Huawei’s founder, Ren Zhengfei, says he first saw advanced technology as a young technician in the military during the chaos and terror of the Cultural Revolution.

The Chinese government wanted to provide an impoverished population with one piece of decent clothing so it used French equipment to have the military build a large synthetic fibre factory.

This also meant Ren was permitted to read – a highly politically risky business in that era – to understand how the equipment worked.

Decades later, the Chinese economy and society are transformed and Ren is the founder of one of the world’s biggest and most advanced telco equipment companies, but the global politics of managing Huawei’s massive growth are even harder.

Ren held a rare press conference on Wednesday to try to counter the growing belief in the West that the use of Huawei equipment is a national security threat.

That includes insisting Huawei would never do anything to harm the interests of its customers, as evidenced by its behaviour in the 170 countries in which it operates.

But the much greater evidentiary problem for Huawei is that it is inextricably linked with the views on the present and future behaviour of the Chinese government.

In the reign of Xi Jinping and his aggressive promotion of the Communist Party and China’s global reach, there’s increasing suspicion among Western intelligence agencies and governments that no Chinese company could ever refuse a request from Chinese authorities.

The fact that China has recently mandated this sort of co-operation from private companies as well as state-owned enterprises under China’s National Intelligence Law undermines claims from companies like Huawei that this has never happened in the past and could never happen in future.

Primary supplier

This increased wariness about potential interference was behind the Australian government’s decision last August to ban Huawei from any participation – even in less sensitive areas – in the roll-out of the 5G mobile network.

This was despite the fact that Huawei’s competitive pricing and sophisticated equipment meant it had become the primary supplier for 4G equipment for Vodafone and Optus, which were expecting to use it for 5G too.

It’s also clear the government and the Foreign Investment Review Board, chaired by former head of ASIO David Irvine, will only become more cautious about the level of Chinese investment in all sectors.

That is driven in part by the ever greater use and importance of data in a world that is becoming ever more digitally connected.

How far this tougher approach by FIRB extends more broadly will be tested by the proposed takeover of Healius (the former Primary Healthcare business) by China’s Jangho Group.

FIRB became more interventionist in terms of national security after the Northern Territory government allowed a Chinese company a 99-year lease over the port of Darwin in 2015. David Irvine was appointed to FIRB in the wake of the concerns.

Among the more high-profile vetoes of Chinese investments since then, FIRB blocked China’s State Grid from buying Ausgrid, a NSW electricity distributor, and stopped Hong Kong’s CKI from buying the pipeline business of the APA Group.

Scott Morrison’s trip to Fiji and Vanuatu is also to try to deflect growing Chinese influence in the Pacific. The Australian government is careful to say it does not discriminate against any country in terms of foreign investment but its primary target is obvious.

Australia is not alone in taking a stronger stance in scrutinising Chinese investment, with the US and more recently Western Europe also becoming less welcoming.

China is keenly aware of the increasing pushback while Chinese restrictions on capital outflows have also constrained Chinese companies’ investment offshore.

One result was that the dollar value of China’s direct foreign investment in the US and Western Europe, especially in the UK, fell dramatically last year after surging mid-decade.

Direct Chinese investment in North America dropped from a peak of $US48 billion in 2016 and $US31 billion in 2017 to $US8 billion last year, according to Baker McKenzie analysis.

Last November, European Union negotiators approved the first bloc-wide draft rules aimed at preventing foreign investment that threatened national security, particularly for critical infrastructure and technologies.

Greater protections

In another first earlier last year, the German government blocked a potential purchase of a machine-tool manufacturer by a Chinese company.

Huawei – and China – argue the US intelligence agencies foster national security concerns among its allies because of alarm that its technological edge is increasingly challenged by China’s advances.

But there is now widespread support for the Trump administration’s view that China has repeatedly stolen Western companies’ IP and forced technology transfers as a condition of doing business there.

Europeans are more quietly backing the need for greater protections in the absence of real change from China.

This tension is set to worsen this year with Huawei again in the middle of it, in part due to an extraordinary case involving Ren’s daughter, who is also the CFO of Huawei.

Meng Wanzhou is on bail in Canada after being detained at Vancouver airport while in transit on December 1.

She is facing a Canadian court hearing next month about a US request for her extradition on the basis she violated sanctions against dealing with Iran.

After the arrest of several of its citizens by Chinese authorities since, Canada is warning Canadians to use a high degree of caution in travelling to China while China is demanding that Meng be immediately released.

Ren told the media that he could not comment much on the case because of the legal proceedings but said he was trusting that the legal systems in Canada and the US were “open, just and fair and will reach a just conclusion”.

Prepare for more turbulence ahead.

By Jennifer Hewett
FR

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