How China Took Western Tech Firms Hostage
And what the United States and Europe can do about it.
In a recent scene straight out of a spy thriller, a powerful man, speaking under obvious duress, pleaded with the leaders of his country to comply with the demands of the organization that had him in its grip. Although it recalled the 1970s scenes of Italian Prime Minister Aldo Moro pleading from Red Brigade captivity and Hanns Martin Schleyer, the president of the German employer federation, after being kidnapped by the Baader-Meinhof Gang, in this case it was actually Börje Ekholm, the CEO of the Swedish firm Ericsson, and his captivity was not physical. Under pressure from Beijing over Ericsson’s home government’s banning of some Chinese telecoms technologies, he feared for the future of his business. His is not an unusual case. In today’s global trade competition, companies are becoming easy prey for hostile governments. Their home governments and citizens should back them up.
Ekholm’s tale, which emerged in Swedish media over the holidays, was a painful one. Earlier, he had sent text messages to the country’s trade minister, Anna Hallberg, bewailing Sweden’s decision earlier in 2020 to ban Huawei and the smaller Chinese firm ZTE from its 5G telecommunications network. The ban hadn’t been Hallberg’s doing; the decision was made by an independent government agency, the Post and Telecom Authority. Ekholm, however, was looking to send a message through her to that bureau. “At the moment Sweden is a really bad country for Ericsson,” he told the minister, implying that Stockholm had let his firm—synonymous with Sweden in much the same way as Ikea, Saab, and the now Chinese-owned Volvo are—down. Unfortunately, Ekholm forgot about Sweden’s transparency laws, which mean all communication sent to the government is public. Journalists found his text messages and published them, to widespread outrage that Ekholm would do Huawei’s bidding.
Indeed, why on earth would the CEO of Ericsson, one of Huawei’s two top competitors, beg his government to reverse a decision that clearly favors his firm? Although his texts made news, Ekholm had even said much the same in newspaper interviews (including one with the Financial Times): Sweden should reverse its Huawei ban. The reason, of course, is that Ericsson sells products in China, too. In 2019, for example, China’s top three telecommunications operators—China Mobile, China Unicom, and China Telecom—signed agreements with Ericsson to use its tech. The same year, the Swedish firm opened a smart factory in China, where part of its manufacturing takes place, and much of Ericsson’s sales growth that year came from Chinese markets.
When Sweden announced its ban on Chinese 5G technology in October 2020, the Chinese foreign ministry’s spokesman Zhao Lijian warned that the decision would cause a “negative impact” on Swedish companies. On Jan. 4, Ekholm told a Swedish newspaper he’d been put under pressure by Chinese authorities. The treatment has been worse for other companies. In the case of Australia, whose government has banned Huawei and has called for an independent inquiry into the origins of COVID-19, Beijing has proven it’s willing to go beyond threats: Last year it imposed such punitive tariffs on Australian wine that the Australian wine sector lost its main export market. Starbucks’s former CEO Howard Schultz, meanwhile, recently received a letter from Chinese leader Xi Jinping, who wrote “to encourage [Schultz] and Starbucks to continue to play an active role in promoting Chinese-U.S. economic and trade cooperation and the development of bilateral relations.” Considering that Starbucks has thousands of coffee shops in China, a key market for the firm, Schultz may well decide that it’s best to take Xi seriously.
Such corporate hostage-taking is the new reality, and not just for businesses in the headlines. (A Foreign Policy piece by Luke Patey provides a good overview of Chinese commercial coercion.) The reality is this: For firms under pressure from China, it makes little sense to remain loyal to a home country where the share of revenue is often quite small if doing so brings the risk of losing a much bigger market. China accounts for 8 percent of Ericsson’s revenues. In a Foreign Policy article last January, I warned that Ericsson and Nokia may quit 5G because that business is simply too politically fraught. I was wrong about quitting 5G, but Ekholm’s text messages to Hallberg suggest Ericsson could quit Sweden. “Our soul is in Sweden, it’s Ericsson’s base,” he said in an interview. “But if Sweden doesn’t support free trade it is a complication for us,” he typed. Western governments, in turn, face losing major companies or losing their independence from business interests.
Fortunately, there are some ways in which the West can help its globe-spanning companies evade the threat of coercion—and so help themselves avoid being bullied as well. Governments could incentivize and encourage businesses to move their supply chains to safer countries; indeed, thanks to lower manufacturing costs elsewhere, for the past few years global companies have slowly been moving manufacturing out of China to places like Vietnam and Cambodia. (That exodus has been accelerated by U.S. tariffs on Chinese-made goods.) To bring more high-tech manufacturing home, governments could create innovation incentives to make manufacturing more efficient. That can be costly, sure, but it’s less expensive than losing major firms.
Western governments could also support their companies in expanding outside China. Around the world, developing countries will soon be building 5G networks, too. It would only be sensible for the Swedish government to give a helping hand to Ericsson in any efforts to be the provider of that technology, much as the French government does with French arms-makers and Beijing does with virtually every Chinese company. Indeed, considering that Ericsson and Nokia are the only real alternatives to Huawei and thus vital to the West, other governments should support Sweden (and Nokia’s home government, Finland) in such an effort.
A united front that extends far beyond 5G is also crucial if the West is to have a chance of preventing more Ekholm-style misery. “That’s the declared hope of the incoming U.S. administration,” Risto Penttila, the secretary-general of the European Business Leaders’ Convention and convener of Northern Light Summit, a prestigious annual gathering for European executives, told me this month. “Unfortunately, the [European Union]’s rush to conclude a trade agreement with China makes this strategy very difficult to implement. The second strategy is for corporations to be as neutral politically as possible. This strategy is not easy to implement either since consumers increasingly want corporations to be politically active.” Governments could also regularly update business leaders on national security developments. Finland’s National Defense Course, a highly selective program taught by the government to rising managers, has created a nationwide network of leaders who understand national security.
More radically, Western governments could buy strategically vital firms such as Ericsson. Last year, then-U.S. Attorney General William Barr floated the idea of his government buying controlling stakes in Ericsson and Nokia—and one of Ericsson’s major owners liked the idea. “A U.S. interest in Ericsson is clearly positive for Sweden, the company and the shareholders,” Cevian Capital managing partner Christer Gardell told Reuters at the time. Barr and Gardell have a point: 5G is so vital to countries’ national interest that the government may need to be involved as an owner, much as is the case with postal services and water provision in many Western countries.
But reducing exposure to China is not just about governments and executives: It’s about citizens, too. Distrust of China in all Western countries has reached record levels. According to the Pew Research Center, 73 percent of Americans now have a negative view of China, as do 81 percent of Australians, 74 percent of Britons, 85 percent of Swedes, and 71 percent of Germans. Combined, the West fields enormous consumer power, not just in buying but also in shaping companies’ brands. Through their actions, consumers today can reward companies that limit their exposure to China, at the small inconvenience of paying more for T-shirts, smartphones, and cars. Meanwhile, the more public attention hostage-like pleas by top executives receive, the more China’s reputation suffers.
In a globalized economy, governments can make some progress, and so can companies, but consumers have to put their money where their mouth is. Otherwise they, too, support the system that ends with us all hostage to China’s interests.