Lenovo Spotlights China’s Worrisome Mixing of Technology and Nationalism
I’m not a big fan of the Trump administration, but a statement it issued a couple of weeks ago after Beijing pressured some foreign airlines to change their websites over geographic labeling issues made me smile. The statement called the pressure tactics “Orwellian nonsense,” in the administration’s usual off-the-cuff way of dealing with this kind of thing, in this case Beijing’s tendency to politicize business issues that really don’t belong in the political realm.
That particular clash was squarely based in the lower-tech aviation sphere, but another case over the past week is shining a spotlight on how the high-tech sector is one of the biggest lighting rods for Beijing’s fondness for mixing business and politics. The case involves PC pioneer Lenovo, which was arguably China’s first global high-tech success story, even though the company has fallen on hard times lately.
The company recently landed in the center of a storm over a decision it made two years ago, when it voted in favor of a U.S.-developed standard for fifth-generation (5G) wireless communications over a rival standard developed by Chinese giant Huawei. That decision led some online nationalists to start questioning Lenovo’s patriotism, prompting the company’s highly-respected founder Liu Chuanzhi to speak out in his own defense.
I’ve written about this topic before, specifically on how China’s tendency to mix politics and business is a unique risk factor for any foreign company doing business in this market. But as the Lenovo case shows, high-tech is one area with a history of particular sensitivity for a number of reasons I’ll explain shortly. That sensitivity has become especially acute with the recent case involving telecom giant ZTE, which has exposed many of the shortcomings of China’s own high-tech sector.
For those unfamiliar with that story, Washington announced last month it was cutting off ZTE from its U.S. suppliers as punishment for selling American-made products to Iran in violation of U.S. sanctions against the country a number of years back. The case exposed just how reliant ZTE is on foreign technology, despite its status as one of China’s biggest high-tech success stories.
ZTE ceased all operations just weeks after the U.S. action was announced, and is currently trying to argue its case in Washington for relief. In the meantime, many in China have said the case illustrates how China needs to become more self-reliant in terms of technology to avoid being bullied this way in the future.
The bigger picture is that Beijing has come to see China’s high-tech prowess — or lack thereof — as a matter of national pride. The country has embarked on numerous campaigns over the last two decades to influence the setting of global standards, including this latest case of 5G involving Lenovo.
Having your standard chosen by the global community means a lot for not only for national pride, but also for business. That’s because having your standards chosen means you own the intellectual property behind those standards, and anyone who wants to make components or gadgets that incorporate those standards must pay you a royalty. It also means that bullies like Donald Trump can’t hold you hostage with the threat of cutting your companies off from key technologies.
All that brings us back to the Lenovo case, which didn’t exactly surprise me but left me somewhat saddened. As someone who has followed China tech for more than a decade, I can wholeheartedly say that Liu Chuanzhi should be held up as someone China should be proud of and hardly deserves the label of traitor. This was the man who created a company that was arguably China’s earliest high-tech star, making global headlines with its purchase of IBM’s PC business more than a decade ago, and then going on to take the world’s PC crown from the much-older and better-known HP in 2012.
I only wish that the White House could have sent a similar “Orwellian nonsense” message about the accusations against Liu, even though of course it had no reason to stick his nose into this kind of purely internal Chinese debate. The fact of the matter is that business should never be mixed with politics, since doing so is an almost surefire ticket to a company’s eventual demise by putting more important issues like quality and commercial viability into the back seat.
I can personally vouch for the silliness of making financial decisions based on nationalistic principles using one of my own experiences back in the 1990s. That came when I decided to buy an American-made car over a Japanese model, even though I knew the latter was probably better. In the end the American car ended up breaking down after just four years, and caused me no end of headaches and expense in its final months before I ended up scrapping it.
But no one in China is likely to care what I, a foreigner, think when it comes to such internal matters as defining who is patriotic and who isn’t in high-tech matters. So I was quite heartened when earlier this week nearly 100 high-tech leaders, including the likes of Alibaba and Baidu founders Jack Ma and Robin Li, rallied to Liu’s defense in an open letter calling such politicization “a sad thing for society.”
At the end of the day, Liu Chuanzhi has plenty of things to worry about at his rapidly declining Lenovo. The company’s smartphone business seems to sink to new lows each day, most recently falling out of the top five brands in India. Its core PC business is stagnating, and it was recently booted from Hong Kong’s Hang Seng Index as its stock sank to levels not seen for nearly a decade. Things certainly aren’t looking good right now for this Chinese high-tech pioneer, but issues of patriotism or lack thereof should have no place on this or any company’s list of problems to worry about.
Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com
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