Commentary |
19 July 2020

Don’t panic — Xi doesn’t hold all the aces in the great game of trade

Originally published in The Sunday Times.

Richard McGregor
Richard McGregor

China’s Foreign Ministry spokeswoman, Hua Chunying, airily dismissed the impact of the UK ban on Huawei this week, comparing it to something akin to a side dish with a meal. Nice to have, but not essential. “The world is very big,” she said, “and the UK is very small.”

Ms Hua’s patronising putdown doubtless was aimed at masking an unpalatable reality, that Huawei, and by extension China itself, has suffered a huge defeat, with profound geo-political and economic implications.

Just a week ago, Huawei stood on the threshold of building the communications system of not just a permanent member of the United Nations Security Council and a hub of global finance, media and communications.

The Chinese company would have also positioned itself at the heart of a country which is part of the world’s most important intelligence alliance, the so-called ‘Five Eyes’, binding together the US, Canada, Australia and New Zealand.

Whatever measures were put in place to wall off secure communications, Huawei’s entrenched position in telco and internet infrastructure would have given it a seat at the table in running the UK system for decades to come.

The company would have also been able to insinuate itself into the UK’s cyber security regime, which these days is at the vanguard of any country’s national security.

In other words, the UK was more than just a prize to be held aloft around the world to boost Huawei’s credentials as a company trusted to build the telecommunications systems of advanced western nations.

It would have turbo-charged a core aim of Beijing’s foreign policy, to drive a wedge into western alliances and weaken their ability and resolve to push back against a rising China.

In the end, the Anglosphere stuck together, a bad result for Beijing as it looks to the battles ahead.

Leaving aside the long-running debate about whether Huawei is a private company, the UK decision reflects the hardening conviction in the west that Chinese companies of any colour do not, and indeed cannot, operate independently of the ruling communist party.

If you want to know who is in charge in Beijing, don’t take it from the China hawks on the Tory backbench and elsewhere. Just listen to Xi Jinping himself.

In a commentary released this week in one of the party’s authoritative journals, Qiushi (‘Seeking Truth’), Xi reiterated, in case anyone needed reminding, the centrality of the party in China.

“The Central Committee is the commander sitting in the middle,” said the article. “The government, the army, the people, scholars, and east, west, south, north - the Party leads everything.”

The UK ban immediately bought to the surface the kinds of historical tropes that are embedded in Chinese political memory, of 19th century British imperialism and the country’s “century of humiliation.”

One retired rear admiral who is a frequent media commentator said the decision bought back memories of the ‘Eight-Country Army’ which protected foreigners in China during the Boxer Rebellion 1900. A Chinese state journalist reached back even further, citing the “burned and looted ruins of the Summer Palace” by the British in 1860.

Put another way, through official Chinese eyes, the British exclusion of Huawei is just another manifestation of the centuries-long determination to keep China down. This is a narrative you can expect to hear more of.

Aside from nationalistic venting, however, the concrete leverage that Beijing holds over the UK is harder to calibrate.

The British banks with vital interests in China, HSBC and Standard Chartered, are already in Beijing’s sights in Hong Kong. The Huawei decision will strengthen the hand of hardliners in Beijing which see the lenders as colonial legacies.

But unlike other countries at odds with Beijing, like Australia, which sends nearly 40 per cent of its exports to China, the UK is not overly exposed on trade.

China is an important and fast-growing export market but in 2019, still only accounted for four per cent of all sales overseas, according to the Office for National Statistics.

The likes of Jaguar Land Rover and Burberry which see China as a growing consumer stronghold, will fret about a backlash, but so far, even American brands in China have not suffered from the near collapse in the US-China relations.

The UK has leverage too, in its decision over whether to proceed with the contract with the Chinese state nuclear firm to build a new reactor in ????

Political relations will go into the freezer for an amount of time. The public lectures from the Chinese Ambassador in London will continue.

But Beijing will want to be careful as well. Swing states in the great game afoot between the China and the west, like Germany and France, are weighing their decisions on Huawei carefully.

Beijing beating up on Britain will only strengthen the case of the policymakers in other countries which want to keep Huawei out.

 

Richard McGregor is a senior fellow with the Lowy Institute in Sydney.