Merkel pushes back on calls for Huawei ban in Germany

The move would ban Chinese firm from providing equipment for Germany’s 5G networks.

German Chancellor Angela Merkel on Tuesday pushed back against calls to impose a blanket ban on Chinese telecoms equipment vendor Huawei, which would prevent it from providing gear for Germany’s 5G networks.

“There are two things I don’t believe in. First, to discuss these very sensitive security questions publicly, and second, to exclude a company simply because it’s from a certain country,” Merkel told an audience in Berlin.

“The government has said our approach is not to simply exclude one company or one actor, but rather we have requirements of the competitors for this 5G technology,” she said.

Germany is weighing strong requirements and limits for Chinese telecoms equipment vendor Huawei in the country, and its regulators recently released stricter draft requirements for operators and vendors on cybersecurity. But the government has dismissed calls for blanket bans on Huawei and ZTE.

Calling China a “systemic” competitor, Merkel said “the answer can’t be that we fight those who are economically strong. We must stand up for fair, reciprocal rules and not give up on multilateralism,” adding that a European approach to the issue would be “desirable.”

European leaders have an EU-China summit scheduled early April to debate trade relations, and the issue of whether Europe would impose restrictions on Chinese telecoms equipment vendors Huawei and ZTE is high on the agenda.

Read this next: Trump accuses social media giants of bias toward ‘radical left Democrats’

Chinese investment slows as EU turns the screws

China’s investment strategy in Europe slowed down, partly because of increased European scrutiny.

Beijing’s strategy of buying up crucial sectors in Europe has passed its peak as governments turn to stricter scrutiny of Chinese investments, a report said Wednesday.

Over the past year, China invested about €17.3 billion in Europe, researchers at Rhodium Group and the Mercator Institute for China Studies (Merics) calculated. That’s a 40 percent drop compared with 2017, and a 50 percent fall compared to the record €37 billion in 2016.

There are two reasons for the slowdown, the researchers said. At home, the Chinese government has reined in its past investment programs; and in the West, Chinese investors are seeing new regulatory and political hurdles pop up — not least in the EU, where there is a raging debate on China’s involvement in telecoms.

“You see a progressive increase in pushback in the West. It is much more developed in the U.S., but it is strengthening in Europe,” said Agatha Kratz, associate director at Rhodium Group, a research firm specialized in China.

The EU is revamping its China strategy. EU countries this week approved a regulation on screening foreign investments which will fully apply by October 2020, and will allow national capitals to block bids in strategic sectors.

But — amid a global debate about Huawei and its involvement in the next generation of internet networks — the Commission is going beyond investments. It is also reviewing procurement rules, data protection policies, security policies and competition rules to make sure Europe updates its laws against rising competition from China.

“The debate doesn’t stop with the fact that we have an investment screening in place, it is actually just starting,” said Mikko Huotari, deputy director at Merics.

The College of Commissioners meets Wednesday to prepare for an upcoming EU-China summit on April 9.

Biotech, cars come into play

Researchers calculated that Chinese investors have started targeting a wider array of sectors.

Financial services, health and biotech, consumer products and services, and the car industry saw rising investment — unlike “traditional” targets such as transport, infrastructure and real estate that accounted for the bulk of Chinese buying over the last eight years.

“It’s hard to tell whether an investment is politically motivated or economically motivated,” said Kratz, but “we see an overlap between sectors in the ‘Made in China 2025’ strategy, and patterns observed in Chinese investment.”

The researchers said that 82 percent of Chinese investments in 2018 could have fallen under the scope of the EU’s new investment screening mechanism, which is being implemented across the Continent.

Waking up to the threat

The sharp downfall in Chinese investment flows to Europe is mostly due to China’s debt crisis, according to researchers and analysts. China, struggling with highly indebted companies and banks, last year passed a law to rein in lavish spending on M&A and started questioning the value of certain acquisitions fearing its state-owned companies were overpaying.

But it’s also true that the EU is warier of takeovers of prized hi-tech companies by Chinese state-owned enterprises and has moved to make such transactions more difficult.

On Tuesday, EU countries approved a new investment screening regulation, which will oblige member governments to collect and exchange information. This comes after a crackdown on strategic takeovers in Germany, France and Britain. All three countries toughened their national legislation on foreign investments in the last two years.

That’s led to some concrete decisions to block acquisitions. Germany last year for the first time used its investment screening law to block the takeover of hi-tech company Leifeld Metal Spinning. The government also thwarted a Chinese plan to acquire part of electricity provider 50Hertz.

China and the U.S.

The U.K., Germany and France continued to attract the bulk of China’s European investments, the study showed, but the big three are less dominant. Their share declined to 45 percent in 2018 from 71 percent in 2017, while Sweden and Luxembourg made it into the top five list.

While EU countries are paying more attention to China, it’s still a much smaller presence on the Continent than the U.S.

“Chinese investment have been welcomed in the first years, but viewed with very much skepticism since,” said Hinrich Voss, a researcher at Leeds University who studies global foreign direct investment. “But Chinese investments are still significantly smaller than U.S. and other countries’ investments, as well as intra-European investments.”

Read this next: Emmanuel Macron, Brexiteers’ best friend

How Huawei won Barcelona

Trump’s tweets and the Chinese vendor’s dominance mean US officials fought an uphill battle at this week’s global telecoms fair.

BARCELONA — In a global standoff that pits U.S. security services against Chinese telecom giant Huawei, it was the latter who came out as the winner at a high-stakes gathering in Barcelona this week.

At the annual Mobile World Congress fair, Huawei was up against combative U.S. officials who toured government delegations calling the Chinese vendor “deceitful” and arguing that it poses a security threat to the West.

But Huawei was playing on familiar turf in Barcelona, where some 100,000 telecoms executives had gathered for industry shop talk and ogling at new tech innovations. Huawei’s brand was plastered all around the conference venue, for which it was a key sponsor, and it chose to launch its new, flagship product at the fair: the foldable Mate X smartphone.

Huawei’s chief didn’t hold back on the politics, either.

“The U.S. security accusation on our 5G has no evidence, nothing,” the company’s Rotating Chairman Guo Ping said in his keynote speech Tuesday. He slammed Washington by saying that those concerned about government spying “can go ask Edward Snowden” — a blunt reference to the 2013 scandal that revealed mass surveillance of global data flows by the U.S. National Security Agency.

Days before the final offensive in Barcelona, the U.S. strategy got sidetracked by rumblings in the country’s bilateral negotiations of a trade deal with China.

The U.S. apparatus had targeted the Barcelona telecommunications conference as the peak of a monthslong campaign to convince European and global allies to cut out Huawei.

It followed a visit by U.S. Secretary of State Mike Pompeo to Eastern Europe earlier in February, in which Huawei featured at the top of the talking points, and a keynote speech by U.S. Vice President Mike Pence at the Munich Security Conference mid-February warning for “the threat posed by Huawei and other Chinese telecoms companies.”

But days before the final offensive in Barcelona, the U.S. strategy got sidetracked by rumblings in the country’s bilateral negotiations of a trade deal with China. President Donald Trump suggested that criminal charges against Chinese telecoms giant Huawei and one of its top executives could be used as a bargaining chip in his administration’s ongoing trade negotiations with China. “We’re going to be discussing all of that during the course of the next couple of weeks,” Trump said.

The statement came after tweets by the U.S. president, where he hinted at supporting open competition in the telecoms vendor market — which caused confusion across the telecoms market at a time when operators are looking for clarity on major 5G contracts.

Huawei’s brand was plastered all around the conference venue | Pau Barrena/AFP via Getty Images

By the end of the four-day gathering, U.S. Deputy Assistant Secretary of State Rob Strayer had called Huawei “duplicitous and deceitful” but failed to pressure the Europeans into committing to new measures against Huawei.

Huawei in Europe

Huawei’s full-court press in Barcelona came at a critical time, as the company has been shut out of major Western markets in past months, and its strategy to scale up relies heavily on the revenue it is generating on the European Continent.

A diplomatic campaign from Washington in Western and allied capitals in past months have triggered new restrictions in Australia and Japan, and others could follow suit in coming months — giving its competitors on 5G infrastructure including Ericsson, Finnish Nokia and Korean Samsung a leg up in the global race for networks.

Europe’s joint market accounts for 10 to 15 percent of Huawei’s revenue, company figures show, versus more than half for the domestic market in China, 11 percent for the Asia-Pacific region and just 7 percent for the Americas.

Vincent Pang, the company’s president for Western Europe, stressed the importance of the Continent at a briefing with reporters in Barcelona. “It doesn’t matter what happens in any single country in Europe. We will stay here,” Pang told reporters, adding that Huawei considers Europe “the most powerful innovation house in the world.”

Europe’s importance explains partly why Huawei has invested so heavily in the region. The equipment maker has struck many deals with the Continent’s largest telecoms operators in the past decade. It also set up “security centers” where operators can run security checks on its equipment, in an effort to preempt criticism.

Huawei’s entanglement with Europe’s telecoms networks and its operators have also scared off powerful industry groups, who fear restricting or even banning Huawei will cost billions of dollars to the Continent’s largest operators like Deutsche Telekom, Vodafone and others.

EU leaders in past weeks disputed the need for a blanket ban on Huawei products, which the U.S. wants. Instead, they are pushing ahead with a series of midway network security measures that will ultimately preserve China’s presence in broad swathes of European telecoms markets — in a classic “third way” approach to the issue.

As pressure on the Chinese vendor rises, its competitors have tried to get ahead of the game.

“I don’t think that, in the summer, we’ll live in a Europe where the majority of [EU] member states banned Chinese manufacturers” — Jan-Peter Kleinhans

“[We] have already deployed operational 5G networks based on commercial equipment in Europe, Australia and Asia,” Ericsson’s director, Johannes Arvidson Persson, said in emailed responses to questions.

At the end of the Barcelona fair, the Swedish company secured 14 5G contracts with operators, of which it keeps a running list online. It includes European contracts with Vodafone U.K., Telenor in Norway, Wind 3 in Italy and Swisscom in Switzerland.

Huawei on the other hand claims to have more than 30 5G contracts worldwide, and 13 in Europe — but didn’t disclose the list of operators it struck deals with. In Europe, it said Vodafone, EE (owned by BT), Telecom Italia and Sunrise in Switzerland have signed with the company. Huawei said some of its partners have asked not to be named because of fear of political backlash.

One of Ericsson’s main advantages worldwide is that it is the first to go live with commercial 5G networks in the United States — a country that has restricted Huawei’s access in past years, and formally shut the market for Chinese vendors last year.

According to Jan-Peter Kleinhans, an analyst and 5G security expert at the Berlin-based Stiftung Neue Verantwortung, “I don’t think that, in the summer, we’ll live in a Europe where the majority of [EU] member states banned Chinese manufacturers.”

“The big question is how many member states realize that 5G is not a unique issue,” he said. “People are waking up and realizing: ‘Holy sh*t, Chinese ICT is everywhere, we do not trust the country, we do not trust its government, what do we do?'”

This article is from POLITICO Pro: POLITICO’s premium policy service. To discover why thousands of professionals rely on Pro every day, email for a complimentary trial.

Read this next: World’s cartoonists on this week’s events

MI6 chief warns Russia not to underestimate UK

Alex Younger to say spy agency will continue working with partners in Europe after Brexit.

The head of the U.K.’s spy agency will challenge Russia on its “malign behavior” and its stance of “perpetual confrontation,” in a speech to be delivered Monday.

MI6 chief Alex Younger, also known by the codename “C,” will tell “Russia or any other state intent on subverting our way of life not to underestimate our determination and our capabilities,” according to excerpts of the speech seen by POLITICO.

Younger will also tell students at St Andrew’s University, where he will deliver the speech, that MI6 will continue to work with partner agencies in Europe to strengthen “indispensable security ties” after Brexit.

“C” will also stress the need for “fourth generation espionage” that utilizes tech innovations such as artificial intelligence to respond to emerging hybrid threats, telling students that Britain’s adversaries are taking advantage of the blurred lines between the cyber and physical worlds, but that the U.K. is well-equipped to counter these threats.

The rare address, Younger’s second public speech in the four years since he was appointed, is a pitch to recruit a new generation of spies.

Read this next: Michelle Obama to skip Europe book tour stops for Bush funeral

British citizen jailed for spying pardoned by UAE

UK Foreign Secretary Jeremy Hunt says he is ‘grateful’ for the UAE’s decision.

The United Arab Emirates on Monday pardoned and released Matthew Hedges, who was jailed for life after being convicted on spying charges.

Before the announcement, UAE officials played a video in which the British national confessed to being a member of the United Kingdom’s M16 intelligence service, according to Reuters.

Hedges was arrested at Dubai International Airport in May after a two-week research trip to the UAE. In an Abu Dhabi court last week, he was sentenced to life in prison for spying.

The UAE president issued the pardon as part of a “gracious clemency” of more than 700 prisoners to mark the country’s National Day, according to a statement from state news agency WAM.

U.K. Foreign Secretary Jeremy Hunt said on Twitter that the move was “fantastic news.”

“Although we didn’t agree with charges we are grateful to UAE govt for resolving issue speedily,” Hunt wrote.

Hedges’ wife Daniela Tejada told BBC Radio 4 that she was “happy” and “relieved” at the news. “It’s been an absolutely nightmarish seven months already and I can’t wait to have him back home,” she said.

Read this next: EU court dismisses case against starting Brexit talks