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Opinion: The tensions over Huawei are not about trade, but global supremacy

17 July 2020

Commenting on the UK’s reversal regarding Huawei’s involvement in its 5G infrastructure, Laurie Macfarlane (UCL Institute for Innovation & Public Purpose) says the decision is political, reflecting the threat of the Chinese economic model to the liberal capitalism of the UK.

Laurie Macfarlane

In 2015, George Osborne hailed the arrival of a “golden decade” of Sino-British relations. “Where some people are cautious about getting more involved in China, we say quite the reverse,” the chancellor remarked during a high-profile trip to Beijing. “We want to get more involved with China.”

Five years later, the mood has changed dramatically following Britain’s U-turn on its decision to allow the Chinese firm Huawei to develop its 5G network. Although the UK government has sought to play down accusations that the decision was politically motivated, insisting it was a “technical decision”, in reality it could scarcely be more political.

After repeatedly failing to convince British intelligence services that Huawei posed a national security risk, the US decided to force the UK’s hand by imposing new sanctions that cut off the company from international semiconductor supplies. This left the UK’s National Cyber Security Centre with little choice but to advise that Huawei equipment should not be used in the UK’s 5G network, souring relations between London and Beijing.

Washington’s fears about Huawei are genuine. But beneath the rhetoric about national security lies a deeper concern: that China’s economic model may have the potential to rival the productive power of liberal capitalism – and threaten the technological supremacy that has long underpinned US hegemony thanks to its world-leading university, military and tech sectors.

After Deng Xiaoping initiated China’s reforms and opening-up process in 1978, most western economists assumed that China would follow the path of other former communist societies: economic liberalisation would be followed by political democratisation, and China would join the club of liberal democracies. But not only has liberal democracy not arrived in the People’s Republic, the Chinese Communist party has developed a distinct economic model that has lifted nearly a billion people out of poverty and transformed China into one of the world’s largest and most dynamic economies.

Officially called “socialism with Chinese characteristics”, China’s economic model combines strategic state ownership and planning with market-orientated incentives and a one-party political system. In contrast to most western economies, the commanding industrial heights of the economy are owned and controlled by a vast state holding company that reports directly to China’s state council; the financial system is tightly controlled and subordinated to policy objectives; and long-term planning and investment decisions are overseen by the powerful National Development and Reform Commission.

Huawei has become the international poster child for the success of this model. Although not a state-owned enterprise, the company has received significant support from the Chinese state, including a $30bn line of credit from the China Development Bank. Thanks in part to this support, it has emerged as the unrivalled global leader in the development of 5G networks, and recently overtook Samsung as the world’s largest smartphone maker.

Although Huawei is the first Chinese tech company to become globally dominant, it is unlikely to be the last. Under the leadership of Xi Jinping, Beijing has made no secret of its ambition for China to achieve self-sufficiency in strategic technologies such as advanced information technology, robotics, aerospace, green vehicles and biotechnology. While the US was happy to encourage China’s economic development when it provided a cheap pool of labour for western supply chains, the goal of achieving technological self-sufficiency has set alarm bells ringing in Washington.

The influential thinktank, the Council on Foreign Relations, has described China’s plans as a “real existential threat to US technological leadership”, while the US trade representative Robert Lighthizer acknowledged they pose “a very, very serious challenge”. Strategists fear that allowing China to continue with these plans could lead to the US losing technological supremacy in key strategic sectors such as information technology, telecommunications and artificial intelligence – along with the economic, military and geopolitical power that comes with it.

For all the rhetoric about a trade war, rising tensions between the US and China have never really been about trade. From the beginning, the US has been concerned with preventing China’s rise as a rival technological power. In the case of Huawei, the Trump administration’s goal is clear: to crush one of the first Chinese tech companies to become globally competitive, and prevent it from gaining a dominant position in a key infrastructure of the future. This strategy is not without its risks, and could easily backfire. By pressuring countries not to do business with Chinese firms and cutting them off from global supply chains, Washington may end up inadvertently accelerating Beijing’s efforts to develop domestic capabilities in leading technologies, thus fuelling these tensions even further.

While talk of a new “cold war” may be overblown, it’s no longer inconceivable to imagine a future where countries can use US technology or Chinese technology – but not both. In the longer term, a shift in this direction could fragment or even unwind the integration of our globalised economy.

It’s tempting to view the UK’s dilemma about Huawei as an unfortunate consequence of being caught in the crossfire between two superpowers. But in many ways the UK’s predicament can be traced to its own domestic policy failures. When Huawei was founded in the late 1980s, it was the UK – not China – that was a world leader in telecommunication technology. With homegrown firms such as STC, Racal, GEC, Marconi and Ferranti, the UK was second only to the US when it came to telecoms ingenuity. But in the following decades, successive UK governments allowed leading telecoms technology companies to be taken over and sold off to overseas firms. In thrall to free-market orthodoxy, British manufacturing and industry was sacrificed in the interests of the City of London and the financial sector.

While Huawei’s rise is undoubtedly a story of Chinese success, it is also a story of Anglo-American decline. The global financial crisis laid bare the underlying weaknesses of neoliberal capitalism, but without a clear alternative to take its place the response was to double down on a broken model. In the years since, stagnant wages and productivity, and spiralling inequality have fuelled a surge of political discontent on both sides of the Atlantic.

If Anglo-American capitalism was already on life support, the catastrophic handling of the coronavirus crisis in the UK and the US has administered the lethal blow. Far from being viewed as successful models to emulate, the US and the UK are increasingly turning into cautionary tales to avoid.

None of this is to say that China’s variant of authoritarian capitalism is a desirable alternative, or that governments should turn a blind eye to the abuses of the Chinese state. But rebuffing Chinese technology and stoking anti-China sentiment will not cure the ills of Anglo-American capitalism. The roots of these problems, and therefore their solutions, can instead be found much closer to home.

This article was first published in the Guardian on 16 July.


UCL Institute for Innovation and Public Policy (IIPP)