China’s role in the race to connect the next billion

A Huawei phone. Photo by: Kārlis Dambrāns / CC BY

SAN FRANCISCO — The logo for Huawei, a leading information and communications technology solutions provider, is a flower in bloom. Headquartered in Shenzhen, China — but with products and services in 170 countries — the company has made headlines recently for becoming the third largest smartphone maker in the world, second only to Apple and Samsung. And its growth in emerging markets in Latin America and Africa, made possible with support from the China Development Bank, is what has allowed Huawei to blossom.

The Rise of Chinese Aid series

As China continues to grow as a global power, so too does its footprint on the development sector. Its rise comes at a moment when the status quo is shifting in the aid industry. Traditional standard bearers such as the U.S. and EU may still drive the majority of funds and set the agenda, but protectionist policies and changing domestic priorities are setting in motion significant changes.

In this six-week special series, Devex examines China’s expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development.

Join the conversation on our Facebook discussion forum.

There is growing awareness of the importance of internet access to achieve the Sustainable Development Goals. But as new players enter the race to connect the 4 billion people who remain offline, new questions are emerging about who is providing that connection and what their agenda is. As China’s interest in global development has grown, so too has its influence in the telecommunications sector, with two companies in particular — the privately owned Huawei and state owned ZTE — making up the majority of China’s efforts to connect the unconnected.

In Kenya, M-KOPA, which is known for its pay-as-you-go home solar energy systems, is now selling Huawei smartphones along with solar panels. Partnerships such as this result from work that Huawei has done to pioneer new models to provide access in rural areas where the business case is not always as clear, said Adam Lane, a senior director of public affairs for Huawei, who spoke with Devex from South Africa, but is mainly focused on Kenya.

In 2015, Huawei released a 42-page white paper looking at how to bridge the digital divide. The report outlined what strategies have and have not worked for the company in its mission and motto: “Building a better connected world.”

“Our origin is in providing connectivity in rural areas of China,” Lane said of Huawei, which began with a focus on manufacturing phone switches, but has since grown to more than four times the size of ZTE. “That has always been at the heart of our company and culture. And our founder never lets us forget about it. This is what created our company.”

In a more recent report, the 2017 Global Connectivity Index, Huawei makes three recommendations for digital transformation planning, which provide insight into its own approach to bring ICT to emerging markets. The first is to focus on ICT policies that will incentivize digital transformation; the second is to consider more industry friendly policies to promote digital transformation; and the third is to collaborate with others to ensure there is education for building digital access and skills. Forums such as the Broadband Commission for Sustainable Development allow Huawei to collaborate with other organizations in the global internet access space, Lane said.

Huawei and ZTE rely on state-owned banks in China to offer export credits — non-concessional state loans meant to foster Chinese investment — in order to expand their operations abroad.

“The bases for Chinese state support in telecom is that the industry is ‘strategic’ and Huawei, for example, can be globally competitive,” Derek Scissors, a resident scholar at the American Enterprise Institute with a focus on China, told Devex. “If you believe the government can correctly identify which industries deserve support and which companies will prove most competitive, the Chinese demonstrate a number of powerful tools to assist both industries and firms. But for the U.S., picking ‘strategic’ industries would be a political nightmare and picking worthy firms a legal one.”

A new infrastructure

Even as policymakers become more aware of the value of internet access, and the opportunity to partner with technology companies to deliver it, not all governments can take the same approach that China takes to position these companies for success in emerging markets.

“The internet should be thought of as infrastructure in the same way as roads, highways and ports,” said Suhas Subramanyam, managing partner at the Global Corridor Group, who formerly worked with the Office of Science and Technology Policy at the White House. “When development agencies are thinking about development plans or when countries are thinking about development plans, they should always consider broadband and telecommunications in their plans. It’s the ultimate equalizer and access to it means access to prosperity and economic gains short term and long term.”  

Lane told Devex that Huawei welcomes the competition, but is watching it closely to see whether companies such as Facebook can take projects like the Telecom Infra Project, which is building and deploying telecom network infrastructure, to scale. Meanwhile, when Chinese businesses dominate the internet infrastructure of a particular country, they also dominate the market, with a different internet architecture that can make it difficult for U.S. companies to compete. Advocates for more coordinated efforts between technology and industry to provide universal access say that China’s growing involvement might be the kind of factor that would influence governments to take a more coordinated approach to connectivity.

“The question for the U.S. becomes how can we — having created the internet — export American innovation abroad, and encourage developing countries to retain policies that encourage competition and internet freedom?” said Manu Bhardwaj, a global ICT leader who was formerly a senior advisor on technology and internet policy at the U.S. Department of State. “Given our history with the World Wide Web, countries across the globe rely on our country’s unique expertise and perspectives in the development of their own digital economies. Helping them makes good business sense for our country and remains consistent with our democratic values.”

Suspicions that the Chinese government may have installed backdoors in Huawei equipment have kept the company out of the U.S. market. The company has dismissed concerns that it is wiring emerging market countries for surveillance. But even as Huawei denies these allegations, it remains to be seen whether a country that restricts access to certain sites, including Google, within its own borders will export that approach to other countries.

“There are clear differences between the U.S. and China when it comes to censorship,” Subramanyam said.

Contracts race

While Huawei and ZTE have provided low-cost and generally reliable equipment that has brought the benefit of connectivity to many, they continue to face criticisms, ranging from their tendering and procurement processes, to their tendency to bring in Chinese workers rather than build local capacity.

When Chinese companies are contracted for factors other than competition — such as diplomatic ties resulting from intergovernmental loans between China and African countries that require the purchase of equipment only from Chinese companies — services can end up being less extensive and less reliable, said Ignio Gagliardone, the author of the recently published book The Politics of Technology in Africa.

In 2006, ZTE signed the largest agreement in the history of telecommunications in Africa with the Ethiopian Telecommunication Corporation. Backed by the China Development Bank, the company offered a loan of $1.5 billion to overhaul and expand the country’s telecommunication system. Six years later, ZTE and Huawei each got $800 million contracts to continue the expansion, bringing Chinese investment in Ethiopia’s ICT sector to more than $3 billion.

Ethiopia is just one example of a country where Western equipment suppliers, such as Ericsson, have not been able to match Chinese offers. And despite the unprecedented investments, the low quality of ICT services provided to customers in Ethiopia has kept the country at the bottom of regional and global rankings, Gagliardone said.

Another example is Cuba. While Google offered a plan to provide faster internet at lower cost to the Cuban government, it appeared that Cuba was more interested in working with ZTE and Huawei. Chinese companies have typically provided better quality services in countries where they have more competition, such as Kenya and Nigeria, said Gagliardone, and greater scrutiny for contracts in countries such as Uganda and Zambia have forced ZTE and Huawei to adhere to higher standards.

In fact, in its Internet for All report, the World Economic Forum mentions Huawei’s work on Zambia’s Universal Access Project as an example of the kind of multiparty coordination and cooperation needed to achieve global connectivity. Since 2013, the company has worked with the Zambian Information and Communication Technology Authority and local carriers to implement this initiative, which is designed to deliver network coverage to remote areas. In 2014, the report reads, Huawei connected more than 500 villages for the first time by installing 169 base stations in remote areas of the country’s 10 provinces.

No strings?

Whereas Western donors emphasize liberalization and democratization when supporting ICT programs, China has more of a no-strings-attached approach, which extends from internet infrastructure to its global development strategy more broadly. The government and the technology companies it supports refrain from asking aid recipients to introduce policy changes, Gagliardone said. While some say this more relational and less transactional approach is part of what helps the Chinese win contracts, critics say it allows governments they support with ICT infrastructure to pursue their own priorities, even if that means increasing state control and limiting space for debate because they are less dependent on conditional aid.

Huawei and ZTE have also been criticized for undercutting the prices of their competitors and locking their users into contracts they cannot escape.

“It’s hard to get out of a relationship in the mobile connectivity space,” said Troy Etulain, project director for Mobile Solutions Technical Assistance and Research at the nonprofit development organization FHI 360. “It’s like you marry a company and its services and equipment.”

Huawei tends to follow the old paradigm, in which a mobile network operator, or

MNO, invests in a spectrum license and large-scale infrastructure. But the most exciting innovations in last mile connectivity are a combination of increasingly reliable low-cost hardware with emerging business models that can make these products profitable, Etulain said. New business models are challenging the traditional models of operators, and while that might not be a good thing for Huawei given its preference for large MNO contracts, this shift is welcome news for ICT4D advocates who say the old paradigm has failed in connecting the poorest of the poor.

“It remains to be seen if Huawei will divorce their model from services as part of the picture and just sell their equipment to operators who use it themselves,” Etulain said.

As a leader in sales for network infrastructure equipment, Huawei has a unique capability to drive innovation in how to profitably provide connectivity to the last mile. But in working with MNOs, which typically focus on higher revenue markets where people have smartphones and can afford data, the company is not focused on the poorest markets. It does not seem like Huawei is aware of the emerging competition from low-cost hardware manufacturers — and Etulain said those companies may not mind keeping it that way, since Huawei is so big it could easily produce lower cost hardware and undersell these companies if it wanted to.

“We want the underdogs to succeed, but are technology agnostic,” he said. “We are simply focused on the development goal of equitably connecting people to the internet, which can alleviate social challenges and improve lives.”

In this six-week special series, Devex examines China’s expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development. Join the conversation on our Facebook discussion forum.

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