By Liza Lin, Stu Woo and Lingling Wei
Beijing is considering retaliating against the Chinese
operations of two major European telecommunication-equipment
manufacturers, Nokia Corp. and Ericsson AB, should European Union
members follow the lead of the U.S. and U.K. in barring China's
Huawei Technologies Co. from 5G networks, according to people
familiar with the matter.
China's Ministry of Commerce is mulling export controls that
would prevent Nokia and Ericsson from sending products it makes in
China to other countries, the people said. One person added that
this was a worst-case scenario that Beijing would use only if
European countries came down hard on Chinese suppliers and banned
them from their 5G networks.
Last week, the U.K., which left the EU earlier this year,
ordered its wireless carriers to stop buying Huawei 5G equipment by
the end of 2020 and to remove Huawei 5G equipment from its networks
by the end of 2027.
The EU hasn't banned Huawei, but took a softer stance in January
by releasing 5G cybersecurity recommendations that member states
could voluntarily adopt to restrict Huawei's presence in each
country. It is expected to soon publish a report detailing how its
27 member states have adopted them.
The EU's biggest country, Germany, isn't expected to decide
whether to allow Huawei its 5G networks until September at the
earliest.
The Chinese Commerce Ministry said last Thursday that the
country will take necessary measures to protect the legitimate
rights of Chinese companies, in response to a recent ban on Huawei
by the British government. The ministry didn't respond to a request
for comment on Monday.
"This kind of action could backfire by frightening some foreign
tech companies into moving manufacturing out of China," said Jim
McGregor, the Greater China chairman of advisory and advocacy
consulting firm APCO Worldwide. "Companies are already very nervous
about getting caught in geopolitical battles and are reassessing
their manufacturing sites and supply chains to protect their
business continuity."
5G cellular networks, expected to be about 100 times faster than
current 4G networks, are set to underpin future cutting-edge
technologies in sectors from manufacturing to transport. Huawei is
the world's biggest maker of cellular-tower equipment. Its only
major rivals are Nokia and Ericsson, which are based respectively
in Finland and Sweden, both EU members.
Both Nokia and Ericsson have manufacturing plants and thousands
of employees in China. Tipped off about the potential restrictions
a few weeks ago, Nokia commissioned a review of its supply chain
and made contingency plans to shift global production, according to
a person familiar with the matter. Both Nokia and Ericsson could
manage Chinese restrictions by shifting production to elsewhere in
Asia, or to Europe or North America, people familiar with the
companies said.
This year, Ericsson also won contracts to supply China's three
large state-run wireless carriers with 5G equipment, though the
Swedish company has much smaller deals than Huawei and fellow
Chinese company ZTE Corp. Western telecom executives say it is in
China's interest to use some Western 5G technology to incentivize
Chinese telecom-equipment makers to keep innovating.
China maintains a list of items under export controls, even
though it doesn't have an existing export-control law. These export
restrictions, which oversee items including military and dual-use
nuclear and chemical goods, are decided and enforced by a group of
state agencies: the Ministry of Commerce, the Chinese Customs
Bureau, the State Council as well as the Central Military
Commission, which commands the country's armed forces.
To be sure, the plan could be more bark than bite. Last May,
after the U.S. placed Huawei on a trade blacklist, China said it
would create a blacklist of foreign entities that failed to supply
Chinese firms for "noncommercial purposes." Since then, the
government has yet to publish any specific companies or individuals
on the list. U.S. multinationals hire millions of workers in China,
and Beijing still needs American technology to build up its
industries. Meanwhile, existing U.S. sanctions against Huawei still
have loopholes that continue to allow U.S. firms to supply
Huawei.
The U.S. has lobbied Britain and EU countries to ban Huawei from
5G networks, saying Beijing could order the Shenzhen, China-based
company to spy on or disrupt communications. Huawei and the Chinese
government said such a scenario would never happen.
Even as U.S. President Trump has said the 5G race is one the
U.S. must win, China has taken a lead in global 5G development so
far. It has promised to invest billions in the hope of tripling the
number of 5G cellular sites to 600,000 by year-end, according to
the state-run Xinhua News Agency. The U.S. ended 2019 with about
10,000 such sites, according to Bernstein Research.
Western telecom-equipment makers including Ericsson and Nokia,
as well as smaller players, already started shifting production
outside of China last year for several reasons. One was to avoid
the Trump administration's tariffs on goods that were made in China
and destined for the U.S. Another was to tell customers, which
include wireless carriers and landline cable-and-internet
providers, that its products don't pose a security risk because
they didn't come from China.
"We wanted to look our customers in the eye and say we don't do
any manufacturing in China," said an executive at one U.S.
telecom-equipment company.
Still, Nokia does make some U.S.-bound equipment in China. Nokia
has been lobbying the U.S. on a proposal that would bar American
wireless carriers from using telecom equipment with Chinese-made
components, even if the parent company is Western, said Brian
Hendricks, who leads Nokia's policy and government relations team
in the Americas. He said hardware with "dumb" parts, such as
screws, from China shouldn't disqualify a product from being sent
to the U.S.
Nokia has one factory and about 16,000 employees, many in
research and development, in its Greater China market, which
includes Hong Kong and Taiwan. Ericsson has a manufacturing site
and research-and-development facilities in China, and about 14,000
employees in its North East Asia region, which includes China,
Japan, South Korea and Taiwan.
Write to Liza Lin at Liza.Lin@wsj.com, Stu Woo at
Stu.Woo@wsj.com and Lingling Wei at lingling.wei@wsj.com
(END) Dow Jones Newswires
July 20, 2020 09:50 ET (13:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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