China May Retaliate Against Nokia and Ericsson If EU Countries Move to Ban Huawei

(WSJ) Beijing is considering retaliating against the Chinese operations of two major European telecommunication-equipment manufacturers, Nokia Corp. and Ericsson AB, should European Union members follow the lead of the U.S. and U.K. in barring China’s Huawei Technologies Co. from 5G networks, according to people familiar with the matter.

China’s Ministry of Commerce is mulling export controls that would prevent Nokia and Ericsson from sending products it makes in China to other countries, the people said. One person added that this was a worst-case scenario that Beijing would use only if European countries came down hard on Chinese suppliers and banned them from their 5G networks.

Last week, the U.K., which left the EU earlier this year, ordered its wireless carriers to stop buying Huawei 5G equipment by the end of 2020 and to remove Huawei 5G equipment from its networks by the end of 2027.

The EU hasn’t banned Huawei, but took a softer stance in January by releasing 5G cybersecurity recommendations that member states could voluntarily adopt to restrict Huawei’s presence in each country. It is expected to soon publish a report detailing how its 27 member states have adopted them.

The EU’s biggest country, Germany, isn’t expected to decide whether to allow Huawei its 5G networks until September at the earliest.

The Chinese Commerce Ministry said last Thursday that the country will take necessary measures to protect the legitimate rights of Chinese companies, in response to a recent ban on Huawei by the British government. The ministry didn’t respond to a request for comment on Monday.

“This kind of action could backfire by frightening some foreign tech companies into moving manufacturing out of China,” said Jim McGregor, the Greater China chairman of advisory and advocacy consulting firm APCO Worldwide. “Companies are already very nervous about getting caught in geopolitical battles and are reassessing their manufacturing sites and supply chains to protect their business continuity.”

5G cellular networks, expected to be about 100 times faster than current 4G networks, are set to underpin future cutting-edge technologies in sectors from manufacturing to transport. Huawei is the world’s biggest maker of cellular-tower equipment. Its only major rivals are Nokia and Ericsson, which are based respectively in Finland and Sweden, both EU members.

Both Nokia and Ericsson have manufacturing plants and thousands of employees in China. Tipped off about the potential restrictions a few weeks ago, Nokia commissioned a review of its supply chain and made contingency plans to shift global production, according to a person familiar with the matter. Both Nokia and Ericsson could manage Chinese restrictions by shifting production to elsewhere in Asia, or to Europe or North America, people familiar with the companies said.

This year, Ericsson also won contracts to supply China’s three large state-run wireless carriers with 5G equipment, though the Swedish company has much smaller deals than Huawei and fellow Chinese company ZTE Corp. Western telecom executives say it is in China’s interest to use some Western 5G technology to incentivize Chinese telecom-equipment makers to keep innovating.

China maintains a list of items under export controls, even though it doesn’t have an existing export-control law. These export restrictions, which oversee items including military and dual-use nuclear and chemical goods, are decided and enforced by a group of state agencies: the Ministry of Commerce, the Chinese Customs Bureau, the State Council as well as the Central Military Commission, which commands the country’s armed forces.

To be sure, the plan could be more bark than bite. Last May, after the U.S. placed Huawei on a trade blacklist, China said it would create a blacklist of foreign entities that failed to supply Chinese firms for “noncommercial purposes.” Since then, the government has yet to publish any specific companies or individuals on the list. U.S. multinationals hire millions of workers in China, and Beijing still needs American technology to build up its industries. Meanwhile, existing U.S. sanctions against Huawei still have loopholes that continue to allow U.S. firms to supply Huawei.

The U.S. has lobbied Britain and EU countries to ban Huawei from 5G networks, saying Beijing could order the Shenzhen, China-based company to spy on or disrupt communications. Huawei and the Chinese government said such a scenario would never happen.

Even as U.S. President Trump has said the 5G race is one the U.S. must win, China has taken a lead in global 5G development so far. It has promised to invest billions in the hope of tripling the number of 5G cellular sites to 600,000 by year-end, according to the state-run Xinhua News Agency. The U.S. ended 2019 with about 10,000 such sites, according to Bernstein Research.

Western telecom-equipment makers including Ericsson and Nokia, as well as smaller players, already started shifting production outside of China last year for several reasons. One was to avoid the Trump administration’s tariffs on goods that were made in China and destined for the U.S. Another was to tell customers, which include wireless carriers and landline cable-and-internet providers, that its products don’t pose a security risk because they didn’t come from China.

“We wanted to look our customers in the eye and say we don’t do any manufacturing in China,” said an executive at one U.S. telecom-equipment company.

Still, Nokia does make some U.S.-bound equipment in China. Nokia has been lobbying the U.S. on a proposal that would bar American wireless carriers from using telecom equipment with Chinese-made components, even if the parent company is Western, said Brian Hendricks, who leads Nokia’s policy and government relations team in the Americas. He said hardware with “dumb” parts, such as screws, from China shouldn’t disqualify a product from being sent to the U.S.

Nokia has one factory and about 16,000 employees, many in research and development, in its Greater China market, which includes Hong Kong and Taiwan. Ericsson has a manufacturing site and research-and-development facilities in China, and about 14,000 employees in its North East Asia region, which includes China, Japan, South Korea and Taiwan.

Source: Wall Street Journal by Liza Lin, Stu Woo and Lingling Wei

China May Retaliate Against Nokia and Ericsson If EU Countries Move to Ban Huawei China May Retaliate Against Nokia and Ericsson If EU Countries Move to Ban Huawei Reviewed by TechCO on 7/20/2020 Rating: 5

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