Work with Huawei, or us, but not both – US Government

US Secretary of State Mike Pompeo has upped the ante with the anti-China rhetoric, declaring the US will not partner with countries who work with Huawei.

According to Fox Business, Pompeo has dropped the inference and made a statement which many countries will be cringing to hear. You no-longer have to read between the lines; it them or us Pompeo is declaring.

“If a country adopts this and puts it in some of their critical information systems, we won’t be able to share information with them,” said Pompeo. “In some cases, there’s risk – we won’t even be able to co-locate American resources, an American embassy and American military outpost.”

For countries like the UK and Germany, this is worst case scenario. These are countries which have vested interests from an economic perspective in both countries, and such is the state of affairs in the telco world, few can afford to strip Huawei out of the vendor mix. Pompeo is referring to administrative and military functions right now, but it would be fair to assume this could be extended to US commerce.

It’s a very tricky position to be in.

On one hand, there simply aren’t enough vendors in certain segments of the telco industry to generate suitable levels of competition to create the most viable economic position to fuel future infrastructure ambitions. Secondly, taking a vendor such as Huawei, arguably the leader in radio equipment, out of the mix would-be worst-case scenario for a technologist. Why would you want to ignore the best kit available?

However, on the other side of the coin, the security concerns are persistent, and do have some credibility. Evidence is circumstantial, some of the claims are hearsay, however you cannot ignore the risk. China does have a law which would force nationals to comply with its ambitions.

Should Pompeo’s statement evolve into more than chest-beating, numerous countries will find themselves in a painful tug-of-war. It does look like European nations are resisting the US’ Governments call to stonewall China, but this could come at a cost.

The US and China are two major trade partners of almost every economy in the world. To work with the US, you’ll have to ban Huawei, but if you ban Huawei you can almost guarantee there will be some form of reciprocal action from the Chinese Government.

The UK is an excellent example. Huawei has recently released a statement reiterating the investments the company has made in the UK, as well as the number of people who are employed as a direct and indirect result of its investments. Should the UK Government want to seize the post-Brexit trade carrot which has been dangled by the White House, some sort of action against China will be required. There is going to be a loss somewhere.

Poland is in a similar position. Pompeo is quoted as seeing “real progress” in the country after meeting Ministers in Warsaw, though if Poland was to ban Huawei it would certainly have an economic and societal impact; Huawei currently uses the country as its Eastern European HQ, employing roughly 900 people and investing substantial funds.

Over in Germany, China is a significant market for its automotive and heavy industrial exports, though if it was to submit to the US Government demands, you can guarantee there will be some sort of kickback.

All of these countries are now stuck between a rock and a hard place. Europe is proving to be a critical battleground in the US/Chinese war for technological supremacy, and while some narcissists might crave the attention, this is starting to turn into an impossible decision.

“No way US can crush us” – Huawei founder hits back

The usually publicity-shy Huawei founder Ren Zhengfei has hit back at what he perceives as a politically motivated attack, declaring if “the lights go out in the West, the East will shine”.

Although the US government has sustained the anti-China rhetoric over the last couple of months, with Huawei being the focal point of any aggression, the firm is holding strong. That is the message from Zhengfei, a usually media-adverse individual who is currently being carted around Europe in a show of strength against the White House. The aim for Huawei is to demonstrate transparency, and it does seem to be working in Europe.

“There’s no way the world can crush us,” said Zhengfei, in an interview with the BBC. “The world needs Huawei because we are more advanced. Even if they persuade more countries not to use us temporarily, we could just scale things down a bit. And because the US keeps targeting us and finding fault with us, it has forced us to improve our products and services.

“If the lights go out in the West, the East will shine. And if the North goes dark, there is still the South. America does not represent the world.”

While these comments are unusually aggressive for a man who does not like the limelight, they could prove as the perfect antagonistic weapon against President Trump. Zhengfei is sending a simple message across the Atlantic in this interview; the world is not siding with you in this quest.

Huawei has become a proxy in the overarching conflict between the US and China, though it is certainly faring better now than it did a couple of months back. During the initial exchanges, there was a considerable amount of collateral damage heading Huawei’s direction. Banned from providing equipment in Australia, New Zealand and Japan, plus other omissions in countries such as South Korea, it was an ominous sign. But Europe is seemingly not agreeing with Trump.

In the wider US/China dispute, Europe is a critical battle ground. As a bloc, the European Union is the second largest economy in the world. For both China and the US, winning favour would go a long-way to establishing political and economic dominance over the other. And Europe does not seem to share the same deep-rooted distaste for China as the US is currently harbouring.

Many European economies have established trade relationships with the Chinese, and while there are long-standing partnerships with the US also, none of these countries seem to want to readily shun the Chinese. This is the advantage which Huawei has in Europe, these are not nations which will so easily bow to the outside influence of the US.

In the UK, for instance, China is the 5th largest trade partner, as it is also in Germany. Its down in 7th for France, but still accounts for 4.3% of total trade, as it is in Italy for 3% of the total. For Belgium, China is the third largest partner outside of the European Union, while it is the second largest outside the bloc for the Netherlands. Trade with China is too important for the member states to consider siding with the US in the larger international conflict.

Of course, what you have to bear in mind is the over-arching European Commission supposedly considering ways to ban Chinese companies from contributing to critical infrastructure programmes. US Vice President Mike Pence has been touring Europe to talk up the importance of making a stance against China, and also dropping hints other European nations should ditch the Union, but success with the individual member states is looking far more limited.

With Germany and the UK seemingly favouring an approach which would heighten security protocols but still allow Huawei to operate, the Chinese firm is seemingly winning on the continent. With the US throwing political heavyweights at the nation states, Secretary of State Mike Pompeo was another to join the crusade of fear-mongering, the US might soon become quite agitated. Huawei’s resistance might infuriate the Oval Office, but the inability to bend Europe into its own image of perfection might will frustrate.

Europe was supposed to be a political boost for the US ambitions against China. This is of course the bloc which the US saved from the ravages of World War II and also a steadfast set of allies over the last few decades. Whatever the US has done, Europe has generally agreed to. But it seems the brash and aggressive style is not palatable to the conscientious and risk-adverse Europeans.

For Huawei, this is a massive battle. Europe as a whole is the largest market outside of China for Huawei, representing billions of dollars’ worth of business. However, its not just the network infrastructure ambitions at risk her, let’s not forget the consumer business has been making considerable progress across the bloc as well. The fact Huawei is wheeling Zhengfei around demonstrates how important this region is to the company.

President Trump sees himself as one of life’s winners. As the self-proclaimed ‘deal marker’, this is a man who is used to getting his way. With the power of the White House and US economy behind him, this is not an outcome he would have imagined. The stubbornness of the Europeans might force the White House into more drastic action before too long.

China at the centre of US/Hungary passive aggressive spat

US Secretary of State Mike Pompeo has joined the European roadshow with the intention of lobbying other governments towards a China ban, but Hungary’s message is clear: mind your own business.

“We Hungarians, the Hungarian Government, has based our foreign policy on mutual respect, and we think that the world is not going to be a better place if some countries do spend their times by intervening in internal political affairs of other countries or lecturing other countries,” said Péter Szijjártó, the Hungarian Foreign Minister.

It’s a textbook example of political posturing and passive aggression. Szijjártó can’t get into an outright shouting match with Pompeo, but as so many politicians do Szijjártó is wearing a smile, talking calmly with very intellectual and soothing language. But don’t be fooled by the charm, Szijjártó is telling Pompeo to back off.

To understand why Szijjártó floating his passive aggressive skills, you must go back to Pompeo’s own comments.

“What’s imperative is that we share with them the things we know about the risks that Huawei’s presence in their networks presents: actual risks to their own people, to the loss of privacy protections for their own people, the risk that China will use this data in a way that is not the best interest of Hungary,” Pompeo stated.

“But second, we have seen this around the world, it also makes it more difficult for America to be present; that is, if that equipment is co-located in places where we have important American systems, it makes it more difficult for us to partner alongside them.”

In terms of getting their own way, US politicians are the experts at perfectly crafted passive aggressive rhetoric. Pompeo’s message is simple; you can of course make your own decision, but if you continue to do business with Huawei and China, you won’t find future success in the US. Pompeo is effectively using the economic attractiveness of the US as a partner as an indirect threat to bend Hungary to its will.

And China is once again at the centre of the spat.

To be fair, it should hardly come as a surprise the Hungarians are not particularly welcoming of the US politician. Yesterday, a US official described Eastern European governments as having a “higher propensity to corruption” than Western European counterparts. There are of course examples which prove this point but taking such a broad-brush approach to an incredibly diverse region of the world runs the risk of offending a few people. Hungary is clearly one of those nations which has taken exception to the remark.

The US has had some notable success in turning governments against Huawei specifically and China generally, Australia and Japan are two good examples, but in Europe there have been challenges. Various US delegations have been whispering in the ears of European politicians, warning of the dangers of doing business with Chinese companies, and while there might be some heightened security requirements, outright bans have been hard for the US to come by.

Hungary is now another which seems to be turning against the desires of the US.

“If you look at our cooperation with China, we represent 1.2” of the trade between the European Union and the People’s Republic of China,” said Szijjártó. “If you look at that Chinese company which is very often in the news nowadays regarding telecommunication, are they present in Hungary? Yes. Who are their major contractors? A German and a British company. So when it comes to China, I think hypocrisy should be left finally behind.

“We are usually accused, Central Europeans, that the so-called 16+1 format is so much breaking the European Union. Now out of the 16 countries involved in this cooperation, 11 are members of the European Union. Do you know how many percent of EU-China trade 11 of us represent? Less than 10 percent. So I think it’s not us that will be the game-changers in the relationship between, let’s say, the Western world and China.”

The US has certainly inflicted damage to Huawei as a business and China as a trading partner, but success in turning the European nations against the Asian superpower is looking limited right now. The US/China battle for international economic supremacy has certainly been an interesting one, though the current calming of tensions might just be rattling politicians into another outrightly aggressive move.

All data-roads lead to Tokyo after EU’s thumbs up

The European Commission has given its nod of approval for data protection rules drawn up in Japan, effectively extending GDPR protections for European citizens to the Asian country.

On top of the current data protection regulations in Japan, an additional set of rules have been created adding safeguards to guarantee that data transferred from the EU will be subject to the same protection as European standards. The supplementary rules will be binding on Japanese companies importing data from the EU and enforceable by the Japanese regulator and courts.

“This adequacy decision creates the world’s largest area of safe data flows,” said Věra Jourová, Commissioner for Justice, Consumers and Gender Equality.

“Europeans’ data will benefit from high privacy standards when their data is transferred to Japan. Our companies will also benefit from a privileged access to a 127 million consumers’ market. Investing in privacy pays off; this arrangement will serve as an example for future partnerships in this key area and help setting global standards.”

Starting with the rules, new conditions will be set into play regarding the protection of data, the rights of European citizens to request further information on usage, as well as further requirements dictating what data can be transferred out of Japan to other nations. Protections have also been put in place with regard to how intelligence and law enforcement agencies can use or retain data, while a complaint-handling mechanism has also been introduced.

With these new rules the road to Tokyo is now open, allowing data to freely transfer between Japan and all members of the European Economic Area (EEA), Iceland, Liechtenstein and Norway. It’s a win for the bureaucrats which have been looking to develop deeper relationships, creating a trading bloc which can provide more competition for the likes of the US and China.

“This is the first time that such a recognition takes place under the GDPR and in a reciprocal manner. As of today, Japan has adopted an equivalent decision for data transferred to the EEA,” said Tanguy Van Overstraeten, TMT Partner and Global Head of Data Protection at law firm Linklaters.

“This major milestone puts both Japan and the EU in a unique position, strengthening the recently adopted Economic Partnership Agreement (EPA) between the EU and Japan. The EPA will enter into effect on 1 February 2019, creating an open trading area covering over 600 million people and almost one third of the world’s GDP.”

For Japan enthusiasts, this announcement will come as great news, especially ahead of the EU-Japan trade agreement which is set to come into force next month. This tie up will create an open trading zone covering 635 million people and almost one third of the world’s total GDP, and the first ever bilateral framework agreement between the two parties.

As part of the new relationship the vast majority of the €1 billion of duties paid annually by EU companies exporting to Japan will be removed, as well as regulatory barriers inhibiting some trade, for example on car exports.

The European Commission might have its critics throughout the world, but this doesn’t look like anything aside from a good bit of business.

Qualcomm-NXP deal could be back on

The Chinese president would be open to approving the acquisition of NXP should Qualcomm propose again, according to the White House.

The American and Chinese presidents met during the G20 event in Argentina to cover an array of thorny issues. The White House press secretary’s statement on 1 December included the key points. On trade, “President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time.”

However, this is conditional on a few concessions from China, including substantial increased purchase of American products, and structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. “If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%”, the statement said.

The last point on the statement related to Qualcomm’s proposed acquisition of NXP.  The statement said “President Xi also stated that he is open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him.” The deal, after repeatedly missing extended deadlines, was called off in July after China had refused to approve it.

As is typical with meetings like this, each party has been trumpeting its own triumphs. Bloomberg compared how the results were communicated differently in the two countries’ official channels. The Qualcomm-NXP reconsideration, together with the 90-day deadline and a few other points, was not mentioned by the Chinese official media. In a more bizarre twist, the official translation of the White House statement produced by the American Embassy in China is said to have been blocked from sharing on WeChat, the popular social network in China.

US/China trade war back on track

Just as President Trump is buddying up with North Korea, the US relationship with China is about to tank again. On July 6 the US will officially introduce tariffs on Chinese goods entering the country.

The $50 billion of tariffs have been discussed in great detail over the last couple of months, the world is of course taking advantage of the always reasonable, consistently proportional and often timid US, so the news should come as little surprise. What we don’t know is how big this spat will become.

The 1300-strong list of products subject to tariffs was released back in April, and covers various different industries. The one we want to know about is of course telecommunications and technology, and while there are some very technical specifications, the Trump administration seems to be targeting next generation technology in the China’s Made in China 2025 strategic plan.

“My great friendship with President Xi of China and our country’s relationship with China are both very important to me,” Trump said in a statement. “Trade between our nations, however, has been very unfair, for a very long time. This situation is no longer sustainable.

“China has, for example, long been engaging in several unfair practices related to the acquisition of American intellectual property and technology. These practices, documented in an extensive report published by the United States Trade Representative (USTR) on March 22, 2018, harm our economic and national security and deepen our already massive trade imbalance with China.”

China has of course promised to retaliate, which will be met by further tariffs from the US. This is the unknown; how immature are these politicians prepared to be?

Christine Lagarde of the International Monetary Fund has already warned of the consequences of tariffs, believing there will only be negative consequences for all parties involved and global trade on the whole, however that seems to be of little concern. Trump wants to make a point, and this is not a man who is known for admitting a mistake. How far will this trade war escalate and for how much longer can these supposedly intelligent people ignore the advice of economic experts.

China has yet to take any notable actions in retaliation to Trump’s economic aggression, but we suspect it might not be too long.

Battered and bruised ZTE takes another 10% hit

Shares in ZTE have continued to tumble, with another 10% being wiped off share price on Friday, while the threat of a trade war lurks in the background.

Even meeting US demands of hiring a new board, new nominees were announced earlier in the week, and the announcement the team would be applying for a $10.7 credit line from Bank of China and China Development Bank can do little to stem the flurry of heavy-hitting punches. The share price decline is of course a significant worry, though Nomura believes the worst is yet to come, believing recovering from the fallout will be tougher than expected.

Aside from the new board members, ZTE is also proposing a motion at the Annual General Meeting on June 29 to remove a clause which states the Chairman has to have at least three years’ experience at the company. There are considerable concessions which will need to be made to get back into the good books of the US government, but bringing in executives who are not tarnished by the company’s reputation is certainly a good move. The credit line will also be a useful addition.

Despite the share price, this should be deemed progress. The sanctions imposed by the US Government in April as a punishment for ZTE’s Iran and North Korea dealings were crippling, but the company is now operating once again. The factories are open and employees have something to do now. It might be shell-shocked environment, but at least the lights are on. While this might be seen as good news to ease tensions between the US and China, it might only be a brief reprieve.

The source of the tension between the two countries is still lingering. The $50 billion list of goods and services which will be subject to the tariffs is yet to emerge from the White House, though rumours have been circulating it will be later on today (Friday 15). This piece of paper has the potential to reinvigorate the unease, as President Trump continues his question to isolate the US as much as possible.

Despite sounding incredibly negative, this is good news. ZTE might be damaged, but it still exists, which was by no means a guarantee over the last couple of weeks.