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After Huawei, the west can’t pull up a drawbridge against China – we stand to lose more

This leads into a debate as to the areas where China is ahead of the west in its technology, or seems likely to become so. Two areas are particularly interesting

Hamish McRae
Sunday 28 April 2019 15:30
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Huawei leak could prompt criminal investigation, says Jeremy Wright

The Chinese ambassador has urged the UK to make an independent judgement on the security aspects of Huawei telecom equipment. There are certainly national security issues here, as my colleague Kim Sengupta argues. But there is also the wider economic dimension, not just for the UK but for all advanced economies. To what extent will China’s growing economic weight in the world mean that we cannot ignore the activities of its major corporations?

You can look at this in big global terms. In about 10 years’ time China will pass the US to become the world’s largest economy, and that will be a seismic event. A huge amount of thought, debate and indeed anguish will be associated with that. Rather less thought has gone into what this will mean in detail. It is true that any western company with global ambitions will have a China strategy, but we mostly still think of it as an emerging market that just happens to have become a very big one.

But it isn’t an emerging market any more. Parts of China are still poor and unsophisticated, but there are regions – notably Shanghai and Shenzhen – that are already fully developed economies. Indeed in some respects what is going on there is ahead of the west.

Huawei is based in Shenzhen, and its campus there is in every regard comparable with its equivalents in North America or Europe. The same goes for many other large Chinese corporations. The west cannot pull up a drawbridge. Or rather if it tries to do so, it will end up damaging itself more than it hurts China.

This leads into a debate as to the areas where China is ahead of the west in its technology, or seems likely to become so. Two areas are particularly interesting: artificial intelligence and battery technology.

Both are such huge and complex subjects that it is hard to do more than generalise, but as far as AI is concerned the general view seems to be that China is level-pegging with the US and ahead of Europe. Its advantage is not so much in the development of AI as such, but rather that researchers in China can be less squeamish about privacy in its applications, than their counterparts in the west. That is not to express a view as to whether Chinese values are superior or inferior to those of the US or Europe, which in any case differ. It is just that it is easier to develop AI applications there.

In battery technology China has the advantage of scale. The country’s electric car market is booming. Whether its technologically is more advanced than the US is not clear. Probably not. But scale gives cost advantages and those are crucial.

It is tempting to see all this as a battle for commercial supremacy, with a national security element thrown in. I suppose to an extent it is. But international trade is not a zero-sum game. Both sides have to gain or the trade does not take place. And not just trade; investment too. If you look at ways in which Chinese investment in the UK has benefited our companies – rescuing London’s black cabs, for example – it is hard to think in terms of commercial winners and losers. Everyone is a winner.

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It is tempting, too, to see Huawei as a test case, the sort of clash that will keep occurring in the years ahead. There is an element of truth in that as well. But I suggest we should resist any swift judgements on this and on other cases. National security threats can always be trotted out to justify any action: Donald Trump used it to restrict imports from Canada, ahead of trade negotiations a few months ago. There is a balance to be drawn between naivety and paranoia. And whatever happens we, and the rest of the west, have to deal with what will soon be the world’s largest economy.

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