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July 07, 2020

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Europe on brink of serious conflict with China

If we had to make a guess of the main sources of European disunity this coming decade, our first candidate is China. Yesterday's extraordinary threats by Liu Xiaoming, China's ambassador to the UK, speak volumes. He warned of unidentified consequences if the UK were to ban Huawei from its 5G network or granted extended visas to Hong Kong residents. China considers this a breach of international law. If the UK proceeds with those policies, which we think it will, not only do we expect relations to sour, but also the UK to align more closely with the US geopolitically. 

Contrast this with the EU response. The German foreign ministry has warned German citizens in Hong Kong not to criticise the Chinese government. We think the Chinese ambassador in Berlin will be very pleased about the spinelessness of Heiko Maas, the German foreign minister. We agree with Norbert Röttgen, who criticised what he called self-censorship. It is necessary to protect German citizens, he said, but not on China's terms. We also expect Germany to take a comparatively lenient position on Huawei, prioritising commercial ties. Germany will impose some token restrictions but, having failed to invest into alternative 4G infrastructure beforehand, Germany has made itself vulnerable to Huawei's market dominance.

France is playing a middle-of-the-road diplomatic game. The head of the French IT security agency told Les Échos that France will not issue a blanket ban of Huawei, but will instead restrict the licence period for French telecom operators that purchase Huawei equipment. The operators that already use Huawei 4G technology are SFR and Bouygues Telecom. They argue that a restricted licence would not make it worthwhile to invest in the new technology. We are not in a position to verify this claim but, if it is true, a shorter licence period would constitute an incentive for telecom operators to switch to alternative suppliers.

In our coverage yesterday, we raised the issue of the change in Huawei components after the US ban on equipment sales. The FT writes that a report by the UK's national cyber security centre warned of unprecedented risks, because Huawei was now sourcing semiconductors from third countries. We continue to struggle with this statement for a logical reason. The implication that Huawei constitutes a security risk on the grounds that it sources semiconductors from outside the US would suggest that they cannot have constituted a security threat before they did so. If hidden security risks resided in those components, say a back door in a microchip, then surely Huawei would only recently have started to act as an extended arm of the Chinese security services. Something does not quite add up.

This looks to us like a shift in policy first and foremost, with the security agencies reduced to the role of providing ex-post justification. We have no problems with this inverted procedure as such. This is, of course, a political thing. We think there are perfectly legitimate industrial policy and geopolitical reasons to restrict the use of Huawei equipment, given that there are European alternatives on hand.

Our other stories

We also have stories on Conte's pre-summit diplomacy; on the difficulty of keeping up eurozone investment; on Macron consolidating on the right; on the Fed's stress test for European banks; and on the domestic popularity of Erdogan's Mediterranean power grab.

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