The UK’s decision to ban its mobile providers from buying new Huawei 5G equipment after December 2020 and removing all the company’s 5G kit from their networks by 2027 is a blow to Huawei and China, but it is one battle in a long war that the West is currently losing.

5G’s significance for the next generation of technology is indisputable and so is its critical role in helping countries achieve digital transformation and economic success. Not only does it offer faster and better connection speeds and greater capacity, it also transforms the way people interact with online services. And it will allow industry to automate and optimize processes that are not possible today.

Due to its transformative importance, what is in essence a technological issue has turned into a contest over global technological leadership that extends beyond the US-China rivalry and has created tensions between the US and its long-time allies. Yet 5G is just one key technology in a more expansive landscape that will underpin the future of the world’s critical infrastructure, including in areas such as quantum computing, biotechnology, artificial intelligence, the internet of things and big data.

To achieve technological leadership in these domains requires governments to invest in a long-term, strategic and agile vision that is able to encompass the interdependencies between these areas and then leverage the resulting technological advances for economic progress. It also requires governments working with each other and with the private sector to support research and development and to create companies with leading-edge technologies that can compete globally.

China understands this and has a national and international vision to establish itself as a technological superpower. Re-balancing from a hub of labour-intensive manufacturing to a global innovation powerhouse is the absolute priority of the ruling Chinese Communist Party.

China’s state-led approach

In the earlier part of this journey, commercial espionage and IP theft of western R&D were at the heart of the Chinese way of competing. Now, Beijing is cultivating national champions that can drive China’s technological innovation, with the goal of using domestic suppliers to reduce reliance on foreign technology at home as well as extending its international outreach. 

In the 5G area, Beijing has introduced domestically the so-called ‘New Infrastructure Investments Fund’, which earmarks special loans to boost 5G technology applications in medical devices, electric vehicles and communication platforms. This Fund constitutes a major part of the stimulus package for China’s post-COVID economic recovery.

Apart from 5G, China's recent launch of a second state-funded semiconductor development fund valued at $29 billion, following an earlier $20 billion fund for the same purpose, shows the extent to which state financial resources are being utilized in China’s quest to become technologically self-sufficient.

It is too early to know if the Chinese government’s industrial policies will eventually achieve the technological self-sufficiency Beijing has long desired. But its growing national capabilities have stoked serious concerns across the West and led to the current US administration’s determined effort to dismantle Chinese high-tech companies.

China’s approach to macroeconomic management diverges significantly from that of the US and other market economies, particularly in its policy towards driving innovation.  Due to the legacy of a state-planned economy, China is certain that simply relying on market forces is insufficient.

While Beijing financially supports government-controlled technological enterprises, Washington takes  a laissez-faire, light-touch approach by the state to the business sector. The US believes that a politicized process of distributing public money is inherently susceptible to rent-seeking and corruption, and gets in the way of competitive innovation. In line with most liberal economists, many Western governments believe the government should refrain from market intervention. For its part, Beijing stresses a state-dominated economy as a necessary precondition both to the future growth of the Chinese economy and to the legitimization of one-party rule. 

If the pro-market economists’ view is correct, the US should have little to fear from Chinese industrial innovation policy in the long-term. Let Beijing waste money and distort resource allocation, while Washington follows its private sector-led principles, confident that this approach will produce a more competitive economy in the long run.

Using the leverage of technical standards

But one area that should concern the US and that illustrates the Chinese vision for global technological dominance is technical standard setting. Technical standards determine how technologies work with each other, enabling their interoperability around the world, meaning they can function irrespective of where they are being used.

The Chinese leadership has long understood the relationship between technical standards and economic power. Standards help to monetize technological innovation and research and can help shape new technologies. China has therefore been playing an increasingly active role in international standards organizations to legitimize Chinese technologies, whereas the US, which historically has been highly influential in this area, has not been participating as much or as effectively.

China has also been using its Belt and Road Initiative (BRI) as an opportunity to internationalize the distribution of its standards to countries signed up to the BRI. The so-called Digital Silk Road, which has been described as China’s most important global governance initiative, acts as a route to accelerate this process. Later this year, China is expected to launch its new ‘China Standards 2035’ plan, which aims to shape how the next generation of technologies will work together.

China’s preferred model and its recent actions have given Western leaders much to worry about.  But standing up to China’s growing global influence in high technology and re-establishing the West’s desired technological edge will take much more than achieving a common front on excluding China from their 5G networks. It requires a long-term vision built on the power of competitive markets, backed by solid investment in the next generation of technology. This will require, in turn, much greater cooperation between Western governments and between them and their private sectors.

And, whilst recent protective steps taken in Washington and other Western capitals may slow down China’s trailblazing in the technology sphere, it will only hasten China's determination to become tech self-sufficient in the long term. This will increase the probability of a splintered internet, which will have negative repercussions for all.

As countries move towards the fifth generation of mobile broadband, 5G, the United States has been loudly calling out Huawei as a security threat. It has employed alarmist rhetoric and threatened to limit trade and intelligence sharing with close allies that use Huawei in their 5G infrastructure.

While some countries such as Australia have adopted a hard line against Huawei, others like the UK have been more circumspect, arguing that the risks of using the firm’s technology can be mitigated without forgoing the benefits.

So, who is right, and why have these close allies taken such different approaches?

The risks

Long-standing concerns relating to Huawei are plausible. There are credible allegations that it has benefitted from stolen intellectual property, and that it could not thrive without a close relationship with the Chinese state.

Huawei hotly denies allegations that users are at risk of its technology being used for state espionage, and says it would resist any order to share information with the Chinese government. But there are questions over whether it could really resist China’s stringent domestic legislation, which compels companies to share data with the government. And given China’s track record of using cyberattacks to conduct intellectual property theft, there may be added risks of embedding a Chinese provider into critical communications infrastructure.

In addition, China’s rise as a global technological superpower has been boosted by the flow of financial capital through government subsidies, venture and private equity, which reveal murky boundaries between the state and private sector for domestic darlings. Meanwhile, the Belt and Road initiative has seen generous investment by China in technology infrastructure across Africa, South America and Asia.

There’s no such thing as a free lunch or a free network – as Sri Lanka discovered when China assumed shares in a strategic port in return for debt forgiveness; or Mexico when a 1% interest loan for its 4G network came on the condition that 80% of the funding was spent with Huawei.

Aside from intelligence and geopolitical concerns, the quality of Huawei’s products represents a significant cyber risk, one that has received less attention than it deserves.

On top of that, 5G by itself will significantly increase the threat landscape from a cybersecurity perspective. The network layer will be more intelligent and adaptable through the use of software and cloud services. The number of network antennae will increase by a factor of 20, and many will be poorly secured ‘things’; there is no need for a backdoor if you have any number of ‘bug doors’.

Finally, the US is threatening to limit intelligence sharing with its closest allies if they adopt Huawei. So why would any country even consider using Huawei in their 5G infrastructure?

Different situations

The truth is that not every country is free to manoeuvre; 5G technology will sit on top of existing mobile infrastructure.

Australia and the US can afford to take a hard line: their national infrastructure has been largely Huawei-free since 2012. However, the Chinese firm is deeply embedded in other countries’ existing structures – for example, in the UK, Huawei has provided telecommunications infrastructure since 2005. Even if the UK decided tomorrow to ditch Huawei, it cannot just rip up existing 4G infrastructure. To do so would cost a fortune, risk years of delay in the adoption of 5G and limit competition in 5G provisioning.

As a result, the UK has adopted a pragmatic approach resulting from years of oversight and analysis of Huawei equipment, during which it has never found evidence of malicious Chinese state cyber activity through Huawei.

At the heart of this process is the Huawei Cyber Security Evaluation Centre, which was founded in 2010 as a confidence-building measure. Originally criticized for ‘effectively policing itself’, as it was run and staffed entirely by Huawei, the governance has now been strengthened, with the National Cyber Security Centre chairing its oversight board.

The board’s 2019 report makes grim reading, highlighting ‘serious and system defects in Huawei’s software engineering and cyber security competence’. But it does not accuse the company of serving as a platform for state-sponsored surveillance.

Similar evidence-based policy approaches are emerging in other countries like Norway and Italy. They offer flexibility for governments, for example by limiting access to some contract competition through legitimate and transparent means, such as security reviews during procurement. The approaches also raise security concerns (both national and cyber) to a primary issue when awarding contracts – something that was not always done in the past, when price was the key driver.

The UK is also stressing the need to manage risk and increase vendor diversity in the ecosystem to avoid single points of failure. A further approach that is beginning to emerge is to draw a line between network ‘core’ and ‘periphery’ components, excluding some providers from the more sensitive ‘core’. The limited rollouts of 5G in the UK so far have adopted multi-provider strategies, and only one has reportedly not included Huawei kit.

Managing the risks to cyber security and national security will become more complex in a 5G environment. In global supply chains, bans based on the nationality of the provider offer little assurance. For countries that have already committed to Huawei in the past, and who may not wish to be drawn into an outright trade war with China, these moderate approaches offer a potential way forward.

In the face of multiple competing pressures, most especially intense pressure by the US president and Secretary of State Mike Pompeo, the UK government has carved out an independent choice on the role that Huawei will play in its 5G mobile networks. Announced just days before the UK exited the European Union, a move designed to allow the UK to reclaim its sovereignty, this was a model example of a sovereign decision, but one that carries risk and will create ongoing uncertainty.

The government’s assessment is that this will bolster Britain’s economic competitiveness through a rapid rollout of its 5G mobile network while staving off pressure from the United States and economic retaliation from China.

Britain’s decision treads a cautious line. The effort to balance the drive for competitiveness, the imperatives of national security and, especially, to appease while not appearing to appease America, has meant that the UK faces multiple pressures just as it seeks to forge an independent political future. So far, the UK government has handled these pressures artfully.

After months of intense scrutiny that at times looked like prevarication, and at other times looked a lot more contentious, the UK has decided to restrict Huawei’s access to a maximum of 35% of the market share of what it argues is the non-core part of its 5G mobile networks, and to enforce a total ban on Huawei’s access to the core.  

But no one should rest easy with the current choice. The UK has been divided internally on this decision, even among those on its National Security Council who have had privileged access to the intelligence offered by GCHQ. As the UK’s decision loomed, Tom Tugendhat, chair of the House of Commons Foreign Affairs Committee, cited Huawei’s connection to China’s intelligence services and its police state in Xinjiang and asked ‘is the risk worth it?’.

This division created latitude for the Johnson government to stake out its own position. But it also suggests that when it comes to national security, the case is not clear.  

The US response is more puzzling. Donald Trump and Pompeo have been coming down hard on the UK. But in the lead up to the UK’s decision, US Treasury Secretary Steven Mnuchin struck a much more nuanced tone, at least on the public record.

Despite weeks of pressure by Trump and Pompeo leading up to the announcement, the UK’s Huawei decision has so far failed to make headlines in the US, or garner much of an official response.

In an oped published in the Financial Times just days after the UK’s decision, acting US Assistant Secretary of Defense David Helvey took a strong line on China, calling for transatlantic unity and stressing the comprehensive nature of the competition that China presents. But he refrained from any specific mention of the UK’s announced decision. 

Given the previous US threat that allowing Huawei access would compromise future US–UK intelligence sharing and undermine the prospect for a free trade deal, this relatively muted response is surprising. Few among US national security experts have diverged from the view that Huawei presents a singular threat to national security.

This suggests one of two things: either that, even among those in the US who agree about the threat that Huawei presents for national security, opinion differs on how to deal with this threat; or, that America has conceded to the UK’s choice, even if it is a different position to its own.

What comes next is less certain. Now that Boris Johnson’s decision has been announced, the US has good reason to lay low. Restricting US–UK intelligence is a hollow threat: the US is a major beneficiary of this relationship and any attempt to unravel it would be costly for both parties.

The same is true of a future US–UK free trade deal, from which the US will most certainly reap substantial benefits, politically as well as economically.

The risk for the United States, of course, is that if it does not follow through, future threats to retaliate against the UK’s sovereign choices will become increasingly meaningless. And President Trump is not just any president. The current quiet could quickly be reversed if he sees a reason to make an example of the UK to signal to other countries currently debating their position on Huawei that proceeding will carry significant penalties.

The question remains whether in forging ahead, but with elements of caution, Britain has made the right decision. If the measure of success is political independence befitting the moment of Britain’s historic exit from the European Union, then the answer would appear to be yes. National security is an entirely different matter, and on this the debate is not over.