Should China wield antitrust laws to counter US attacks on Huawei amid global tech competition?

Beijing sees a tit-for-tat strategy as essential to ensuring US cooperation. But weaponising laws could send conflicting signals to businesses, even as a new antitrust law US law targeting Huawei is unlikely to succeed

Should China wield antitrust laws to counter US attacks on Huawei amid global tech competition?

The US Commerce Department recently announced a measure that will ban Chinese telecoms giant Huawei and its suppliers from using US-made machinery and software to design or produce chips without obtaining a US licence. Many in China perceive this move as aimed at strangling Huawei to maintain American technological hegemony.

The Global Times, a Chinese newspaper that channels the views of hardliners within the government, said “China will take forceful countermeasures”, such as putting US companies on an “unreliable entity list”, launching investigations into US technology companies such as Qualcomm, Cisco and Apple for violations of antitrust and internet security law and halting China’s purchase of Boeing planes.

The government’s response echoes a classic tit-for-tat strategy. Start by cooperating, but as soon as your opponent defects, punish them. After the opponent receives their punishment and learns their lesson, they will think twice before attacking you again.

China is not using this strategy to start a war; rather, tit-for-tat is China’s strategy to maintain peace. In China’s eyes, the key to ensuring US cooperation is the credible threat of punishment. This is only possible if China has the capacity to strike back. This goes back to the insights of Nobel laureates such as Robert Aumann and Thomas Schelling, who applied game theory to the study of war and peace.

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This is not the first time the government has wielded the antitrust law as an instrument of trade and foreign policy. During US-China trade negotiations in 2018, China reportedly withheld antitrust approvals of large merger transactions as leverage against the Trump administration’s aggressive trade strategy.

The most well-known case is the collapse of Qualcomm’s US$44 billion acquisition of NXP Semiconductors, which received regulatory clearances from eight jurisdictions, with China the sole jurisdiction holding up the transaction.

After trade talks derailed in May 2019, China’s Ministry of Commerce indicated it would introduce a blacklist of “unreliable” foreign companies or individuals that had boycotted supplies to Chinese firms without legitimate reasons.

The Anti-Monopoly Law was mentioned as a statutory basis for this “unreliable entity list”. This echoes warnings by Chinese officials that antitrust liabilities would be imposed if American companies cut off supplies to Huawei.

Ntitrust sanctions are powerful and immediate. In addition to holding up multibillion-dollar mergers, the government has the capacity to levy large fines against businesses and impose harsh remedies such as divestiture for violations of antitrust laws.

As revealed earlier this year in the latest draft amendment of the Anti-Monopoly Law, the government is attempting to strengthen the punishment power of its antitrust laws. One striking change is the explicit reference to criminal sanctions, which suggests the introduction of criminal liabilities for executives.

However, weaponisation of antitrust and other administrative sanctions, which leverages access to the Chinese market as an economic sanction tool, is a double-edged sword. The more deterrence it creates, the more backlash it produces.

It will also send conflicting signals to the business community after the country adopted a antitrust Law, promising a level playing field for foreign and domestic enterprises. Arbitrary applications of antitrust law will erode investors’ confidence and harm China’s reputation, the damage to which is much easier done than undone.

Furthermore, the government relies heavily on the US technology industry not just for supplies and investment but also as a political ally amid escalating trade tensions. Earlier this year, when the US Department of Commerce raised a proposal that would block transactions between American technology companies and their Chinese counterparts, Silicon Valley firms flocked to Washington to protest.

Above all, America’s latest salvo against Huawei is unlikely to succeed. No law, however refined, can anticipate all contingencies. Lawyers have spotted several loopholes, pointing out that one way for Huawei to get around the antitrust law is to have contractors assemble its phones and base stations and send them directly to Huawei’s customers.

The prohibitive cost of enforcement further contributes to the law’s incompleteness. Given the complex global supply chain of the semiconductor industry, monitoring compliance will be difficult. Without effective enforcement, even a seemingly stringent law has no teeth. Meanwhile, experts have pointed out that these measures could backfire by pushing the American chip industry offshore.

As America goes low with protectionist measures, China should go high by embracing globalisation, further opening its market and welcoming foreign investors.

Angela Huyue Zhang is an associate professor of law and director of the Centre for Chinese Law at the University of Hong Kong. She is the author of a forthcoming book on antitrust and the rise of China

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This news was originally posted on scmp.com