US trade disputes: Has China taken more than it can chew?

Thursday July 23 2020

 

By Karoli Ssemogerere

When Mr Donald Trump was elected in 2016, China was in a time of ascendancy. It had big infrastructure leases, construction projects as far as the eye could see; Mombasa port, projects in Ethiopia, Zambia, Uganda, Malawi, construction of the SGR Railway that is yet to reach its final destination.

But none of these is as lucrative as network access delivers high speed Internet and moves data for miles from the inland to the sea.
These services have made providers like Huawei, ZTE very rich and they are knocking on multiple doors of device makers like Apple and Samsung, which sell more profitable phones and components.

These services have an added lining on the revenue the infrastructure has to be serviced, ultimately serviced with healthy monthly fees.
China has been able to negotiate these big contracts because its business model is distinct. It has a big fund planted in Eximbank that considers the financing aspects of them.

In the earlier years, most projects were easily approved, debt stock was low so they were not taken as a big risk but they gave companies like Huawei a big boost to test technologies as they laid the Internet backbone that surprisingly delivers better speeds than countries operating infrastructure.

Now China has its sights set on the lucrative Western markets seeking to modernise their telecommunications by installing high-speed data networks. President Trump sees this as an intrusion in the holy grail as America is the largest telecommunications market.

The Americans want certain officials of the company investigated and possibly charged and have a pending application for extradition of Huawei’s treasurer, who was arrested in Canada. Trump first bundled them from the US and applied pressure on Britain and the EU to do the same. The British National Security Council cued on recommending cancellation a very lucrative 5G contract.

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But many countries have also taken pause as China has risen with a lot of clout, it has become even more aggressive in curbing internal dissent, disabling and dispersing minorities inside its borders like the muslim Uighurs and Tibetans. It has claimed the South China Sea for military exercise.

Halfway the decade, China lifted its presidential limit, which means technically the leader could rule for a significant period. China since its founding, did not have this problem as leadership regularly changed. Many Chinese have become very rich, but this may not be enough.

In Hong Kong, a former British colony, its patience was tested and the Chinese watered down the 1997 protections to protect Hong Kong’s semblance of a democracy for at least 50 years. Protests which often develop into anarchy created scenes of anguish in one of the world’s most successful economies.

Rumours of rolling default on Chinese project loans all over the world may be exaggerated, three years after the alarm bells were sounded. Borrowers from China are required to maintain substantial escrow account to meet their interest obligations.

Trump has slapped tariffs on Chinese commodities, but this is a situation that yields modest revenue although the US needs markets for its corn, soybean but its very popular among his supporters in the Midwest who perceive he is doing something.

Other countries, including neighbours India, who have been in a stealth over the Chinese border in a mineral-rich area, Australia, which delivered a rebuke to China asking for answers surrounding Covind-19 followed by the British, who threatened to sue the Chinese for negligently causing the spread virus.

The American giants in China want to move to Vietnam, which has become a mini-hub of business, but at a very small scale. The Japanese government wants to pay its companies to return to Japan as it starts to have a more liberal immigration programme. Huawei finds itself at the centre of all these things.

Mr Ssemogerere is an Attorney-At-Law and an Advocate. kssemoge@gmail.com