South Korea caught between two superpowers as U.S. & China battle over Huawei technology
Asia News Network
With the US government ramping up pressure on its allies to reject Huawei Technologies equipment for establishing 5G cellular networks, South Korea is struggling to come up with a response amid the escalating conflicts between the world’s two superpowers.
The Trump administration has reportedly urged the Korean government to prevent companies from purchasing Huawei’s equipment. Citing LG Uplus as an example, an unnamed State Department official has demanded a halt to the mobile carrier’s operations in “sensitive areas,” according to local news reports here last week.
While acknowledging US security concerns, the Ministry of Foreign Affairs has reportedly reserved its position as it is difficult for it to interfere with a private company’s business decision. A ministry spokesperson told reporters Thursday last week that it has consulted with the US on the matter, but didn’t reveal specifics of what was discussed.
“The US has stressed the importance of ensuring security of 5G equipment and we are well aware of its position,” the spokesperson told reporters. “Korea and the US have been constantly consulting on the issue.”
The Moon Jae-in administration’s cautious approach appears to reflect a lesson that Korea learned the hard way when it decided to host a US missile defense system despite opposition from its biggest trading partner.
Retail giant Lotte Group and its affiliates in China suffered massive business losses in 2017 — months after the conglomerate sold land to the Korean military to deploy the THAAD anti-missile defense system.
Lotte was not the only company that bore the brunt of China’s ire over the issue. Sales of Hyundai Motor and cosmetics maker Amorepacfic also saw a steep decline in China. The retaliatory measures appeared to have eased when the Chinese government allowed Lotte to resume work on a shopping mall and leisure facilities earlier this month.
“The US message appears to be simple: We don’t want to rush, but you better come up with your own answer to the Huawei issue,” said a government official, requesting anonymity due to sensitivity of the issue. “Given that the THAAD crisis is still etched in our memory, it’s complicated.”
Chipmakers stuck in middle
While expanding its business in Korea aggressively since entering the market in 2007, the Chinese company has already emerged as a major supplier to domestic firms supplying components for smartphone manufacturing.
During his meeting with Korean reporters last month, Huawei’s rotating Chairman Guo Ping stressed that it purchased about 12 trillion won ($10.1 billion) worth of smartphone components from Korean suppliers.
The amount of trading volume has posed a dilemma for Korean chipmakers who sell to Huawei such as Samsung Electronics and SK hynix, as their partnership with Chinese companies has grown over the past few years.
According to an industry watcher, China’s share in Samsung’s 2018 revenue was about 18 percent, 2 percentage points up from a year earlier. It sold about 43.2 trillion won worth of products in China last year.
SK hynix’s reliance on the market has grown even deeper, with its sales accounting for 47 percent of the total revenue. It was 10 percentage points increase from a year before.
“In the short term, there could be little negative business impact,” said an official from a Seoul-based electronics company, who was not authorized to talk about the sensitive issue. “We are aware that Huawei has stored enough inventories to sustain its business for a few months.”
“But the problem lies in long-term prospects. If the current US-China trade war, or tech war, continues and US puts more pressure on its allies to abandon Huawei, it is definitely bad news.”
It is still not certain that the US would “punish” Korean companies for selling their products to Huawei. The Donald Trump administration’ has added Huawei to “Entity List” — a measure that makes it harder for companies to do business with the Chinese company. It applies to US tech companies such as Intel and Qualcomm.
But some officials here are cautious about the possibility that the US Commerce Department would extend the measure to third-party entities that have strong business ties with Huawei and other Chinese companies.
The US has been ratcheting up pressure on its allies to cut business ties with Huawei. In February US Secretary of State Mike Pompeo warned that continuing business with Huawei would make countries more difficult to “partner with” Washington.
“We are closely watching what kinds of specific measures will follow the announcement of the list,” said another government official, requesting anonymity. “Particularly we are paying attention to whether it would involve a secondary boycott.”
Mobile carriers seek to remove Huawei label
The country’s mobile carriers appear to have joined the fray. While they have little business presence in China’s telecom markets dominated by local providers, the three leading telco operators are seeking to distance themselves from Huawei due to marketing concerns.
SK Telecom, KT and LG Uplus have reiterated that they are not going to sell Huawei’s latest smartphones to Korean consumers. Currently, the only available Huawei smartphone is P20 Lite worth 310,000 won and the gadget is being provided by KT. The company said it has yet to decide about stopping sales of the low-cost smartphone.
The telco’s involvement in installing Huawei equipment in a Korean financial institution appears to have been suspended. NonHyup Bank has reportedly withdrawn its plan of pursuing a 120-billion-won business of adopting Huawei equipment in its wired banking system
“Any connection with Huawei looks bad right now in terms of marketing strategy,” said an official from a telco. “Companies will most likely act fast, faster than one would think, to a direction (that is deemed more favorable) with or without government guidance.”
At the center of spotlight will be LG Uplus, the country’s only mobile carrier that uses Huawei equipment for its 5G wireless network in Seoul and its surrounding metropolitan areas.
It has repeatedly downplayed the security risks involved. There has been no specific request from the government to remove the equipment, the company said, adding that it had never installed Huawei gear near US military bases in Korea. It said it has relied on Swedish frim Ericsson to build a network since establishing 4G Long Term Evolution.
Some network security experts said given the stakes the Trump administration put in its confrontation with China, the Korean companies should be cautious about expecting the US to bury the issue permanently.
“Theoretically speaking, wireless networks could be more vulnerable to outside hacking attempts than a wired network,” an expert from a Seoul-based telecom company said, requesting anonymity.
“Compared to wireless networking system where a public network is physically isolated from internal ones, hackers can assess USFK military networks from the backdoor in a remote wireless network. Although it has not been reported yet, it is theoretically possible.”
Not exactly THAAD, but…
Experts said while the Moon administration should learn lessons from its previous trade dispute with China over THAAD deployment, it should understand things are not exactly the same as before.
Unlike the THAAD controversy, Korea will not be the only country that China will retaliate against. United Kingdom, Japan, Australia and others have joined the US-led efforts to restrict Huawei from establishing their 5G networks.
The companies likely to be affected are not as clear as those from THAAD. For example, Samsung Electronics might end up benefitting from US sanctions as it can increase its share in the world’s smartphone market.
“I don’t think China would retaliate the same way it did during the THAAD controversy,” said a former senior foreign official, who requested anonymity due to the sensitivity of the issue. “The impact is so complicated.”
“I think the government should act on two lessons: whether it would undermine our national security and violate free market principles. In other words, the government should figure out how dangerous Huawei equipment is and let private companies decide on whether to ban it.”
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