Huawei may be the canary in the coalmine

In the pre Covid-19 world, international value chains became ever more globalized in a relentless effort to drive prices down. Not any longer and not just because of the pandemic. Commercial calculations will have to increasingly price in risk, including political risk.

It is not a coincidence that Britain’s turn-around on using Huawei for its 5G infrastructure happened at the height of the pandemic. Covid-19 brutally brought back the realization that international value chains are only as strong as their weakest link. No production in China, no parts for car factories in Europe. No international travel, no new crews for freighters from Asia to the rest of the world.

New awareness set in that geopolitical risk factors will have to figure in all commercial price calculations. Risk competitiveness, not cost alone will have to be the guiding principle when decisions are made whether to enter or leave a market, make a financial placement or order a product.

Covid-19 was not the reason for the British decision on Huawei. Washington’s pressure was. However, that kind pressure is just one example for the fact that the hitherto global marketplace starts to fracture and is breaking down in geographical zones, but also political spheres of influence. Huawei is a Chinese product coming from afar, at least seen from Europe and the US, but also from a country suddenly overly aggressive against neighbours, example the Himalayan border with India or the South China Sea, and against critics, example the trade war with Australia.

Now, economic exchange with China, third largest market after Europe’s Single Market and the US as well as largest production site of the world, appears inevitable. The big and growing problem, however is the lack of reciprocity. Huawei claims to be a private firm with no direct governmental link when offering its products in Western markets, but the Chinese government won’t let Huawei’s private firm competition from the West within a mile of its own communication infrastructure. Western companies are invited to provide crucial technology within BRI-projects only to be confronted on third markets by state subsidised Chinese competition, using said technology.

Contrary of what is often said and written, it was not Western naïveté that let China enter the WTO but its clear pledge that it would play along the established rules. I know, I was there when the fateful decision was made 2002 in Doha, Qatar to thus let China participate in world commerce with the same rights and duties like the rest of the world, practically all members of the organization already. That pledge has not been kept. Over two thirds of commercial fraud and trade secret violations the US DoJ pursues at this time involve China. Ask any foreign entrepreneur in the Chinese market and he will tell you that forced technology transfer figures among his main problems.

In the aftermath of the 2007/8 worldwide economic crisis, the Chinese market acted as a sort of locomotive for the global economy, mainly due to its then enormous capacity for low cost production and need for modern infrastructure. In the wake of the Covid-19 economic crisis the situation is entirely different. Important parts of China’s economy are saturated and the country thus pushes into 3rd markets.

There loom now not only economical but increasingly also political hurdles of all kind. 5G technology, due the sensitive nature of all communications – as demonstrated again by our lives going virtual during the pandemic – is particularly exposed to security policy related barriers. Which, coupled with American pressure will incidentally incite most European
countries to follow the British lead.

However, Huawei and 5G could well be the forerunner of a wider divorce in investing, producing, sourcing and selling of products and services between China and the Western word. The big question remains where the rest of the world will go. Is Vietnam’s total exclusion of Huawei from its communication infrastructure only the reaction of a perky neighbour, intent to develop its own respective technology or the harbinger of a trend? Also note the recent decision by the Indian government to ban TikTok, the Chinese video service, a measure that is being followed, not preceded by the US.

Picture: Open Grid Scheduler / Grid Engine