Huawei’s troubles show why China’s tech titans will struggle to go global

If Beijing is serious about becoming a global tech power, then innovation is not enough; it needs real rule of law. Chinese companies will be treated fairly abroad only if China’s legal system evolves

Andrei Lungu

Published: 3:00am, 31 Jul 2020

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Huawei has steadily emerged as a 5G pioneer, showing how a Chinese company can become a global heavyweight. Yet it has also become a different kind of pioneer: the first victim of a foreign blockade of Chinese technology companies, which could upend Beijing’s plans to become a global tech leader.

The argument underpinning the campaign against Huawei is that, because of China’s political and legal systems in which the Communist Party has absolute control, no company is truly independent and every company can become a tool of the party. As William Evanina, the director of the US National Counterintelligence and Security Centre, said: “Huawei … is not the problem; it’s the Communist Party of China.”

Huawei is just the first Chinese company that is strong and innovative enough to set off alarm bells in Western capitals. But it is becoming clear that it is not alone.

When the financial arm of Alibaba (which owns the South China Morning Post) wanted to acquire MoneyGram, it was blocked because of perceived risks to Americans’ personal data. The issue of personal data is also haunting TikTok, China’s first social media platform with global appeal, and the US government is mulling whether to ban it.

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Meanwhile, the US Department of the Interior has grounded its DJI drones. And China’s artificial intelligence crown jewels, from SenseTime to Megvii, have joined Huawei on Washington’s entities list. Even trains from Chinese state-owned companies have not escaped, even if they are assembled in US factories.

This is happening not only in the US: Britain, reversing a previous decision, has restricted the use of Huawei gear in its 5G network, as has France, following countries such as Japan and Australia.

Germany might be next, while the European Union has recommended that member states restrict 5G tech companies from countries lacking the rule of law. India, which recently banned 59 Chinese apps, including TikTok and WeChat, might also restrict Huawei from its 5G network.

Huawei has remained successful in some developing countries, but risks being restricted from markets accounting for more than half the world’s gross domestic product. What does Huawei’s fate portend for China’s dream of becoming a global tech leader?

Chinese leaders imagined a very different future: Chinese companies would grow at home, shielded from foreign competition and, once firmly established in the world’s largest market, could move out and conquer the world.

Instead, they now find themselves boxed in. Some developing countries might still embrace Chinese tech, but the real profits will be locked away in inaccessible markets, because of fears regarding China’s authoritarian political system. Simply being innovative will not be enough.

Many future industries and products will involve sensitive data and potential security vulnerabilities. China used to be the world’s factory, churning out TV sets, fridges, toys and clothes.

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None of them could spy on you, so there were not many risks. The products of the future will be a whole different story: from smart home appliances to smart cities , from clothes that track vital signs to neural implants, from AI to space exploration, Chinese companies will be treated with suspicion abroad.

If the US has fears about Chinese trains, how could it ever allow Chinese self-driving cars on American streets? Even in health care, the era of the humble pill is coming to an end – the future will be personalised medicine that involves analysing sensitive medical data, which Western governments will want to keep out of what they believe could be the Communist Party’s potential reach.

The US has already expressed concern about Chinese companies’ involvement in coronavirus tests in Gulf countries.

There is virtually no future tech field in which Chinese companies will not face the same accusations as Huawei does today. One by one, they will be shut out of many foreign markets, regardless of how innovative they are. Their only fault will be their country of origin.

What can Chinese companies and entrepreneurs do to avoid this? What companies and executives all over the world are doing: lobbying and influencing their government. This will not be easy – some party ideologues and apparatchiks will do anything to maintain their power over society and the economy.

But modern China’s burgeoning middle class and its vibrant enterprises haven’t developed thanks to those apparatchiks. Without scientists, engineers, innovators and entrepreneurs, there would be no New China, so they wield more power than they might think.

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Chinese companies will be treated fairly abroad only if China’s legal system evolves, assuaging foreign fears of an all-powerful Communist Party. It is obvious that the success of its tech companies is in China’s national interest.

If Chinese leaders want their country to evolve from the world’s factory to its innovation laboratory, then they should take the necessary steps to help Chinese companies thrive. China’s leading companies and businesspeople should start driving that point home, if they want to compete globally over the next decades.

Western governments, including the US, will also have to play a role. Their concern is understandable. But they need to accept – and state publicly – that if China develops a credible and independent judicial system, then Chinese companies will be treated fairly, regardless of whether China is a geopolitical competitor. Only in this way will the West create the right incentives that could help the rule of law develop in China.

Huawei’s fate should be a lesson for China’s political and business elite. If Beijing is serious about becoming a global tech power, then innovation is not enough – it must understand it needs real rule of law. If not, China risks becoming isolated from the world’s developed markets, an economy brimming with innovative products that few outside will be able to use.

Andrei Lungu is president of The Romanian Institute for the Study of the Asia-Pacific (RISAP)

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