Scott Kennedy

Opinion | Why the arrest of Huawei’s CFO amid trade war tension should not push China to rely more on home-grown technology

Scott Kennedy says techno-nationalism is a fool’s errand and instead of doubling down on self-reliance, China should launch a new great leap of reforms, given that the sectors which are most open to competition have performed best

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Scott Kennedy

Published: 2:00am, 17 Dec 2018Updated: 6:36pm, 24 Jan 2019

Just as it appeared that US-China relations had received some breathing space with a 90-day respite in new tariffs, a punch to the gut came in the form of the arrest of Huawei executive Meng Wanzhou. Given Huawei’s importance as China’s most successful hi-tech company, Beijing will need to stay focused on its strategic long-term national interests. Otherwise, the US-China relationship could suffer a knockout blow from which it would be very difficult to recover.

Potentially incendiary incidents are nothing new. The 1995-1996 Taiwan Strait crisis, the unintentional bombing of China’s embassy in Yugoslavia in 1999 and the collision of military aircraft above Hainan in 2001 also incited nationalist passions. But in these cases, China’s leadership eventually tamped down emotional reactions and compartmentalised these problems in the name of preserving the overall relationship.

The case in Vancouver involves only a single individual and is being handled by a country with a strong rule of law tradition. Given Canada’s desire to maintain strong commercial ties with China, it wouldn’t run the risk of offending Beijing were there not significant evidence justifying these actions. Yet this case seems like it could be so damaging because the broader atmosphere has already soured and the relationship feels genuinely fragile. Also, because it is likely to be far from the last shoe to drop in the West’s focus on Huawei and cybersecurity.

The big question of the moment is: how should Beijing respond at this historical juncture, not just to this case but to the larger choice it faces? The worst thing China could do would be to conclude that it should double down on self-reliance and the strategy of indigenous innovation.

People hold signs and Chinese flags in support of Meng Wanzhou, chief financial officer of Huawei Technologies, outside a bail hearing at the Supreme Court in Vancouver, Canada, on December 11. The arrest of Meng in Canada provoked outrage from China at a critical point in trade talks with the US. She faces extradition to the US over alleged violations of American sanctions on Iran. Photo: Bloomberg

My multi-year study on China’s hi-tech drive shows that the country has been most successful in those sectors that are most open to competition and where Chinese companies have integrated themselves into global supply chains and innovation networks. It is no surprise that e-commerce and online services have blossomed in an environment of wide-open competition and diverse people, institutions and funding models.