With the potential of enabling not only significant economic growth but also the innovation of critical technologies in various fields, both the US and China view 5G as one of the key influencing factors in the “great power competition”. While the US believes that “the race to 5G is a race America must win”, China views it as representing the major leapfrog of its position in ICTs by describing the progress as “1G behind, 2G follow, 3G breakthrough, 4G synchronization, 5G leading”. Differently from competition in other traditional areas, companies rather than governments – the Chinese company Huawei as the most noticeable one – have played a significant role and become the pawns of the geopolitical game. Despite the obvious benefits such as lower costs and higher efficiency in using Huawei’s products, the company is now under huge pressure of being excluded from 5G networks by more and more Western economies – especially following Britain’s reversal of its decision.
All the declared concerns supporting the ban of Huawei, including the risks of surveillance and data collection and the potential vulnerabilities to cyberattacks or installed kill switches, sound reasonable at first. However, it is fair to say that these are inherent risks embedded in all ICT products. Why is Huawei so alarming, then? The frequently heard answer is that Huawei has much closer relations with the Chinse government than the usual ones, with three main accusations. Are they convincing enough?
The first and most primary accusation is that Huawei is forced to obey the laws, such as the National Intelligence Law and Cybersecurity Law, to transmit data to the government. There indeed are regulations about the obligation of cooperation and assistance for national security reasons, but according to a leading Chinese professor in cybersecurity law, Shenkuo Wu, the interpretation of how it affects Huawei’s overseas operations is not accurate. It is stipulated that such obligations should only be fulfilled by the ICT companies directly operating within Chinese territory rather than their overseas subsidiaries. The latter, on the other hand, are clearly required by The Code of Conduct for Overseas Investment and Operation of Private Enterprises to comply with the laws and regulations of the host countries (regions). Clifford Chance, a global law firm headquartered in London, also concluded that "nowhere does Chinese law give Beijing the authority to compel telecommunication equipment firms to install backdoors or listening devices—or to engage in any behavior that might compromise network security.”
The second argument is that the Chinese government has given Huawei as much as $75 billion in subsidies, which gives it incomparable advantages in the 5G market. It is a common practice for companies to receive government grants supporting high tech research and development. Moreover, audited data shows that in the 10 years from 2009 to 2018, the total amount of direct grants Huawei received from the Chinese government – mostly in R&D incentives – was just 0.3% of Huawei's total sales of $514 billion over the same period. The high volume of investment by Huawei in R&D, which was $15 billion in 2018 as shown by The 2018 EU Industrial R&D Investment Scoreboard, apparently contributed more to its success. Huawei is listed as the 5th among 50 companies in this report, while its main competitors such as Cisco, Nokia, and Ericsson are respectively listed as the 25th, 27th, and 43rd.
The third one suggests Huawei’s close connection with the government because of the military background of its founder, Ren Zhengfei, and some other employees. It is well known that China has the largest amount of military personnel. The active force is currently 2 million, 2.3 million in late 2015, and even larger before. A report from PLA Daily shows there were altogether 5.7 million retired military personnel as of July 2018. Most of them retired at an early age and sought a second career as civilians. It is also very common for companies around the world to hire retired military personnel, but there is little suspicion of them working for the government behind the scenes.
From the perspective of most Chinese, the above facts highlighted the possibility that Chinese nationality is now the original sin of a company due to heightened geopolitical tensions. Its results will spill over far beyond one company, one industry, or one country. First of all, if commerce decisions are driven by non-market forces, then other Chinese companies with overseas business will question the significance of respecting the principles of free trade and abiding by international rules. Secondly, with Chinese companies being more inward-looking as the result of observing what Huawei and other companies such as TikTok have gone through, there will be fewer domestic markets for foreign companies and less investment from China in foreign markets, which will lead to economic losses for both sides. Third, if other countries show the willingness to choose sides between the big powers in the competition for 5G and then in other areas, the potential trend towards an undesirable high-tech cold war will be assured and soon come true. Is anyone winning in a geopolitical-driven 5G race where companies are the pawns?