Bill Durodie writes about 'Lessons from the Huawei Debacle', published by the Institute for Policy Research at the University of Bath.
Of all the platitudes doing the rounds and relating to China over recent times, one of the more facile must surely be that; ‘the prime aim of the Chinese Communist Party (CCP) … is to stay in power’. Maybe those making such pronouncements could – joking aside – point to any Western establishment that does not share this goal?
It is ironic then, that those rightly lambasting the lack of loyalty displayed by the recent leaks of confidential deliberations at UK National Security Council level - regarding the deployment, or not, by Chinese telecoms giant, Huawei, of new 5G technology there - appear to project a preference for a more coherent, centralised and confidential mode of decision-making – as they may imagine China’s to be…
China is so vast, of course, that Cambridge economist, Joan Robinson’s famous adage; ‘Whatever you can rightly say about India, the opposite is also true’, surely applies there too. Robinson also noted how; ‘The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all’ – a lesson that the ruling Chinese cadre-class implicitly took on board when shifting its base away from peasants and opening themselves up to the market to promote their; ‘Socialism with Chinese Characteristics’.
To start any analysis of Beijing politics, or the Huawei debate, with assertions as to the CCP’s roots in Marxist-Leninist ideology therefore, is equally misguided. The world has changed a good deal since 1917, 1949, 1978, or whatever other date such supposed insights are held to be relevant to.
Indeed, irrespective of what the Party faithful (not known, in my experience, for reading much Marx) may imagine, the great man himself noted long ago, in relation to the disruptive impact of market forces on society, how: ‘All that is solid melts into air, all that is holy is profaned’.
With the constant chatter nowadays about the forces and impact of globalisation, one might have imagined that armchair analysts would have caught up and noticed the extent to which their cherished models about China might need to change too. Indeed, when the West examines China, there seems to be a failure to note the obvious – that there are two elements to this; China … and the West.
A confident and purposeful West will see China in a very different way to a West that is insecure, confused or directionless. It could see a source of opportunities more than sensing a constant threat. The truth – as in many things – will lie somewhere in-between. Before looking at China then, it is essential to understand how much has changed in our own backyards and outlooks over recent decades.
Who is in charge?
The apocryphal phrase, attributed to the former, realpolitik US Secretary of State, Henry Kissinger; ‘Who do I call if I want to speak to Europe?’, contained an important truth – that through its institutional arrangements (let-alone its disparate constituent members), what was to become the European Union (with five Presidents – Council, Commission, Parliament, Central Bank and Eurozone Finance Ministers), failed to speak with a singular voice and, accordingly, could not project itself coherently into the international domain.
The tables appeared to turn a decade ago when the European Union appointed its first foreign affairs and security policy chief, the unelected British politician, Catherine Ashton. But when the then US President Obama wanted to discuss what really mattered in European affairs at the time (such as the euro debt crisis), it was still to national leaders, like the German Chancellor and French President that he turned to in the first instance.
More recently, with the election of Donald Trump as the 45th President of the United States, the Washington foreign policy establishment appears to have become less confident and coherent too, while the post of Secretary of State seems increasingly to come with a revolving door. Finally, EU officials have been able to invert the joke and wonder out loud who they should talk with when wanting to speak to the US.
But a glance at the situation elsewhere should alert anyone to the fact that such incoherence is now almost universal. Who speaks for the UK, for instance? The Prime Minister, Theresa May, as far as many are concerned, not only struggles with her Cabinet, but lost control of the Brexit process to Parliament. The latter is a body, in-the-main, opposed to implementing the expressed will of the majority of the people it is meant to represent (for which many of its Members know they will suffer the consequences at forthcoming elections).
And, recent trends aside which, by-and-large, have been replicated across the Western world, international relations and foreign policy analysis models have long been out of step with post-Second World War developments. The latter included the emergence of a multitude of supra- and sub-national institutions of growing significance – a process that accelerated through the post-Cold War breakdown of the old – Left v Right – political order and the advent of regulatory (as opposed to redistributive) regimes, expressed through a shift in emphasis from government to multi-stakeholder governance.
Is China different?
The evident assumption of much political bombast relating to China is that it has somehow evaded all of these trends (though, as suggested earlier, that may have more to do with agendas stemming from challenges in the West, as sensed by particular commentators, rather than the actual situation in China).
There is, in fact, considerable scholarship pointing to how the Chinese state has been effected by the same processes of ‘fragmentation, decentralization and internationalization’ that have occurred elsewhere. Far from being ‘a unified, authoritarian regime’, clinging on to its sovereignty and disrupting an assumed ‘liberal rules-based world order’, what we see in China is a state in transition as it is transformed, in its own way, by prevailing cultural and market forces.
Indeed, contrary to blinkered prejudice or uninformed presumptions, while highly centralized in principle, China has long been, in practice, one of the most decentralized states on earth. According to the Brookings Institute Senior Fellow and independent financial journalist, Arthur Kroeber, the share of governmental expenditure taking place at the subnational level there was ‘a staggering 85 percent’ in 2014 (compared to about 25 percent in most democracies and less than 20 percent in non-democracies).
This level of autonomy predated the period of reform and opening heralded by the then leader Deng Xiaoping in the late 1970s – a process Beijing was then even less able to command or control as it shifted from focusing on production targets to increasingly just issuing coordinating guidance. Its development since has reflected a struggle between disparate actors and agencies – though the tendency of careerist sycophants to echo any messages from the top may give an impression of order to this fragmentation.
In practice, while Chinese leaders issue simple directions – to ‘Go Out’ (1999), ‘Go West’ (2000) or to promote a ‘Chinese Dream’ (2013) – these are inherently nebulous in character. Such guidelines have largely replaced the centralized planning of the past. But, at the level of implementation, they are necessarily interpreted (or even ignored) according to the specific interests of particular regions, agencies and enterprises.
Much like a game of Go (or weiqi) Chinese strategy appears more like the framing of a domain to be filled in at a later date. But the ensuing competition between parties readily confuses any initial goals. So, for instance, what began as the One Belt One Road initiative, to redevelop the ancient Silk Road and open up a modern maritime equivalent, was rapidly repackaged as the Belt and Road Initiative, with many belts and many roads, as almost every Chinese region lay claim to having a role in it through their pursuit of associated funding.
The process of internationalization cannot be centrally controlled either. It has allowed key players, such as the People’s Bank of China to impose international regulatory discipline at home (in the same way as European leaders have used European Union rules to cover for getting their own way domestically). National agencies, such as the Coast Guard, have acquired significant foreign and security policy roles they are ill-suited to, and provincial governments have pursued their own agendas across Asia and Africa.
For the West, the latter has come under considerable scrutiny. In particular, the activities of China’s many state-owned enterprises (SOEs) overseas. These are understood to be businesses over which the government retains significant control through various means. But, in fact, many of these 113, 000 or so entities, which emerged from the former production ministries of the late 1970s, operate independently and sell their commodities on the open-market.
There are far too many to command and control, so central supervision applies to just 111 of them – or 0.1% – (an additional 900-odd at provincial level). Of course, this does allow the CCP leverage over these - through a range of financial mechanisms, the issuing of permits and licences, as well as by retaining the power to regulate, discipline and appoint to top-level positions - but there is a world of difference between having such instruments available and exerting effective control. The actual evidence rather points to the inability of the state to rein-in the activities of its SOEs – even when it tries to.
Indeed, when supervised at all, the focus is on the profitability of SOEs rather than their impact on foreign policy. The drive to promote business and maintain employment levels – particularly when faced with the domestic profit squeeze and production over-capacities that are some of the real drivers of the BRI – has left the Ministry of Commerce in a far stronger and more significant position than the Ministry of Foreign Affairs.
Accordingly, what we actually see are the outcomes of complex inter-agency struggles rather than of top-down directives. State policy often follows and seeks to catch up with developments rather than lead them.
Enterprises, regions and agencies, including the People’s Liberation Army (PLA), pursuing their own agendas, or their reading of central coordinating guidelines have also, on occasion – in Myanmar or the South China Sea, for instance (where actions have been described as ‘consistently inconsistent’) – had adverse impacts, triggering diplomatic incidents that have embarrassed the Beijing establishment by acting in ways contrary to its official policy, and even violating UN embargoes to which it was formally committed.
The recent recentralization drive, under President Xi, to streamline and curtail some of this free-wheeling behaviour, may have led to his being perceived of as more authoritarian than some of his predecessors, but it smacks equally of the dying days of the former Soviet Union when various leaders amassed more and more titles to compensate for their dwindling power. All this may be a sign of weakness rather than inherent strength.
Lessons from history
Officially, Huawei is not an SOE – though its activities are undoubtedly of interest to the authorities in Beijing. Now ranked 72nd on the Fortune Global 500 list (though not among the top 25 businesses in China), Huawei has become the largest telecommunications equipment manufacturer in the world, employing some 188 000 people and investing over 10% of annual revenue in R&D.
It has established a significant retail presence (B2C – business to consumer) in the UK and is now angling for the more lucrative returns of government contracts (B2G) to help build the 5G infrastructure to facilitate the advent of the so-called ‘Internet of Things’, whereby countless devices in the real world may, one day, become interconnected.
In this regard, it is worth recalling a significant parallel from just over a hundred years ago. In the period leading up to the First World War, the British government was looking to appoint a provider of essential radio-telegraph equipment, through which it sought to maintain communications and control over its vast Empire.
The main manufacturer was the Marconi Company which, while operating from within the UK, was headed by an Italian and had a considerable percentage of shareholders based overseas. Italy was also, at that time, a member of the Triple Alliance (with Germany and Austria-Hungary) of potentially hostile powers too, though what seemed to exercise the parliamentary imagination somewhat more was the possibility of monopoly gains and back-handers to those involved in the awarding of an initial contract.
A committee of inquiry to look into the matter took nine months to acquit the ministers concerned and issued three conflicting reports. The then Liberal government also lost various by-elections as a consequence. It also took a further fifteen years for the UK to acquire a wireless system – owned by the government, but built by … Marconi.
As with the issuing of contracts for a new generation of nuclear power stations and other critical infrastructure, such as HS2, one of the lessons may be that, unless Britain is prepared to invest for itself, then it is likely to have to engage others through outsourcing. Complaining about who these may be is unlikely to win friends or be an effective industrial strategy.
Yet again, conflicting opinions abound – on the one hand Huawei stands accused of having the potential to conduct future espionage for the Chinese government, through the installation of so-called backdoor access to data gathered through its systems, on the other it is its supposed technological incompetence that is projected to be the problem. A typical review casts endless aspersions while concluding that; ‘There is no evidence’ beyond ‘suspicions’.
Many suspect one of the real drivers of this debate to be the US realising that it is about a year behind in the 5G technology race with China, amplified through its ongoing trade war and security fears. After all, backdoors and Chief Security Officers reporting to domestic security agencies rather than their own CEOs are hardly just a foreign issue.
On 1 December 2018 the CFO of Huawei, Meng Wanzhou – daughter of the founder and CEO, Ren Zhengfei – was arrested in Canada, accused by the US authorities (who are trying to extradite her there), of misleading its banks by being in breach of US-imposed sanctions on Iran, as well as of engaging in corporate theft.
If these allegations are true, it would certainly not be the first time a Chinese (or other) firm had acted in this way. Again, that may speak more of Beijing’s inability to control things, rather than having an overarching plan, though it’s somewhat predictable response has done little to help such impressions.
In the meantime, and in the aftermath of the flagrant leaks from its National Security Council (whatever the source), the UK would do well to reflect on the extent to which such behaviour has been condoned and even encouraged over recent years, as well as how this reflects deep divisions at the highest level of government and elsewhere.
The need to maintain confidentialities is both desirable and necessary in any society – for our own privacy as much as for private enterprise, from which a healthy public domain can then ensue. But for this we may need to rediscover and celebrate a sense of national and personal sovereignty and purpose that contemporary cultural and political trends have actively sought to discredit – including, at their most pointed, through contemporary criticism of and concerns about China.
This article by Bill Durodie was First published on 8th May 2019 on the IPR Blog, published by the University of Bath Institute for Policy Research (IPR) http://blogs.bath.ac.uk/iprblog/2019/05/08/misinterpreting-china-and-lessons-from-the-huawei-debacle/