World

Xi Jinping’s Tech Wonderland runs into headwinds

Bloomberg | Updated on September 30, 2020 Published on September 30, 2020

A Huawei Technologies Co. logo   -  Bloomberg

At a new 400-acre research-and-development center on China’s south coast, Huawei Technologies Co. engineers chat, tap at their phones, or chill out on a small electric tram that whirs them between buildings modelled variously on the Sorbonne or England’s great universities. They move through neighbourhoods built in the style of Versailles or Renaissance Italy, passing by some of the 3,000 gardening and maintenance staff needed to keep the vast parklands immaculate.

It is late July, and on this Disneyland-like corporate campus about an hour and a half’s drive from Hong Kong, Huawei seems to be basking in the wealth from its leadership in 5G mobile technology. No other company has done more to project the image of a technologically advanced China on the international stage. And no other company stands as a greater symbol of China’s engagement with the outside world.

Huawei’s vaulting ambition to be at the forefront of future-defining technologies has landed the company in the crosshairs of the US and other governments that see it as a conduit for the geopolitical objectives of the Chinese Communist Party. In mid-August the US Department of Commerce, at President Trump’s direction, handed down yet another round of restrictions aimed at cutting Huawei’s access to commercially available computing chips it needs to make 5G base stations and smartphones.

The fortunes of China’s largest technology company by revenue are entwined with a vast project thats now the front line of the hugely consequential tech war between the US and China: the Greater Bay Area, a region tasked by President Xi Jinping with pushing the nation toward global technology leadership.

Challenges due to US backlash

The GBA’s ability to innovate and integrate enough to succeed in that task is facing its stiffest challenge yet from a U.S.-led global backlash against Chinese tech and Beijing’s political crackdown in Hong Kong. If the GBAs companies can surmount the obstacles being placed in their path, they could well determine how advanced and prosperous China can become under Xi.

The Pearl River Deltalong one of Chinas richest and most economically dynamic regions and rebranded by Xi as the Greater Bay Areastretches from the forested hills around Zhaoqing in the northwest to the concrete towers of Hong Kong Island in the southeast. Its the epicenter of Xis strategy to attain high-income status, bind the former colonial centers of Hong Kong and Macao into the motherland, and complete what he calls the rejuvenation of the Chinese nation. He wants this region of about 70 million people to rival the clusters of Tokyo Bay or San Francisco-Silicon Valley and the role they play in driving innovation, entrepreneurship, and growth.

Huawei reflects Xi’s grand vision for the Pearl River Delta. But as pressure from the Trump administration grows, executives of the company, which had a record $122 billion in sales last year, show signs of recognizing the changing, narrowing world in which they’re now living.

Guo Fulin, a two-decade veteran of the company who ran parts of its business in Europe and is now its president of international media affairs, deploys gnomic understatement to describe Huawei’s predicament. “The star in the sky will shine either to the west or to the east, he says, meaning there will be opportunities for Huawei whether the US slams the door shut or not. We are not targeting every customer in the world. Customers who choose Huawei will eventually live better”.

With his actions restricting sales of high-end semiconductors to Huawei, banning Americans from doing business with Tencent Holdings Ltd.s WeChat app Trump threatened revenue and product development at China’s most innovative companies. The importance of that is magnified by the timing of his actions, which come as China is upgrading its industries, with many sectors still in need of expertise from abroad to complete the development Xi expects.

China’s leaders maintain their public commitment to the open, globalized world economy that has benefited the nation so handsomely over the past two decades. But Xi is also adopting inward-looking ideas of self-sufficiency in a shift back to an industrial model less integrated into global supply chains. That’s not necessarily in Chinas’ interest, says David Dollar, a former US Treasury emissary to the country who is now a senior fellow at the Brookings Institution in Washington. The danger is if you feel you have to respond to the US protectionism with Chinese protectionism, he says. “If you go down that road, then all this aspiration to become a more innovative economy is pretty hopeless”.

The Greater Bay Area strategy is rooted in an earlier time in Xis chairmanship that was all about China going out into the world through investment, acquisitions, and geopolitical partnership-building through initiatives such as the Belt and Road enterprise. First mooted by Shenzhen local authorities in 2014, and then elevated into a central government policy blueprint unveiled last year, the plan outlines the ambition to build a tech hub to target the most advanced technologies and industries in the world.

More than a dozen Fortune Global 500 companies in the Guangzhou-Hong Kong-Shenzhen conurbation help drive a trillion-dollar economy that exports more than Japan does. The region spends double the national average on R&D, and Shenzhen alone accounts for more than a fifth of Chinas high-end exports.

Huawei began in 1987 with its founder, Ren Zhengfei, repeatedly crossing the border, importing telephone switching gear from Hong Kong that he then resold to customers in China who were desperate for upgraded communications. Today the employee-owned company has sales in about 170 countries. At its corporate headquarters in Shenzhen, lavish reception rooms for visitors are modeled on Japan’s old Kyoto, with refreshments intended to make executives feel at ease before being pitched for deals on telecom hardware.

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Chinese leaders have frequently said that pressure from the outside will make the nation redouble its efforts to catch up technologically. There is evidence that a broad push is under way to increase research and design capacity. Initial public offerings by Chinese semiconductor companies had raised a record $10 billion as of August as companies seek to localize supply chains.

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Published on September 30, 2020
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