To understand Europe’s muddle over China, look at Monaco.

The tiny tax haven, famous for its casinos, has forged an unlikely partnership with the communist state that would have Lenin spinning in his grave. It is going to become a 2-square-kilometer test bed for a new fifth-generation mobile network from Huawei, the Chinese telecommunications equipment maker. The deal has been promoted by Monaco as an attempt to build a “smart nation,” and China is happy no doubt to have a display window in the heart of Europe. China’s President Xi Jinping visited the principality last week, on his way to see French President Emmanuel Macron and other leaders in Paris.

The warm welcome in Monaco contrasts with the chillier reception from some of Europe’s core nations. The European Commission says the EU should be “worried” about Huawei and its security links to the Chinese state; it wants member states to swap information on 5G cybersecurity risks, according to Bloomberg News. The European Parliament has expressed “deep concern” about potential back doors for China into sensitive networks. At the national level, France’s National Assembly will consider a proposal next month to vet telecoms equipment, nicknamed the “anti-Huawei” bill. Germany has been more circumspect, but it’s concerned about security too.

Spooked by the frostier politics, Europe’s phone companies are taking a fresh look at their Huawei ties. But, again, there has been a lack of consistency. French market leader Orange SA has said it won’t use Huawei tech to roll out 5G networks, following a promise by Britain’s BT Group Plc to ditch some of the Chinese company’s equipment. But the telecoms billionaire Xavier Niel encapsulates the confusion elsewhere. His service Free has joined other operators in France in keeping a distance from Huawei, but he owns a majority stake in Monaco Telecom, which is working with the Chinese company to create the 5G enclave in the principality.

Even Europe’s common position on Huawei is somewhat foggy, saying that Huawei should be monitored rather than banned. This compromise acknowledges the EU’s reliance on Chinese technology for its mobile networks.

It’s understandable, therefore, that China skeptics wring their hands about European divisions on how to deal with the country, and how Beijing will keep exploiting them. The Huawei story goes beyond its access to critical infrastructure, raising questions too about China using its economic might to buy geopolitical influence.

The country has poured a huge amount of money into Europe over the past decade. Its foreign direct investment into Portugal, for example, went from nothing to 5.7 billion euros ($6.5 billion) between 2010 and 2016, according to a paper by Philippe Le Corre for the Carnegie Endowment for International Peace. Italy has just become the first G-7 country to sign up to the Belt and Road Initiative, a huge win for Beijing. China is also cultivating ties with countries to the east of the EU such as Hungary.

But there are signs that Europe is stumbling toward a better response. As well as the guidelines about monitoring Huawei, Brussels has provided a new framework for screening foreign investments. It’s not as strict as how the US does this, but it’s a welcome step.

The best way to keep countries like Italy out of Beijing’s orbit would be to open up the spending taps in a similarly generous fashion. The European Investment Bank has already doled out loans to Nokia to fund homegrown 5G developments, and the bloc has just set up a pilot scheme, known as the European Innovation Council, to help local startups. In an ideal world, Europe would have something similarly ambitious to the Belt and Road scheme to offer its members.


Lionel Laurent
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. -- Ed.

(Bloomberg)