Wheels within Wheels
In the world of Horology, (the study of time and clocks) the mainspring or pully provides the source of power while the ratchet prevents the pully from unwinding. The pulley has gear teeth, which then drives the centre wheel. The centre wheel then drives wheel within wheels, which ultimately divides the motion. All entirely encased with the magic hidden from view from prying eyes.
Boris Johnson raised eyebrows when he decided to allow Huawei to invest in the U.K.’s 5G infrastructure. A decision, which baffled many given the Chinese provider ZTE has been banned from the U.K. communications infrastructure since 2018 because of “national security risks” that “cannot be mitigated.” Immediately following his decision, a fine-tuned, orchestrated and a well-connected alliance was born between those holding genuine concerns and American corporate interests, which outmanoeuvred Johnson within six months. On the 14th July 2020, Johnson had flip-flopped and ordered telecommunication companies operating in the U.K. to strip equipment from Huawei out of their systems by 2027.
A decision, which was taken in a post Brexit environment by a Government desperately trying to clinch trade deals with countries from around the world. While at the same time seeking to maintain the trading benefits of the Single European Market without being a member of the club.
The U.K. now finds itself led by a Prime Minister increasingly engrossing himself in the delusion of commanding an economic empire free from constraints, which hold others back, to wheel and deal like a global Del Trotter. His self-styled Winston Churchill caricature, proud and defiant against all the odds, which he skillfully presented to the U.K. electorate just a few weeks before, was about to be given a short shift.
The brutal reality of the U.K. solo and naked in the cold waters of international trade deals was about to be devastatingly exposed. The battle Johnson unwittingly led the U.K. into was not merely one of state security.
The Peoples Money v The Dollar
The People’s Bank of China has strategically kept the Yuan at a fixed exchange rate to the dollar, which has allowed China’s economic growth to soar thanks to low-cost exports to the United States. As a result, China’s share of international trade and gross domestic product grew to around 10%.
In 2015, the International Monetary Fund awarded the Chinese Yuan status as a reserve currency. In the same year as international trade grew, so did the popularity of the Yuan, when it became the fourth most-used currency in the world rising from 13th place in just three years.
In doing so, it surpassed the Japanese yen, Canadian loonie, and the Australian dollar. A position, which left many in no doubt that China’s long term plan is to replace the U.S. Dollar with the Yuan as the world’s trading currency.
The Frontline of an Emerging Trade War
What we may be witnessing here is not only the opening salvo’s of a trade war but the struggle for global economic supremacy between two of the biggest economies on the planet.
Boris Johnson’s flip flop on Huawei drew condemnation by the Chinese Government as both disappointing and wrong, which will likely result in recriminations from the worlds third-largest economic superpower.
The European Union, the worlds second-largest economic power has slowly been distancing itself from Huawei given its almost self-sufficient capacity in the manufacturing of telecommunications and concerns over long term security. On the other hand, President Trump, leader of the worlds biggest economic superpower, welcomed Johnson’s decision, “We convinced many countries, many countries – and I did this myself for the most part.”
Although the recent events in Hong Kong and the Huawei debacle have chilled relations, Boris Johnson has never hidden his fondness for China, a family trait. His younger half-brother, Max Johnson company (M.J. Capital), based in the Chinese province of Hong Kong proudly boasts its “at the crux of UK-China business….we connect capital seekers with capital providers…across a broad spectrum: real estate, consumer, technology, education, sports, and media…for Western brands looking to establish a presence in Asia or vice-versa.”
Max was the first U.K. citizens to join the MBA program at Tsinghua University School of Economics and Management (SEM), one of China’s most respected schools. When asked why he had chosen Tsinghua, he did not hide his motivations during an interview with Business Because in June 2020, “….the chance to mingle with China’s elite”.
Tsinghua University’s founding dean, Zhu Rongji, was the fifth Premier of the State Council of China (a role often referred to as China’s prime minister). Both current Chinese president Xi Jinping and former Chinese president Hu Jintao graduated from Tsinghua University. The current mayor of Beijing, Chen Jining, is the university’s former president.
Taking Care of Business
There are many justifiable reasons to question how and why the U.K. should do Business with authoritarian regimes, like China, Saudi Arabia, etc. However, the alarmist narrative now being spun by elements of the Conservative Party that it is far too risky to allow Chinese investment into our sensitive national infrastructure only tells half the story.
After all, these concerns did not prevent a Conservative Party-led Government granting a nuclear site licence in 2012 for the construction of the Hinkley Point C nuclear power station. China General Nuclear Power (CGN) holding a 30% equity stake in this project.
Boris Johnson’s initial decision to allow Huawei a foothold in the U.K. telecommunications market was one of his first significant strategic decisions he made after his election victory on 19th December 2019 and following the Christmas/New Year holiday.
A Christmas/New Year holiday widely reported at the time and according to the M.P.s’ register of interests, had a value of £15,000, which was covered by David Ross, the co-founder of Carphone Warehouse.
The Dark Forces Amass
5G technology has the potential to be a revolutionary force for good. It provides us, businesses to engage with one another much more comfortable, faster and better. It will enable autonomous cars to read maps and power drones to undertake complicated search and rescue missions, etc.
Large quantities of money and power also attract dark forces. The estimated global value of 5G is $12.3 trillion and 22 million jobs by 2035, which means this emerging market will not be an exemption from these dark forces.
Very broadly, the 5G infrastructure requires a wireless communication network, which consists of ‘base stations’ and operating ‘software systems’.
Base stations often referred to as single-purpose providers: These are traditional providers who have built and deployed equipment likes masts in town and cities around the world to support wireless networks.
Multi-purpose providers: These are the corporations who develop software programmes, operating and information storage systems, artificial intelligence, augmented reality, virtual reality and Data Center Infrastructure Management (DCIM) software. Without these systems, the single-purpose providers are just pieces of junk. I’m going to come back to DCIM towards the end, so keep a note.
Estimates are that software infrastructure spending will increase between 20% and 50% annually, reaching £300 billion by 2025. Multi-purpose providers are worried and are seeking to forge closer working partnerships with single-purpose providers for a good reason. The ownership and geographical location of those corporations seen as market leaders in both single and multi-purpose provider market start to tell the story:
- Ericsson: Swedish
- Huawei: Chinese
- Nokia: Finish
- Samsung: South Korea
- ZTE: Chinese
- Cisco Systems: USA
- Dell: USA
- Hewlett Pickard: USA
- Aruba (a subsidiary of Hewlett Pickard): USA
- Lenovo: Chinese
Unlike other companies in the market place, Huawei can tap into Chinese government subsidies to the tune of over $200 million based on its most recent annual report as well as an extensive line of credit for its customers estimated at a staggering $100 billion. These levels of subsidies enable Huawei to enter markets on a loss leader basis and undercut their competitors.
Forbes, January 2019, reported that Huawei was already developing in-house A.I. solutions for its infrastructure.
The emerging nightmare for corporate America is Huawei being allowed to continue its global growth, and the risks of them combining single and multi-purpose technologies by embedding Huawei software in their telecommunications infrastructure, coupled with the continued growth of the Yuan.
Project Kill Huawei
Project kill Huawei in the U.K. was initiated immediately after Johnson had made his decision.
The Heritage Foundation, a right-wing conservative think tank based in the USA with a budget of approximately $90,000,000 was quickly off the mark. The Foundation is a firm supporter of the Trump presidency with an estimated 60 of the Foundation’s employees, and alumni given positions in the Trump administration.
Notable trustees of the Heritage Foundation, include Rebekah Mercer; Director of the Mercer Family Foundation and daughter of Robert Mercer, the American billionaire hedge fund manager, and former principal investor in the now-defunct Cambridge Analytica. The company that played a crucial role in the campaign for the United Kingdom to leave the European Union by donating data analytics services to Nigel Farage. The Mercers own the right-wing blog Breitbart News, whose ex-executive chairman was Steve Bannon who also served on the board of Cambridge Analytica.
One of the Foundations claims to notoriety is Jason Richwine who co-authored the think tank’s report on the costs of amnesty. He resigned following intense media attention on his Harvard PhD thesis from 2009 and comments he made at a 2008 American Enterprise Institute forum.
Richwine argued that Hispanics and Blacks are intellectually inferior to Whites and have trouble assimilating because of a supposed genetic predisposition to lower I.Q.
Michael Gove MP, the Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office in Boris Johnson’s Cabinet, has strong links to the American Enterprise Institute. According to his register of financial interests, Gove declares monetary donations from the AEI to attend their meetings in America.
The Heritage Foundation proudly boasts that it was “at the forefront of urging the British Government against going down the path of giving Chinese companies a stake in 5G. Heritage scholars met with senior British officials in London and Washington earlier this year, as well as with leading Conservative members of Parliament, conveying deep-seated U.S. concerns over the involvement of Huawei in Britain’s 5G network.”
The British politician who has been marshalling the backbench Tory revolt against Johnson’s decision to allow Huawei access is no other than Iain Duncan Smith MP. Smith has strong ties with the Heritage Foundation, and over the years he has enjoyed expenses paid junkets to visit America as their guest.
In February 2018, Smith also declared share options in NLYTE Software Ltd with a value of more than £70,000. NLYTE Software provides DCIM software and I.T. Asset Management solutions to an array of businesses, including CISCO the leading U.S. corporation, which coincidentally is in the Business of multi-purpose technologies.
Smith’s big idea while the Work and Pensions Secretary was the rollout of six welfare benefits into one universal credit. It did not take long for the wheels to come off given the policy seemed to be driven by political dogma rather than practical deliverables. As the Guardian Newspaper report, “The system collapsed into expensive chaos. Not only did many genuinely disabled people suffer needlessly, but – more important from the Governments perspective – the savings failed to materialise.”
A fellow Conservative traveller in the Heritage Foundation network alongside Smith, who has enjoyed expenses paid junkets to America is Liam Fox MP. The disgraced former defence secretary, also sacked by Johnson as trade secretary has been nominated by Boris Johnson to lead the World Trade Organisation.
The hapless Fox had famously said that a Brexit free trade deal with the E.U. would be the “easiest in human history” and he would sign 40 free trade deals the second after Brexit.
The delicate balance between any notion of democracy and free-market capitalism is similar to the workings of a clock with its fragile set of levers, movements, cogs and wheels. We may not understand its secrets, yet so much relies on it functioning. When it goes wrong, it’s normally out of sight, and we only notice when it is far too late.