has anything to do with liking or not liking Trump. And, as is often the case with economics, what looks like a low-cost option on its face may well turn out to be the opposite.<\/p>\n

On national security, there\u2019s a larger story around the broad and rapid expansion<\/a> of Chinese tech companies across the globe, but 5G is central to that effort.<\/p>\n

A country\u2019s 5G network will be the nervous system that connects its economy, carries its data and for the first time bridges the gap between internet-connected systems and \u2018operational technology\u2019 (in places like factories, power stations, utilities, railways and airports) that right now is mainly air-gapped from the internet. That\u2019s what the long-promised \u2018internet of things\u2019 is about. It will also enable telemedicine, driverless cars and drone delivery systems to become realities, with all the economic and security implications this will bring.<\/p>\n

So, who can control, distort, disrupt or harvest data from your 5G network becomes more important than for any prior telecom network\u20144G or fixed line.<\/p>\n

As has been said many times, the Chinese state\u2019s security agencies have the inside running<\/a> to do this when it comes to their national 5G champion, Huawei. These agencies also have form<\/a> when it comes to large-scale cyber intrusions<\/a> and data theft.<\/p>\n

So, on national security grounds, not having Huawei as a provider of your country\u2019s future critical digital infrastructure makes sense, regardless of who the US president is and what he or she does.<\/p>\n

What\u2019s been less talked about, though, is that the commercial arguments are equally compelling.<\/p>\n

Normally, purchasing decisions take price and quality into consideration. There\u2019s been a lot of talk about price. But there\u2019s been very little mention of the longstanding design and engineering quality problems<\/a> that the UK\u2019s Huawei evaluation centre continues to find in Huawei network products and software. A more critical eye is needed on the product itself.<\/p>\n

Beyond this, it\u2019s not just the US that understands that the Chinese state laws, policies and practices that protect and enable Chinese companies\u2019 growth and pricing, along with forced technology transfers, are core problems for the global economy. The EU has a long, sorry history of negotiating with China over these issues, and it\u2019s now in the midst of a WTO action<\/a> as a result.<\/p>\n

Huawei has been a beneficiary of market-distorting Chinese state policy and practice. It has grown because it has had the luxury of operating in a protected home market in China.<\/p>\n

As Rick Umback noted in a recent ASPI report<\/a>, the company\u2019s executives have longstanding ties to China\u2019s security apparatuses. And, since its formation in 1987, Huawei has benefited from Chinese government contracts, a protected domestic market, financial support from state-owned banks, and diplomatic support for its overseas expansion. In Huawei founder Ren Zhengfei\u2019s words<\/a>, \u2018If there had been no government policy to protect [Chinese enterprise], Huawei would no longer exist.\u2019<\/p>\n

These protections are set to continue under President Xi Jinping\u2019s signature \u2018Made in China 2025\u2019 plan, designed around his desire for strategic and economic dominance from future internet and communications technologies including 5G. The one area that\u2019s least likely to be resolved in the US\u2013China trade dispute is real access to China\u2019s high-technology market, along with an end to Chinese global cyber espionage and talent cultivation to get hold of others\u2019 high-tech intellectual property.<\/p>\n

It\u2019s laughable in this context to hear telecommunications companies that are Huawei\u2019s commercial partners saying Huawei needs to be included in national systems to enable market competition. It\u2019s an even more Through the Looking-Glass<\/em> experience to hear Huawei claim<\/a> that it is \u2018encouraged by the emphasis on the importance of research and development, open markets and competition, but would urge policymakers to avoid measures that would increase bureaucracy and costs and limit the benefit that 5G can bring\u2019.<\/p>\n

The home-market protection provided by the Chinese state to Huawei is a major explanation for the \u2018China price\u2019 offered by Huawei for 5G. On simple competition policy grounds, this must be taken into account when national decision-makers outside China think about competitive bidding involving Huawei\u2014or any other Chinese \u2018national champion\u2019 firm.<\/p>\n

A further contributor, though, flows from classic economic theory: because Xi and Huawei see 5G as one of the keys to strategic and economic dominance, it\u2019s worth pricing low now to buy global market shares.<\/p>\n

Of course, economic theory and history tell us what happens next if companies succeed in cornering markets: they exploit their monopoly position to charge \u2018rent\u2019 on top of costs and profits, with supernormal profits a usual by-product. A study by the International Monetary Fund <\/a>on market power validates this effect in both advanced and developing economies, finding \u2018a positive relation between firm markups [over costs] and other indicators of market power\u2019.<\/p>\n

Many of Europe\u2019s telcos are probably reluctant to make the big up-front investments 5G requires while they\u2019re wringing profits out of existing fixed-line and low-margin 4G investments. So, there will be bulls and bears when it comes to 5G\u2014slow and fast adopters.<\/p>\n

Decision-makers in Europe, the Middle East, Asia and Latin America must think beyond any eagerness to get low \u2018entry level\u2019 prices from Huawei. To help here, the EU and NATO can both still do the work to get some important things like harmonised standards on 5G security\u2014and competition policy\u2014right and inform national decisions across Europe and elsewhere.<\/p>\n

Rather than rushing into decisions based on Huawei\u2019s cheap and ubiquitously marketed offers, nations need to think a few steps ahead and consider the wisdom of handing global market power to Xi\u2019s national 5G champion, for the health of both their own telcos and their citizens. Getting the framework and decisions right on 5G will also help them deal with the other technology investment decisions they\u2019ll face as China\u2019s tech expansion continues.<\/p>\n

On top of this, for those of you who remember the TV detective Columbo, played by Peter Falk, \u2018there\u2019s just one other thing that bothers me\u2019. As Xi\u2019s \u2018Made in China 2025\u2019 plan makes clear, the Chinese state sees strategic<\/em> power as coming from dominating 5G and other communications and internet technologies. Having 5G from Huawei in your nation\u2019s network is a key step here, bringing Xi\u2019s \u2018Digital Silk Road\u2019 into being.<\/p>\n

If a nation wants its future core digital infrastructure to be one of Xi\u2019s tools of strategic power, then by all means let your telcos sign those cheap Huawei deals. But do it knowing that the \u2018China price\u2019 won\u2019t last, and that Xi has already given ample demonstration that he\u2019s happy to use all the global, strategic and economic power he can muster for his own ends.<\/p>\n","protected":false},"excerpt":{"rendered":"

There\u2019s a right way and a wrong way to think about 5G networks in a nation-state. Right now, according to Bloomberg, 40% of the world seems to be thinking the wrong way. The debate on …<\/p>\n","protected":false},"author":766,"featured_media":47614,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[2268,52,2267,204],"class_list":["post-47612","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-5g","tag-china","tag-huawei","tag-xi-jinping"],"acf":[],"yoast_head":"\n5G, Xi and Huawei: looking beyond Trump and the \u2018China price\u2019 | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/5g-xi-and-huawei-looking-beyond-trump-and-the-china-price\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"5G, Xi and Huawei: looking beyond Trump and the \u2018China price\u2019 | The Strategist\" \/>\n<meta property=\"og:description\" content=\"There\u2019s a right way and a wrong way to think about 5G networks in a nation-state. 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