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If EU countries move to Ban Huawei, China can retaliate against Nokia and Ericsson
(WSJ) Beijing is considering retaliating against the Chinese operations of two major European manufacturers of telecommunications equipment, Nokia Corp. and Ericsson AB, should Members of the European Union follow the example of the United States and the United Kingdom. In banning China's Huawei Technologies Co. from 5 G networks, by people who are familiar with the matter.
China's trade ministry is mulling export controls that would prevent Nokia and Ericsson from sending products it makes to other countries in China, the people said. One individual added that this was a worst-case scenario that Beijing would only consider if European countries barred them from their 5 G networks and came down hard on Chinese suppliers.
Last week, the UK, which left the EU earlier this year, ordered their wireless carriers to stop buying 5 G equipment from Huawei by the end of 2020 and remove 5 G equipment from their networks by the end of 2027.
The EU has not banned Huawei but, in January, took a softer stance by issuing 5 G cybersecurity guidelines that member states could voluntarily adopt to limit Huawei 's presence in each region. A study explaining how its 27 member states have embraced them is expected to be published early.
It's not expected that the EU 's largest nation, Germany, will determine whether to make Huawei its 5 G networks until earliest September.
The Chinese Commerce Ministry said last Thursday, in response to a recent British government ban on Huawei, the country will take the necessary steps to protect the legitimate rights of Chinese companies. The ministry was not responding to a Monday request for comment.
This kind of action may be backfired by scaring some global tech firms into pulling production out of China, said Jim McGregor, Chairman of advice and lobbying consulting company APCO Worldwide for Greater China. Companies are already very nervous about being caught in geopolitical battles and are reassessing their production sites and supply chains in order to protect their continuity of business.
5 G cellular networks, which are expected to be about 100 times faster than existing 4 G networks, are set to underpin future cutting-edge technologies in the manufacturing and transport sectors. Huawei is the biggest cellular-tower equipment maker in the world. The only major competitors are Nokia and Ericsson, both EU members based in Finland and Sweden, respectively.
Nokia and Ericsson both have manufacturing plants and thousands of Chinese employees. Tipped off about the possible constraints a few weeks ago, Nokia commissioned a analysis of its supply chain and made contingency arrangements for changing global production according to a person familiar with the matter.
Both Nokia and Ericsson have been able to manage Chinese restrictions by shifting production to other parts of Asia, or Europe or North America, said people familiar with the companies.
This year, Ericsson also won contracts to supply 5 G equipment to China's three major state-run wireless carriers, although the Swedish firm has much smaller deals than Huawei and ZTE Corp, a fellow Chinese company. Western telecom executives say it is in the interest of China to use some Western 5 G technology to encourage Chinese telecom equipment manufacturers to continue innovating.
China maintains a list of items under export control, even though it has no existing export-control legislation. A group of state agencies agree and implement these export controls, which regulate products including military and dual-use nuclear and chemical goods: the Ministry of Commerce, the Chinese Customs Bureau, the State Council and the Central Military Commission, which commands the armed forces of the country.
The strategy can be more bark than bite, to be sure. Last May, after the US placed Huawei on a trade blacklist, China said it would establish a blacklist of international companies that refused to supply "non-commercial" Chinese firms.
The government has yet to report any particular businesses or persons on the list since. U.S. multinational corporations in China are hiring millions of employees, and Beijing still needs American technology to develop its industries. Meanwhile, there are still loopholes in current US sanctions against Huawei that continue to encourage U.S. companies to supply Huawei.
The US has lobbied Britain and EU countries to bar Huawei from 5 G networks, saying Beijing might order the Chinese-based company Shenzhen to spy on or interrupt communications. Huawei and the Chinese government have said a scenario like this would never happen.
Same as U.S. President Trump said the 5 G race is one that the U.S. will win, and so far, China has taken the lead in global 5 G growth. According to the state-run Xinhua News Agency, it has vowed to spend billions expecting to increase the number of 5 G cellular sites to 600,000 by year-end. According to Bernstein Research, the US ended 2019 with roughly 10,000 such sites.
Western manufacturers of telecommunications equipment, including Ericsson and Nokia, as well as smaller companies, began to move production outside China for several reasons last year. One was to stop tariffs on products that were made in China and bound for the US by the Trump administration.
One was to reassure consumers that their goods may not pose a security risk because they did not come from China, like wireless carriers and landline cable and internet providers.
We wanted to look in the eye at our consumers and say we 're not doing any manufacturing in China, an executive at one U.S. telecom equipment firm said.
Nokia does, however, manufacture some U.S.-bound equipment in China. Nokia lobbied the U.S. on a plan that would prohibit American wireless companies from using Chinese-made component telecommunications equipment, even if the parent company is Western, said Brian Hendricks, who heads the policy and government affairs department at Nokia in the Americas.
He said hardware with "dumb" parts, such as screws, shouldn't disqualify a product from being shipped to the United States.
Nokia has one factory in its Greater China sector , which includes Hong Kong and Taiwan, and about 16,000 workers, many in research and development. Ericsson has a manufacturing and research and development plant in China, and about 14,000 workers in its North East Asia region, including China , Japan, South Korea and Taiwan.
Source: Wall Street Journal by Liza Lin, Stu Woo and Lingling Wei
