WASHINGTON— China’s long-standing state-backing of Huawei and ZTE has enabled the two telecom equipment companies to seize global market share from far more innovative international competitors, negatively impacting the growth of non-Chinese companies in the sector and reducing global innovation in this space. A new report released today by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, finds that, facing China’s unfair practices to artificially expand Huawei and ZTE, non-Chinese telecom equipment producers have innovated at a slower pace, and telecom service consumers around the word have ultimately paid the price.
“Chinese telecom equipment firms, established and propped up by distortive Chinese government policies, are a drag on global innovation,” says Robert Atkinson, president of ITIF and author of the report. “Without unfair innovation mercantilist policies and programs, China would lack a globally competitive telecom equipment industry, and more innovative foreign companies would be larger and even more innovative.”
Unfair government support allowed Huawei and ZTE to grow and innovate, but not as much as their non-Chinese counterparts per dollar of sales. Both Chinese companies, particularly Huawei, invest significantly in R&D and generate a considerable number of international patents. However, they patent less than their global market shares would predict. In addition, when looking at the quality of those patents or accepted 5G standards, competitors such as Ericsson and Nokia, the number two and number three players in the industry, still remain significantly ahead of Huawei and ZTE. The report estimates that, if Ericsson and Nokia took all Huawei and ZTE sales, there would be 20% more global telecom equipment R&D and 75% more essential 5G patents.
“While it is impossible to definitively know how much added innovation the world would see today if Huawei and ZTE wouldn’t exist, evidence suggests that there would be more innovative firms outside of China. In addition, neither Huawei nor ZTE would have more than minor market shares, even in China,” says Atkinson. “It is time for democratic, market-based nations to work together and support global innovation by no longer purchasing equipment from Huawei and ZTE, actively deploying advanced, allied-nation-produced broadband equipment, and encouraging other nations to buy non-Chinese telecom gear. This will send a clear message to China that, going forward, systemic innovation mercantilism that hinders technological innovation will no longer be tolerated.”