Why the UK's Huawei ban is risky for business

A new ruling against the Chinese tech giant could push Britain away from one of its largest export destinations.

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The UK has, until now, largely attempted to remain on the sidelines in the trade war between China and the US: in January, Westminster announced a scaled back role for the Chinese tech giant Huawei in the country’s 5G networks, but steered clear of following the US into a complete ban.

In a new announcement against the company on 14 July, however, Britain more decisively entered the fray – seemingly in favour of the White House.

“Banning Huawei indicates how much the UK values its US-relationship,” said Yu Jie, a senior research fellow on China at Chatham House. “Given the post-Brexit scenario, the UK would naturally position itself as a close and all-weather partner to the US.”

There are many possible reasons for the UK’s change of position, including technical developments that altered the security assessment. Yet while the ban brings the UK closer to President Trump and a US-UK trade deal, it also pushes the country away from China, a move that carries its own "negative implications," said Jan Knoerich, a senior lecturer at King's College London’s Lau China Institute.

This increasingly zero-sum game is cause for concern since, especially in a post-Brexit world, China is an integral business partner. Last year, China was the UK’s third largest export destination and source of imports, after the US and EU, and up to 149,000 full-time equivalent jobs in Britain are upheld by Chinese trade, investment, tourism and students, shows a recent report from Cambridge Econometrics.

To put things in perspective, Huawei alone employs around 1,600 people in the UK and spends $300m a year on academic partnerships. In 2018, it contributed almost £1.7bn to the UK economy, particularly in research and development, according to the company's own statistics.

[See also: Why a ban on Huawei carries its own security risks]

The British government itself has acknowledged the harm caused by the Huawei ban – namely, that 5G rollout will be delayed by at least a year, possibly two to three years in rural areas. This may slow down the UK’s efforts to improve regional inequalities.

“There’s now a huge show of work that’s needed from the UK to demonstrate to China that we will continue to engage on the basis of good faith and fair play,” said Matthew Rous, the chief executive of the China-Britain Business Council.

Some observers argue that the ban is counterproductive. “Britain was long portrayed as a former coloniser amongst the Chinese wider public. The tougher Britain’s position is, the more likely China will push back,” said Jie. British politicians do not understand that, for Beijing, "the UK is largely seen as an economic partner with little involvement in China's geopolitical ambitions," she added.

“The Hong Kong issue and Covid-19 have accelerated a shift towards a very negative attitude to China from the majority of the British political establishment. Some parts of political Britain have concluded that China cannot be both an economic partner and political adversary. But unfortunately, the reality remains that China won't change its political outlook any time soon, nor will its economy shrink,” said Jie.

Retaliation is likely to come. Knoerich thinks that Beijing might make doing business more difficult for UK companies in China, or might slow down progress towards a UK-China trade deal and discourage the flow of Chinese investment and students to Britain.

The Chinese government may suspend the London-Shanghai Stock Exchange, as it did earlier in the year, said Jie.

Instead of escalating the risk of a UK-China trade war and exacerbating the spiral of mistrust that is polarising Chinese-Western relations, the very opposite approach is needed, said Rous. “China and the UK have different systems and values, but engaging through open trade and investment promotes the dialogue and understanding that’s needed to resolve those challenges.

Nonetheless, the fears surrounding China are not completely arbitrary. Although Huawei maintains that it is completely private, various Chinese "intelligence laws" mean that it could be powerless to reject demands from its government to install backdoors in its technology used in the UK network, says Dr Salem from the University of Birmingham's department of economics.

[See also: China's ownership of UK assets exposes Britain's broken model]

Moreover, China has already acquired significant stakes in the UK’s critical national infrastructure over the past decade, and has invested considerably more in the UK than in other EU countries, shows data from Rhodium Group.

“The UK seems more vulnerable than its European counterparts. China’s tendency to politicise business relations could force the UK government into toeing the Chinese line on critical issues,” said Salem.

If the US-China trade war is forcing the UK to choose sides, however, then other factors, including concerns over human rights, are likely to come further into play.

Sebastian Shehadi is political editor at Investment Monitor from the New Statesman Media Group.

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