Why a ban on Huawei would only hurt Canada

Why a ban on Huawei would only hurt Canada
After a period of complacency about China’s growing tech proficiency, the West has swung dangerously to the opposite extreme, grossly exaggerating a feared Chinese tech takeover of the world.

China “hawks” in Washington and European capitals , China is poised to capture global leadership at the West’s expense.

“China is basically trying to steal the future of Japan, the U.S. and Europe by going after our technology,” U.S. economist Peter Navarro, the White House director of trade and industrial policy and one of U.S. President Donald Trump’s closest advisers, said recently in a policy presentation in Japan.

But China, while no paper tiger, is a tech laggard in many realms. And China is so beset with fiscal, social and environmental challenges that it poses no real threat to the West.

That assumes, however, that the West backs off from its campaign, spearheaded by the U.S., to stall if not crush China’s economic ambitions.

The trade war the U.S. is fighting against China has triggered a worldwide economic slowdown. The West also risks denying itself the Chinese advances in telecommunications, environmental technologies and artificial intelligence that would strengthen our own economies or, if we ban them, put the West at competitive disadvantage to China.

Canada is caught in the crossfire of the China backlash. Ottawa is under intense pressure from the U.S. to ban China’s Huawei Technologies Co. Ltd., among the world’s biggest and most advanced makers of telecom equipment, from Canada’s next-generation mobility networks. Fifth-generation (5G) networks will be close to 100 times more powerful than current technology.

Canada’s arrest at America’s request of Huawei’s chief financial officer in December on U.S. allegations of violating American sanctions against Iran has caused Chinese retaliation against Canadian nationals imprisoned in China following the Huawei executives arrest.

Succumbing to U.S. pressure on Huawei might prevent Canada from gaining competitive advantage in becoming one of the first Western economies with full-fledged 5G capability. Most major telecom equipment makers are dabbling in 5G, but Huawei holds the lead in functionality and low cost.

And “countries that adopt 5G first are expected to experience disproportionate gains in macroeconomic impact compared with those that lag,” Deloitte Consulting asserted in a 2018 report.

Most Canadian cybersecurity experts predict the Trudeau government ultimately will ban Huawei from .

As long as Canada is prepared to forfeit “first-mover advantage” on 5G by banning Huawei, we should know the truth about China’s prowess and its shortcomings.

To give the China hawks their due, China has engaged in intellectual property theft, currency manipulation (suppressing the true value of its currency to underprice its way into world markets) and dumping of Chinese steel in the North American market.

But mostly, China is a story about the shock of the new.

China’s emergence as global tech powerhouse is of recent vintage, essentially dating from the 2000s. Almost overnight, it seems, China is a world leader in 5G networks, solar panels, wind-power technology, electric vehicles (EVs), e-commerce, high-speed rail and e-payment technology and the networks that support it (financial technology or “fintech”).

China is accused of stealing or copying its tech advances. In fact, those are common practices worldwide, to judge from the multitude of patent-infringement lawsuits among U.S. and European tech firms.

Actually, China invents most of its world-beating products.

According to the Organization for Economic Co-operation and Development (OECD), China spent a staggering $254 billion (U.S.) on research and development in 2017, or 2.1 per cent of GDP. Only the U.S. spends more on R&D. China aims to close the gap with R&D spending equal to 2.5 per cent of GDP by 2020.

China now tops the world in new patent filings and boasts one of the world’s largest pools of STEM graduates (science, technology, engineering and mathematics).

China hawks, convinced of the country’s looming global hegemony, point to Beijing’s “Made in China 2025” campaign, unveiled in 2015. That strategy aims for world leadership in selected technologies that will shape the 21st century.

Yet China’s tech titans pre-date that campaign, by almost three decades in Huawei’s case. That also applies to internet search giant Baidu Inc., online retailer Alibaba Group Holding Ltd. and tech conglomerate Tencent Holdings Ltd. All are private-sector firms launched by entrepreneurs, not the Chinese state.

In overreacting to the China behemoth, the hawks also ignore the country’s shortcomings.

China has the world’s largest population of poor people, at about 400 million. Its coal-fueled economy causes an estimated 4,000 premature Chinese deaths each day. Its aging population saddles the country with both skills shortages and growing pension deficits.

China’s over-leveraged state-owned banking system is effectively insolvent. An economic slowdown and declining tax revenues have triggered an austerity drive in government services.

China is a laggard in strategic industries such as pharmaceuticals, commercial aircraft and semiconductors. It has to import about 90 per cent of its microchips, mostly from the U.S.

In confronting Chinese competition, Western firms would do well to heavily reinvest in their businesses, rather than splurging on stock buybacks. A once cash-rich Apple is now debt-laden after massive buybacks. Apple’s resulting paucity of alluring new products allowed Huawei to overtake it in global market share.

China could turn its fortunes around by reducing the role of state enterprises in the economy and by expanding its earlier market-liberalization reforms. That would mean no more forced technology transfers and predatory licensing agreements endured by Western businesses in China.

China’s one-party, centrally controlled economic model gets marks for helping enable the country to eclipse Japan as the world’s second-largest economy. But the conformity and bureaucratic meddling that comes with it stifles the creativity required for sustained dynamic innovation.

China could join Canada in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the world’s most advanced free-trade group. By that means, China would project its influence more effectively than with its Belt and Road Initiative. That stalled megaproject to recreate the ancient Silk Road between China and London is opposed by several of the countries it’s meant to traverse and has proven too costly to build – a road to nowhere.

China could release the Canadian nationals it has incarcerated in retaliation for the arrest of Huawei’s CFO, a symptom of an abysmal Chinese human-rights record for which police-state China must someday atone. And the world could do without the triumphalism and arrogance Chinese authorities have inflicted on others, notably Ottawa over the Huawei debacle and Canada’s earlier rejection of a Chinese state takeover of engineering firm Aecon Group Inc.

One doesn’t instruct millennia-old societies what to do. But for the record, that’s what a China in crisis — and not imagined supremacy — will have to do to reap the rewards of genuine world citizenship.
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