This text comprises excerpts from the text titled: “Arresting Huawei’s march in Warsaw” published on Sinopsis with minor additions and with focus on the impact of the Beijing’s economic retaliation. Full text with links to sources can be found here: HERE
The Huawei espionage affair and blunt statement of Polish authorities concerning the steps that can be taken by against company surprised analysts. Minister of Internal Affairs Joachim Brudziński has admitted that the ban on the Huawei equipment in the Polish market is under consideration and that Poland expects actions in this field to be taken by EU and NATO. Karol Okoński, vice minister of digital affairs and government plenipotentiary for cybersecurity, has announced a national screening of Huawei installations and equipment used in public administration and across suppliers of critical infrastructure such as banks, healthcare, transportation and power supply. Mass consumer products such as smartphones and tablets will not be subject to the screening. The procedure can take weeks or even months. If the authorities rule that Huawei equipment poses a threat, an official warning can be issued recommending its exclusion. Under current law, it’s not clear how to implement compulsory massive replacements of equipment in use, but there are already possible ways to exclude the company from public tenders. Stanisław Żaryn, a spokesman for the Minister-Coordinator for Special Services informed that the Internal Security Agency had prepared general recommendations for public administration on the use of telecommunication equipment, also including equipment delivered by Chinese companies. Officially, the recent ABW operations targeted individuals and are not aimed at Huawei as a company.
Espionage is actually a minor issue when compared to the problem of Huawei’s presence in Poland and steps Chinese authorities can take in response. Beijing will not retaliate to protect a Huawei mid-level manager, but it might if its top tech company is forced out of Poland. Huawei is China’s national champion and actions against the Shenzhen company are treated by Beijing as an act of unfriendliness to China. In its promotion of the global expansion of its tech brands, Beijing can retaliate if the Xi administration’s pet projects get into trouble. The Polish side’s accusations of posing a threat to national security can irk Beijing, as they debunk the cherished myth of Huawei and other Chinese giants as enterprises with purely commercial background and strategic goals. Huawei’s reputation can be harmed and its ability to penetrate foreign markets can be significantly limited. There are, however, fears in Poland that such a blunt move against Huawei could, if decisive actions are taken, worsen relations with China and bring economic losses. The key questions to be answered are: is Poland vulnerable? How much can Poland actually lose by supporting US and challenging Beijing over such issues as cybersecurity?
Such fears are not unfounded, but they seem to grossly exaggerated. Polish exports to China, which gained a little momentum in 2017 with 20% growth, have lagged in the first ten months of 2018, growing only 11%. China holds the distant 21st place on the list of Polish export markets. The growth of Polish exports to China during that period was below that of those to 16 out of the 20 top destinations. Poland’s trade deficit with Beijing grew steadily between 2008 and 2017, with imports exceeding exports roughly by a factor of ten. The cumulative trade deficit was a above 180bn USD during that decade. It also grew dynamically in 2018. Some industries seem especially vulnerable. Polish food exporters express worries about the possible impact. Food is one of the few consumer products said to have a chance in the Chinese market. However, as Rzeczpospolita commented, the impact will be quite limited. Polish companies are treated as petitioners in China, not as serious partners. Polish food exports to China are smaller than to Slovenia, with two million inhabitants, and 14 times smaller than to the Czech Republic. The nearly one-year delay in allowing the access of Polish poultry to the Chinese market after its recognition as free of avian flu is a good example how Beijing treats Polish business. More vulnerable to retaliation are the few large enterprises operating in China. The top exporter to China is copper conglomerate KGHM, with a roughly 30 percent share of the total exports to the PRC. The Chinese market is quite important in the company’s sales volume. KGHM (p. 41, 64) has long been a partner of Minmetals Corporation (中国五矿集团公司), one of China’s central SOEs. Another large enterprise, Chipolbrok, established in the 1950s, is also connected to Chinese state-owned companies. These connections don’t mean, however, that both companies will be insulated from any consequences. Selena, a private producer of construction chemicals, runs subsidiaries in China. Chinese direct investments in Poland till the end of 2017 were mediocre at best, with a stock ranging between as much as $1bn and as low as $130m, depending on the methodology. Any number within that range is much lower than the amount of investments made by the leading foreign Western investors, or even in comparison to East Asian peers. The FDI in 2018, with a declared value over $50m, doesn’t make any difference. Chinese financing for infrastructure projects is also not an attractive choice for the Polish government, which has better options. There are other possible areas of economic retaliation, but the possible impact on Poland would still be limited.
From a strictly economic point of view, the strategic partnership with China has not brought many benefits for Poland so far. On one hand, it’s a serious drawback that Polish enterprises could not benefit from the Chinese market opportunities the way the competitors from other countries did for years. It is regrettable that Chinese investments have not contributed to Poland’s industrial and economic development. The current Polish government has also grown irritated by the lack of progress in the field of economic cooperation with China and that could seriously influence the Polish decisions on Huawei. The trade deficit and barriers to access to the Chinese market have become a thorny issue, raised publicly on many occasions by various government representatives and bodies: PM Morawiecki, a government committee established for steering cooperation with China, the Ministry of Foreign Affairs, the Polish ambassador to China and so on. At the end of the day, China’s lack of serious engagement in Poland and limited support for creating opportunities for Polish enterprises in China actually deprived Beijing of a major source of economic leverage over Warsaw. While the rising Chinese economic influence is a fact, such assessments as that made by Warsaw University professor Bogdan Góralczyk that Beijing is able to pull the strings in Poland seem exaggerated. The Polish government’s harder stance towards Chinese operations can, if managed properly, actually bring Beijing to be more receptive to Poland’s needs and to offer more attractive cooperation options.