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Forget the Wall. Let’s Build Some Towers.

February 9, 2019, 1:24 PM UTC

As David Meyer noted yesterday the Trump administration is preparing to issue an executive order to ban Chinese telecommunications equipment from U.S. mobile networks. According to a report Thursday in Politico, the administration plans to issue the directive later this month ahead the big Mobile World Congress in Barcelona.

For the past several months, the U.S. has been leaning on security allies to do likewise. Politico says Trump intends to sign the order, which would invoke the International Emergency Economic Powers Act, to send a clear signal to allies before they make major purchasing decisions for the next generation of telecommunications equipment.

The move would effectively exclude China’s two largest telecoms equipment manufacturers, Huawei Technology and ZTE Corp., from all new U.S. networks supporting 5G mobile connectivity. The move is certain to complicate U.S.-China trade negotiations which, after a burst of optimism following Chinese vice premier Liu He’s visit with Trump in the Oval Office last month, seem to have bogged down again, with Trump ruling out the prospect of a meeting with Xi Jinping before a key March 1 deadline.

The Politico report lends new clarity to the dynamics of America’s multi-front campaign against Huawei, which flared into public view on December 1 when Canadian authorities, responding to an extradition request from the U.S. Justice Department, arrested Huawei’s chief financial officer, Meng Wanzhou (who also happens to be the daughter of Huawei’s founder, Ren Zhengfei).

The Justice Department alleges Meng defrauded global banks as part of a larger scheme to evade U.S. sanctions on Iran. More recently, Justice announced two broad indictments against the company, one alleging violations of the Iran sanctions, and the other charging that Huawei stole U.S. technology and even had a bonus plan to reward employees perpetrating that theft. U.S. officials also have warned that, because Huawei is a Chinese company and obliged by law to follow orders of China’s national security services, any equipment sold to the U.S. or its allies poses a security risk.

Former Washington Post Beijing correspondent John Pomfret argues in this excellent analysis that Washington’s stated charges against Huawei are mostly a smokescreen for the real concern: U.S. security officials are scared witless that Huawei’s equipment and technology will become the global standard for 5G—a development that would have huge implications, both military and economic, to the global balance of power.

This is an entirely legitimate fear. And yet, America’s inability to compete with China in 5G is a failing for which it has mostly itself to blame. The technology behind 5G is complicated, but it’s not rocket science. As Pomfret observes, the game turns mostly on network density. A successful 5G network requires lots of small cells on telephone polls and street lamps. China has elevated the construction of those relay networks to the equivalent of the Soviet Sputnik satellite project, outspending the U.S. by $24 billion since 2015, according to a recent report by Deloitte.

In 5G, in other words, the advantage lies not in research genius but political will. The contest favors nations capable of doing a fundamental thing at which China excels and America barely makes an effort: building infrastructure. Charles Duan in the National Interest argues America is forfeiting the war for 5G because it has allowed, even rewarded, its leading mobile technology suppliers for investing far more time and capital in bickering over patents than developing new technologies.

According to the Deloitte report, China’s most recent five-year economic plan earmarks a further $411 billion for 5G-related investment. That’s $37 billion less than what Texas-based writer Richard Parker estimates the U.S. government will have to spend to seize the 700 miles of private land necessary to complete a wall along the border with Mexico. What if the U.S. were spend those billions to build a nation-wide network of 5G towers instead? We could even call them Trump Towers. Which option would leave the nation more secure?

Clay Chandler

Economy and Trade

Talking shop of the world. Negotiators from China and the U.S. will meet in Beijing next week to continue discussions on the trade war. The latest round of trade talks will focus on intellectual property rights and China’s alleged policy of “forcing” technology transfers. Reuters

Long time, no Xi. President Trump said he likely wouldn’t meet President Xi before March 1, the date when tariffs on $200 billion of imports will jump from 10% to 25%. Previous reports speculated Trump and Xi would meet before the end of the month, but it seems a disagreement over the venue has stalled their plans. Financial Times

Come to China. Huawei has requested its suppliers move production to China in case the U.S. bans American companies from shipping components to the Chinese telecom manufacturer. ZTE, a state-owned telecom group, was forced to stop operations when the U.S. blocked exports of American tech to the group last year. Nikkei Asian Review

Innovation and Tech

Glass houses. The FBI raided Huawei’s San Diego offices and conducted a sting operation against one of the company’s representatives during the Consumer Electronics Show in Las Vegas. The FBI was investigating whether Huawei had tried to steal technology from a U.S. glass manufacturer, Akhan Semiconductor Inc, which manufacturers a diamond-coated glass it claims is ten times tougher than Gorilla Glass. The story claims a Huawei rep admitted the company is prohibiting its Chinese executives from flying to the U.S., perhaps worried they might be arrested. Bloomberg

ZTE reprise. A bipartisan group of lawmakers introduced a bill that would reintroduce sanctions against telecom manufacturer ZTE if the Chinese company fails to uphold agreements it made with the Trump administration last year. It’s the second time lawmakers have introduced a bill against ZTE since President Trump partially pardoned the company for violating sanctions against Iran. Reuters

Robusta business. Starbucks CEO Kevin Johnson says it’s “unlikely” that China's coffeehouse start-up Luckin will surpass it in terms of store numbers this year. Luckin, which was founded in 2018, claimed in January that it would outstrip Starbucks in China by the end of the year. Luckin wants to open 4,500 stores by 2020, many of which will be small “delivery kitchens” designed to fulfil online orders. Johnson said Luckin’s smaller venues aren’t comparable to Starbucks’ over 3,600 China stores. Reuters

In Case You Missed It

Once denounced as bourgeois vanity, pets are big business in China The Economist

How Facebook’s tiny China sales floor helps generate big ad money NYT

Reddit is blocked in China but may land a massive investment from Tencent Fortune

How London won the race for the renminbi FT

Politics and Policy

Closed Down Under. Canberra rejected a Chinese political donor’s application for citizenship and cancelled his visa while he was overseas. Huang Xiangmo, a billionaire businessman who has donated at least $1.9 million to Australian political parties, is unable to return to his multimillion-dollar mansion in Sydney, where he has lived since 2011. Australia’s intelligence agencies warned Huang might engage in “acts of foreign inference.” Huang has called the accusations “prejudiced and groundless.” Wall Street Journal

FARA strikes again. China Global Television Network (CGTN), the rebranded international unit of China’s state broadcaster China Central Television (CCTV), has registered as a “foreign agent” in the U.S. months after the Justice Department ordered it to do so. CGTN America denied it was engaged in any “political activities” that would require it comply with the Foreign Agents Registration Act, but did so anyway “in the spirit of cooperation with U.S. authorities.” Russia’s English-language RT news outlet was compelled to register as a foreign agent previously. South China Morning Post


This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.