A Huawei employee wears a WiFi-shaped headband to promote 5G technology during the 2019 World 5G … [+]
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Phase one is done and Huawei got hit with more restrictions. Phase two is coming and state subsidies to firms the U.S. deems global competitors, like Huawei, may upend everything.
What’s more important is how Europe treats Huawei in the weeks ahead as a potential supplier in their 5G telecommunications build-out. Washington wants them to pick sides.
Already, major U.S. computer components makers like Intel have been restricted from selling chipsets to the company for use in its 5G telecommunications systems. The U.S. is also using Huawei as a wedge between it and Europe, with Germany last week saying that its automakers could face retaliation if Huawei was banned by Berlin.
For the U.S., that’s akin to Europe kissing Huawei executives’ feet for the sale of a few Mercedes Benz sedans. Plus, if it means better chances of Cisco Systems getting the bid, all the better if Washington’s strong arm tactics are to work.
“I don’t see Xi Jinping taking all that sitting down.”
Last week, Der Spiegel magazine, reported that police in Germany raided the home of three people suspected of spying for China.
The arrests had nothing to do with Huawei, but it is the first instance in recent years involving concrete allegations of spying by China against Germany and the EU, Reuters reported. This comes just days before Germany’s government is to decide on whether or not Huawei can take part in its 5G network.
Huawei Chief Financial Officer Meng Wanzhou made Huawei a household name. She is seen here leaving … [+]
On Monday, Chinese Ambassador to the U.K., Liu Xiaoming, told the Global Times of China that if the U.K. followed the U.S. in blocking Huawei, it would further harm relations between the two sides. China recently suspended the London Stock Exchange from being part of the Shanghai Stock Exchange connect, Reuters and Bloomberg reported earlier this month, over the U.K.’s official view of the Hong Kong protests and not Huawei. But it may as well have been as the decision was political.
“The British government (should) resist the pressure, ignore external interruptions and remain committed to independent decision-making” regarding Huawei, the Ambassador told the paper. He went further in warning that new Prime Minister Boris Johnson is still facing the impact of Brexit on the British economy and a deteriorating relationship with China just to appease the U.S. would impact it as well. He said that the effects of the choice to ban Huawei from taken part in Britain’s 5G network will last years.
China’s ambassador to Britain Liu Xiaoming hinted of economic retaliation if the U.K. follows the … [+]
AFP via Getty Images
In a tragic sense, Huawei has become the cast-aside partner still trying to find their way among groups of once-held mutual friends who don’t know whose side to pick, but pick a side they must.
On Monday, the Financial Times wrote that the U.K. would be wise to treat Huawei like any other bidder.
“Huawei is now the swing variable in U.S.-China relations,” says Brian McCarthy, chief strategist for Macrolens, a Stamford, Connecticut-based investment research firm specializing in China macro strategy.
Decisions regarding Huawei’s inclusion in 5G bids are due in the coming weeks in both the U.K. and Germany. Germany indicated already that it would allow Huawei to bid. Whether they allow Huawei to win a bid will be known soon.
Until the fate of Huawei in Europe is known, it may be hard to know the future of the phase one trade deal, signed on January 15.
If the U.K and Germany go ahead and allow Huawei into their 5G networks it would indicate that Washington lacks Europe’s backing for decoupling on the tech front.
Worth noting, if Germany allow Huawei in, it may move President Trump to act in favor of U.S. tech companies that are being hit with a new digital tax, albeit in France. Washington might see this as a way to get Germany not to do one themselves, and maybe enlist them in lobbying France against it as well.
A Bloomberg headline this summer called that a potential new “flashpoint” in the trade war, with Europe on trade war notice now that phase one is done.
Should Germany or the U.K. welcome Huawei into its 5G network, as the FT thinks at least one of them should, China can “slow-walk” its phase one purchases, and push hard for more tariff rollback. They could also more comfortably wait to see who wins in November, McCarthy wrote in a note to clients recently.
“If, on the other hand, Huawei is excluded from those networks, then the U.S. will really have the whip hand in the bilateral relationship,” he says, adding that under such a scenario he sees the renminbi weakening again.
Huawei is the hostage here.
Chinese President Xi Jinping. If Europe bans Huawei from participating in their 5G infrastructure … [+]
If Huawei is shunned by Europe in favor of the U.S., then geopolitical realities would likely require China to accept Huawei’s impairment for now. The threat of techno-decoupling would look more real than it ever has, but China is prepared for this better than Huawei as a whole. China is building its own Greater Bay Area, their version of a Silicon Valley where chip makers, not dot-commers, rule the roost. Their new Star Board, a list of new tech stocks that includes new semiconductor names, has become a way for companies in this space to raise quick and easy money.
It is unclear what Taiwanese, South Korean and Japanese chip makers would do to fill in the gaps if U.S. firms are not granted waivers to work with Huawei. A lot of that depends on sanctions risk and how each company will treat that risk.
If Huawei loses in Europe, China may feel it is necessary to follow most of the letter of the phase one deal regarding U.S. purchases, namely commodities that China needs now. Other purchases, namely manufactured goods, may be taken up begrudgingly, though this is less clear.
But after the dust settles, Beijing will see Huawei restrictions in Europe as Washington dragging friends and family into their spat. China will not be pleased.
“I don’t see Xi Jinping taking all that sitting down,” says McCarthy.