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The future of Huawei and the UK

September 16, 2020
Editor(s): Emily Hartley
Writer(s): Melanie Suriarachchi, Yash Shewandas, Vickram Mehtaanii

As the political temperature around Huawei’s role in the UK rises, UK Prime Minister Boris Johnson has declared that all Huawei technology will be stripped out of the UK’s 5G network by 2027 (Sky News, 2020). According to Liu Xiaoming, China’s ambassador to the UK, the relationship between the two heavyweights has been “seriously poisoned”; hence poses serious long-term threats to both countries, more so the U.K. While the Chinese company, Huawei, has been strongly criticised by the body overseeing the security of its products in UK telecoms (BBC, 2019), it is crucial to consider how both countries develop their bilateral commercial relationship most effectively. This issue is closely related to the rising trade tension between the US and China, with the US piling pressure on the UK to block Huawei due to national security concerns. Huawei’s approach to software development supposedly brings risk to UK operators through intercepting personal data and  facilitating intellectual property theft and cyber espionage. However, the industry has warned banning Huawei completely would deprive Britain of its early lead in 5G to upgrade their telecoms networks to “gigabit speeds” by 2025 (Financial Times, 2020), potentially costing the British economy $23.6 billion.

Source: Huawei Central

Huawei Technologies Co., Ltd. is a leading Chinese multinational telecommunications and networking equipment manufacturer (Corporate Information – Huawei, 2020). Founded in 1987 by Ren Zhengfei in Shenzhen, Guangdong, it became one of the largest telecommunications equipment manufacturers in 2012 after taking over Ericsson (Huawei Overview|Lansweeper|IT Discovery Software, 2020). Ranked 61 in the Fortune Global 500, the company operates in more than 170 countries, employing almost 200,000 people and serving more than 3 billion people around the world (Huawei Investment & Holding, 2020). Having reported an annual revenue of $121.72 billion US dollars in 2019, Huawei surpassed Apple and Samsung to take the place as the top manufacturer of smartphones in the world for the first time in the second quarter of 2020 (Pham, 2020).

Huawei successfully entered the UK in 2003 after partnering with the country’s largest provider BT and has since gradually expanded into providing equipment for its 2G, 3G, 4G, and 5G networks (Hawke, 2020). However, countries like the US, Australia, and New Zealand have banned Huawei from doing business in their respective countries due to suspicions of the company spying through their network and passing all the information to China (Bowler, 2020). Despite these concerns, Britain’s intelligence agencies initially cleared Huawei of being powerless as long as the company was restricted from having a monopoly with Boris Johnson, therefore capping Huawei’s market share at 35% (Sabbagh, 2020). However, Huawei has since been stripped of its role in UK’s 5G network after Donald Trump constantly lobbied other countries – including UK – to follow suit and ban the company from having any ties with them (Sabbagh, 2020). It is a matter of when, and not if, China retaliates against this decision, whether that is through making it harder for British firms to operate in China or halting further investment in the UK remains to be seen.

Source: ABC

With many countries in a heated political debate over how to deal with Huawei, the U.K is, indeed, being squeezed by global superpowers, China and the US, leaving it with very little room to manoeuvre (Stevens, 2020). Perhaps the decision by the U.K is being considered controversial, given China has become increasingly influential on the U.K’s economic development. Data shows that in 2019, China was the UK’s sixth largest export market, worth £30.7bn (Office for National Statistics, 2020). On top of that, the inflow of money invested into the U.K by Chinese investors has been a continuous driver in many high-profile acquisitions, and such a drastic measure is only questionable whether they, the UK, can provide a fair and non-discriminatory business environment for companies from other countries (UK News, 2020). The move has been dubbed “ill-founded” by  Chinese state-backed media and there have been calls for retaliation by China. However, it is believed that the rising hostility is unlikely to have a strong effect on the leading components of their trade. The major effect is likely to adversely affect the role of the UK as a hub for Chinese companies. Therefore, this has set the tone for future Chinese investment. Moving forward, Britain has swiftly reached a free trade agreement with Japan, its first with a major economy since leaving the European Union earlier this year. The deal will increase trade between the two countries by about £15.2 billion ($19.5 billion) (CNN, 2020) and hints that this bilateral agreement is a sign of Britain’s move to reduce its reliance on China. 

Source: British Foreign Policy Group

Whilst the UK’s National Security Council has stated that it “has never ‘trusted’ Huawei,” given its ties to the Chinese Communist Party (CCP), the firm has already integrated itself as an established and integral part of the nation’s 4G infrastructure, with European sales accounting for close to a quarter of Huawei’s global sales (Cao, 2020). There are now discussions that the cap of 35% would be reduced to 0% over an additional 2 to 4 years, which has left the telecommunications industry in Britain signalling that it may have dramatic effects locally if Huawei is pushed out of the system too quickly. This is due to the possibility of the change delaying key technology and disrupting services, given the brand is already extremely established within the UK network, operating in Britain for 20 years (Faulconbridge et al., 2020). 

However, the backlash and imminent restrictions Huawei is facing is not new, given, as mentioned above, the UK National Security Council has long considered Huawei a ‘high-risk vendor,’ and specifically designated a special cyber security evaluation team on the firm 10 years ago (Cao, 2020). The consequential effects of such a ban in the UK will undoubtedly have flow on impacts throughout many other nations, as the UK is a ‘trendsetter’ when it comes to security assessments, leading other nations especially in Europe to doubt the safety of using Huawei equipment in their own regions. Additionally, the crackdown imposed on Huawei in the UK is a major win for the Trump administration who have continuously planted seeds of doubt among its citizens and the global community regarding the authenticity of Huawei and its ties to the CCP. While it may be a win for the U.S., China has responded via its ambassador to Britain, stating that the U-turn on the tech company would “damage” the U.K’s image and it would have to bear the brunt of consequences if it treated China as a “hostile country” (Faulconbridge et al., 2020).

REFERENCES:

Corporate Information – Huawei. (2020). Retrieved from https://www.huawei.com/au/corporate-information

Huawei Overview|Lansweeper |IT Discovery Software. (2020). Retrieved from https://www.lansweeper.com/brand/huawei/

Huawei Investment & Holding. (2020). Retrieved from https://fortune.com/global500/2019/huawei-investment-holding/

Pham, S. (2020, July 30). Samsung slump makes Huawei the world’s biggest smartphone brand for the first time, report says. CNN Business. Retrieved from https://edition.cnn.com/2020/07/30/tech/huawei-samsung-q2-hnk-intl/index.html

Hawke, J. (2020, July 14). Britain bans Huawei from its 5G network and will remove existing equipment by 2027. ABC News. Retrieved from https://www.abc.net.au/news/2020-07-14/uk-set-to-exclude-huawei-from-telecommunications-networks/12455930

Bowler, T. (2020, July 14). Huawei: Why is it being banned from the UK’s 5G network? BBC News. Retrieved from https://www.bbc.com/news/newsbeat-47041341

Sabbagh, D. (2020, July 14). What is Huawei and why is its role in UK’s 5G so controversial? The Guardian. Retrieved from https://www.theguardian.com/technology/2020/jul/13/what-is-huawei-and-why-role-in-uk-5g-so-controversial

Sabbagh, D. (2020, July 14). Huawei to be stripped of role in UK’s 5G network by 2027, Dowden confirms. The Guardian. Retrieved from https://www.theguardian.com/technology/2020/jul/14/huawei-to-be-stripped-of-role-in-uk-5g-network-by-2027-dowden-confirms

Kharpal, A. (2020, July 13). Huawei sees sharp growth slowdown as UK weighs ban on the Chinese giant from its 5G networks. CNBC. Retrieved from https://www.cnbc.com/2020/07/14/huawei-sees-sharp-growth-slowdown-as-uk-weighs-5g-ban-on-chinese-giant.html

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Kharpal, A. (2020, July 15). UK should face ‘public and painful’ retaliation over Huawei decision, Chinese state media urges. CNBC News. Retrieved from https://www.cnbc.com/2020/07/15/huawei-uk-ban-china-state-media-urges-retaliation-against-britain.html

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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Emily Hartley
Editor

Hi everyone! My name is Emily and I am a current penultimate year student studying Bachelor of Commerce with majors in Finance and Economics. As a digest writer at CAINZ, I am able to tie together my childhood passion for writing and the qualitative and quantitative aspects of finance and economics. I am excited to deliver to you a range of articles throughout my time as a writer.

Melanie Suriarachchi
Writer

Melanie is a first year Bachelor of Commerce student with an interest in public policy, politics and the ever-evolving global markets. In her spare time you can find her delving into her creative side either card-making or baking.

Yash Shewandas
Writer

Yash is a first year Bachelor of Commerce student, intending to major in Economics and Finance. His interests include macroeconomic variables and policies, global inequality, and trade globalisation. Outside of uni, Yash loves exploring different cuisines, playing football (soccer), and is a hardcore Liverpool fan.

Vickram Mehtaanii
Writer