This post is part of a series on Huawei in Central-Eastern Europe:
Huawei’s Christmas battle for Central Europe, by Jichang Lulu and Martin Hála (28 Dec 2018), also published on China Digital Times.
A new front opens in Huawei’s battle for Central Europe, by Sinopsis (12 Jan 2019).
The importance of Friendly Contacts: the New Comintern to Huawei’s rescue, by Sinopsis and Jichang Lulu (24 Jan 2019), cf. A New Comintern for the New Era: the CCP International Department from Bucharest to Reykjavík, by Jichang Lulu and Martin Hála (16 Aug 2018), also published on China Digital Times.
Sinopsis’ Czech-language coverage of Huawei here.
On January 11 multiple media outlets in Poland reported that Huawei’s local sales director Weijing W. and Piotr D., a cybersecurity advisor for telecom company Orange Poland, had been arrested three days earlier on charges of espionage. Both suspects have been detained for three months for further investigation. The detention of the Huawei executive and his alleged Polish collaborator was an unexpected event that took analysts, media, Chinese authorities and Huawei management by surprise. The Chinese government’s reaction so far has been quite moderate compared to what Beijing did after the arrest of Huawei CFO Meng Wanzhou 孟晚舟 in Canada. After firing the first shot, the Polish authorities have not escalated, either, and the immediate impact of the arrests on bilateral relations has been limited.
A single case of espionage should not normally cause a serious diplomatic spat or a profound conflict between China and Poland. It’s not the first case of a suspected Chinese spy arrested in Poland, but the Huawei case is different. The way it has been handled by both sides, the national and international context as well as the (short-lived) heated debate in Poland are important for understanding the current state of China-Poland relations. The detention of the alleged spies was accompanied by a series of moves by Warsaw against China’s embattled national champion.
The incident should be evaluated with caution, as it is far too early to draw any decisive conclusions on its future impact on relations between the two countries. The recent events cast a new shadow on the already cooling relations between Warsaw and Beijing. The Polish government could, however, possibly use this case and Huawei’s situation in Poland to draw more of Beijing’s attention after years of unfulfilled promises, and perhaps even try to develop more mutually beneficial relations than has been the case so far.
The alleged spies
Piotr D. is a former high-ranked officer of the Internal Security Agency (Agencja Bezpieczeństwa Wewnętrznego, ABW), where he was responsible for telecommunications and Internet security. In 2011 he was dismissed from the post of vice director of the department. His dismissal was connected to corruption at the agency. He was not accused of any wrongdoing but ultimately left. At the National Center for Research and Development he was a member of the steering committee, responsible for national security. He later worked at the Office of Electronic Communications (Urząd Komunikacji Elektronicznej, UKE) as an advisor to its president. He participated in the Parliament’s work on broadband infrastructure. He was then promoted to department director at UKE, where he worked until 2016. UKE is one of two governmental bodies responsible for the implementation of 5G technology (together with the more important Ministry of Digital Affairs). He worked on project CATEL, aimed at creating an encrypted mobile communication system between government officials. The system was to enable the electronic circulation of restricted documents. He has also been active as a scholar and analyst. In recent years he has been a lecturer and researcher at the Military University of Technology (Wojskowa Akademia Techniczna, WAT), where he lectured on information security management and the security and protection of facilities. He also worked at Cardinal Wyszyński University in Warsaw and lectured at other universities, including the University of Wrocław. He also participated in multiple conferences and other events gathering scholars and industry experts, such as Telsec (of whose Council he remains listed as a member), the Cybersecurity Risks and Responses conference, as well as others. At WAT he was responsible for contacts with the Ministry of Internal Affairs in projects in which the university was supposed to deliver expertise and training on national security and public order. In 2017 he was employed by Orange as a banking cybersecurity expert. More than a decade ago, he worked on communications infrastructure at the Ministry of Internal Affairs. This list is not intended as a full record of Piotr D. positions and activities, but just a review his fields of activity and his long-time connection to multiple projects related to the security of Poland’s telecommunication infrastructure. If the espionage accusations are proven, that will mean that Chinese intelligence could have gathered valuable technical information about Poland’s telecommunications infrastructure and insider knowledge about key people within the industry.
Weijing W., who also went by the unofficial Polish name Stanisław, has spent many years in Poland. He graduated in Polish studies at Beijing Foreign Studies University (BFSU, 北京外国语大学) and speaks Polish. He worked at the Chinese consulate in Gdańsk for nearly five years and in 2011 was employed by Huawei Polska. He worked in Huawei as sales and public relations director. He took part in multiple conferences and other events on telecommunications (e.g., a railway-related event, the Smart City Forum, the ITU Global Symposium for Regulators) as well as general economic issues (European Economic Congress, Congress 590) and cooperation with universities. He was also Huawei’s face at various events organized by the company, such as the Polish version of Huawei’s international competition “Seeds for the Future” has been organized for five years. Participants from selected Polish technical universities delivered projects and the best were invited to China for workshops. The competition helps was said to help Huawei recruit talents. Weijing W.’s position and wide range of activities were likely useful for gaining valuable contacts and insider knowledge.
Espionage is punished with up to 10 years of imprisonment, with the option of a harsher or more lenient sentence depending on the nature and scope of actions (Art. 130).
Blunt statements by Polish officials…
The decision to make the arrest a public event probably means that it was orchestrated well in advance and was authorized from the higher echelons of political decision-making. Polish officials deny any connection between the detentions and statements on Huawei’s position in the Polish market. The coincidence in the timing of the events looks hardly accidental. The most important aspect of the Huawei affair is that the Polish authorities are considering banning Huawei as a supplier of equipment for telecom infrastructure. Minister of Internal Affairs Joachim Brudziński has admitted that the ban on the Huawei equipment in the Polish market is under consideration and that Poland expects actions in this field to be taken by EU and NATO. Karol Okoński, vice minister of digital affairs and government plenipotentiary for cybersecurity, has announced a national screening of Huawei installations and equipment used in public administration and across suppliers of critical infrastructure such as banks, healthcare, transportation and power supply. Mass consumer products such as smartphones and tablets will not be subject to the screening. The procedure can take weeks or even months. If the authorities rule that Huawei equipment poses a threat, an official warning can be issued recommending its exclusion. Under current law, it’s not clear how to implement compulsory massive replacements of equipment in use, but there are already possible ways to exclude the company from public tenders. Stanisław Żaryn, a spokesman for the Minister-Coordinator for Special Services informed that the Internal Security Agency had prepared general recommendations for public administration on the use of telecommunication equipment, also including equipment delivered by Chinese companies. Officially, the recent ABW operations targeted individuals and are not aimed at Huawei as a company.
These comments and actions by Polish officials are quite meaningful, considering that the investigation has merely begun. It’s only in its preliminary phase, and the prosecution will have three months or more, if the arrest is extended, to press specific charges. Some media quote sources familiar with both individuals as doubting that Piotr D. was acting with the intent to spy or that Huawei was behind spying by Weijing W. Neither of the arrested has admitted any wrongdoing. Weijing W. made a statement days after his arrest strongly denying the accusations. Hopefully this time the special services and the prosecution have solid evidence and will handle the case properly. Given the political context, it will be a PR disaster if the course of events takes a similar turn to the case of another alleged Chinese (and Russian) spy: Mateusz Piskorski, leader of the pro Russian party Zmiana (‘Change’). He was detained without formal charges for more than two years and has been recently offered release on bail, while the process, formally launched last April, is pending further proceedings.
… and muted Chinese reactions
While the Polish authorities acted in a direct, even blunt manner, Chinese reactions were quite nuanced and restrained. The nationalistic Global Times, sometimes used by the CCP as an international mouthpiece and a channel for testing international reactions, reported on Brudziński’s statements and criticized Polish authorities for starting the row in the year of 70th anniversary of the establishment of bilateral relations. The Global Times also warned that Poland will be the loser if it damages ties with China over Huawei. Poland was also been ridiculed as a country with nothing worth stealing and an American puppet.
Official statements have been cautious. Just after the arrests, the Chinese authorities informed that they were paying close attention to the case. Foreign Ministry spokesperson Hua Chunying thas described the case of Weijing W. as an individual one, handled by the embassy in Warsaw (Chinese version). Replying to a question concerning a possible Huawei ban in Poland, she also called on Warsaw to “stop its rumor-mongering” and “suppressing” of Huawei’s operations. She highlighted that China cares about the development of China-Poland relations and no retaliatory steps will be taken against Polish citizens if they obey Chinese law. The issue of the Huawei’s situation in Poland has been much less present in Chinese official statements than similar developments in Canada or the US. Just after the arrests, Huawei issued a quick statement that it was aware of the situation. The company soon fired Weijing W. for tarnishing its reputation. With this smart crisis management move, meant to distance the company from its employee’s alleged spying, Huawei transferred all responsibility Weijing W.’s fate as a Chinese citizen to the embassy’s shoulders.
It’s a matter of guesswork if China’s restrained reaction was caused by the fact that Huawei’s employee was actually a spy and the Chinese consider this situation an “accident at work”, and Beijing will defer retaliation until Poland takes decisive steps against Huawei, or simply because maintaining good relations with Poland is important enough for China to exclude the use of economic or political threats. As the Polish side has also avoided escalation and expressed wishes to maintain good relations, mending fences seems to be possible. There are signals that the Polish government is taking relevant efforts, such as preliminary negotiations on a visit to Poland by the Chinese foreign minister.
Poland’s turn to the US and disengagement from China
Much of the debate on Huawei’s case has centered on Poland as a tool in the US trade and technology war against China. Politicians and media commentators have argued that the Polish authorities blindly followed US requests and endangered economic and political ties with Beijing. Leading magazine Polityka published a surprising article, where game critic turned China analyst Olaf Szewczyk accused the authorities of turning Poland into American “cannon fodder” in the US-China technological war. It’s true that in the last year foreign policy under PM Mateusz Morawiecki has been strongly aligned with the US and a decoupling from China could be noticed. Beijing has not reacted timely and properly to signs of deterioration in the relations, despite clear indications of Poland’s cooling attitude. In January 2018, Morawiecki expressed his dissatisfaction with the trade deficit and praised Trump for his “free trade approach”. A quiet visit in April by Xi Jinping’s envoy Guo Shengkun 郭声琨, which included meetings with President Andrzej Duda and Ministry of Internal Affairs officials, failed to bring visible results. In July, instead of attending the 16+1 summit in Sofia, Morawiecki went to a gathering in Częstochowa organized by the influential Radio Maryja, leaving vice premier Jarosław Gowin to represent Poland. The Polish authorities have been also eagerly supporting the regional (and, to some extent, US-oriented) Three Seas Initiative. At the FOTAR conference in November, Morawiecki said that China challenges NATO, and the democratic world. The warning bell for China should be the communiqué issued by the Polish Foreign Ministry on cybersecurity threats from China. The reasons for Poland’s current position on China are manifold, including the international situation, conflicts with the EU, the ideology and political sympathies of the ruling Law and Justice party (Prawo i Sprawiedliwość, PiS) and the need for Washington’s support. Beijing’s approach to Poland also played a role.
Huawei, national security and US-China tech wars
Poland is in several areas dependent on the US, an important source of security not only for Poland but for all NATO countries. Warsaw relies on Washington’s support in case of a conflict with Russia. Trump has also so far supported Poland in the fight to block Russia’s Nord Stream 2 project, supported by Germany and other European countries. Although Poland’s relations with Germany and other core EU members have recently improved, they remain bumpy and the PiS government sees alignment with Washington as a form of leverage. The Trump administration has its own goals and requests support from allies. It’s natural for scholars and analysts to embrace the thesis that the actions against Huawei in Poland are mainly motivated by US pressure or connected to American containment of China’s technological advances. Arguments about the US’ interest in maintaining its technological superiority over China and efforts to limit the global expansion of the Chinese tech giants are valid. They also rightly highlight that Washington is pushing allies to join the “anti Huawei coalition”.
However, to look at the recent developments in Poland only or mainly through the lens of the US-China technological competition misses the important issues of Polish national security and the scope of China’s influence in Poland. The US allies cooperating within the 5 Eyes framework have launched their own actions against Huawei not only motivated by pressure from the US. We should discriminate between following orders from Washington and relying on US intelligence as one of the sources of information. The African Union data leak allegedly involving Huawei is among the cases that should be noticed and disseminated by Polish security experts and analysts. A former head of the Polish Foreign Intelligence Agency has highlighted the importance of access to and control over the 5G network, which will be used in Poland for decades to come. It actually matters if the capability to infiltrate Polish critical infrastructure can fall in the hands of the Communist Party of China. It cannot be clearly gauged what actual motives and reasons were behind the Polish authorities’ actions and comments targeting Huawei and to what extent they were influenced by pressure from Washington. With this in mind, the discussion in Poland should not remain mainly focused on Huawei as a competitor to the US tech giants and a “victim” of Washington’s policies, but turn to China and Huawei’s actual and potential impact on Polish national security. A serious analysis of the role of (not only) Chinese companies in key projects in Poland should be conducted and a set of rules and screening and monitoring mechanisms be established. Huawei’s background, and connections as well as the political, legal and business environment in China shall be taken into consideration while ruling on the scope of its participation in critical infrastructure projects and its access to the Polish market. The need for a screening mechanism for Chinese operations in Poland has been already highlighted in the case of Chinese investments. Poland is not the only CEE country openly raising the issue of security challenges from China. Last month, the Czech National Cyber and Information Security Agency (Národní úřad pro kybernetickou a informační bezpečnost, NÚKIB) issued a blunt warning against the use of Huawei and ZTE equipment. Huawei’s engagement in the Czech economy and critical infrastructure is significant and there are numerous calls to limit dependence on a company that can be used as a tool or channel for Chinese espionage and interference activities.
Economic retaliation not effective leverage on Warsaw
The espionage affair is actually a minor issue when compared to the problem of Huawei’s presence in Poland. Beijing will not retaliate to protect a Huawei mid-level manager, but it might if its top tech company is forced out of Poland. Huawei is China’s national champion and actions against the Shenzhen company are treated by Beijing as an act of unfriendliness to China. In its promotion of the global expansion of its tech brands, Beijing can retaliate if the Xi administration’s pet projects get into trouble. The Polish side’s accusations of posing a threat to national security can irk Beijing, as they debunk the cherished myth of Huawei and other Chinese giants as enterprises with purely commercial background and strategic goals. Huawei’s reputation can be harmed and its ability to penetrate foreign markets can be significantly limited. There are, however, fears in Poland that such a blunt move against Huawei could, if decisive actions are taken, worsen relations with China and bring economic losses. The key questions to be answered are: is Poland vulnerable? How much can Poland actually lose by supporting US and challenging Beijing over such issues as cybersecurity?
Such fears are not unfounded, but they seem to grossly exaggerated. Polish exports to China, which gained a little momentum in 2017 with 20% growth, have lagged in the first ten months of 2018, growing only 11%. China holds the distant 21st place on the list of Polish export markets. The growth of Polish exports to China during that period was below that of those to 16 out of the 20 top destinations. Poland’s trade deficit with Beijing grew steadily between 2008 and 2017, with imports exceeding exports roughly by a factor of ten. The cumulative trade deficit was a above 180bn USD during that decade. It also grew dynamically in 2018. Some industries seem especially vulnerable. Polish food exporters express worries about the possible impact. Food is one of the few consumer products said to have a chance in the Chinese market. However, as Rzeczpospolita commented, the impact will be quite limited. Polish companies are treated as petitioners in China, not as serious partners. Polish food exports to China are smaller than to Slovenia, with two million inhabitants, and 14 times smaller than to the Czech Republic. The nearly one-year delay in allowing the access of Polish poultry to the Chinese market after its recognition as free of avian flu is a good example how Beijing treats Polish business. More vulnerable to retaliation are the few large enterprises operating in China. The top exporter to China is copper conglomerate KGHM, with a roughly 30 percent share of the total exports to the PRC. The Chinese market is quite important in the company’s sales volume. KGHM (p. 41, 64) has long been a partner of Minmetals Corporation (中国五矿集团公司), one of China’s central SOEs. Another large enterprise, Chipolbrok, established in the 1950s, is also connected to Chinese state-owned companies. These connections don’t mean, however, that both companies will be insulated from any consequences. Selena, a private producer of construction chemicals, runs subsidiaries in China. Chinese direct investments in Poland till the end of 2017 were mediocre at best, with a stock ranging between as much as $1bn and as low as $130m, depending on the methodology. Any number within that range is much lower than the amount of investments made by the leading foreign Western investors, or even in comparison to East Asian peers. The FDI in 2018, with a declared value over $50m, doesn’t make any difference. Chinese financing for infrastructure projects is also not an attractive choice for the Polish government, which has better options. There are other possible areas of economic retaliation, but the possible impact on Poland would still be limited.
From a strictly economic point of view, the strategic partnership with China has not brought many benefits for Poland so far. On one hand, it’s a serious drawback that Polish enterprises could not benefit from the Chinese market opportunities the way the competitors from other countries did for years. It is regrettable that Chinese investments have not contributed to Poland’s industrial and economic development. The current Polish government has also grown irritated by the lack of progress in the field of economic cooperation with China and that could seriously influence the Polish decisions on Huawei. The trade deficit and barriers to access to the Chinese market have become a thorny issue, raised publicly on many occasions by various government representatives and bodies: PM Morawiecki, a government committee established for steering cooperation with China, the Ministry of Foreign Affairs, the Polish ambassador to China and so on. At the end of the day, China’s lack of serious engagement in Poland and limited support for creating opportunities for Polish enterprises in China actually deprived Beijing of a major source of economic leverage over Warsaw. While the rising Chinese economic influence is a fact, such assessments as that made by Warsaw University professor Bogdan Góralczyk that Beijing is able to pull the strings in Poland seem exaggerated. The Polish government’s harder stance towards Chinese operations can, if managed properly, actually bring Beijing to be more receptive to Poland’s needs and to offer more attractive cooperation options.
What’s at stake for Huawei and Beijing in Poland
Beijing’s nuanced reaction to the comments of the Polish side, combined with the swift actions taken by Huawei, contrast at least for now with the retaliatory attitude adopted towards Canada. The relatively low rank of the detained Chinese executive may explain the soft stance of the Chinese authorities. The reasons behind Huawei’s assurances of compliance with Polish law and the low profile it keeps can be explained by the significance of the Polish market in the company’s plans. Further developments in China-Poland relations will depend on how Warsaw treats Huawei and what it will offer to Beijing in case a decision is taken to limit Huawei’s opportunities in Poland.
Polish consumers have enthusiastically adopted Chinese smartphones, tablets and other equipment. In the second quarter of 2018 Huawei surpassed Samsung to become the leader of the smartphone market. The company’s results in Poland are much better then on the global market. Success with mass market-products helps Huawei to lift its position and gain prestige. The company has plans for further expansion in Poland and is hiring new employees.
What really matters is network equipment and infrastructure. Huawei has participated in numerous public tenders and has gained many public institutions as customers: the Social Insurance Institution, tax authorities, several military academies, municipalities, museums, hospitals. The National Stadium uses Huawei equipment in its CCTV systems. In 2016, PS4 and Huawei signed the agreement on the long term strategic cooperation in 4.5G and 5G network infrastructure development until 2025. As a latecomer to the Polish mobile market, Play has used the infrastructure of the established operators T-Mobile, Orange and Plus. Fast growth has made Play one of the key players in the market, quickly winning over customers from its infrastructure suppliers. The technical constraints of the network and the partner-competitors’ growing frustration with Play’s successes forced Play to put efforts into developing its own network with Huawei as almost exclusive partner and supplier, but it should be noted that in recent months Play has been trying to diversify suppliers. Huawei has also been an important partner for Orange and T-Mobile for years.
Huawei’s key area of interest is the 5G network. Poland wants to be the European leader in 5G technology. The new network’s greatly improved technical parameters will increase efficiency and create new opportunities while also facing increased security challenges. This is a huge project requiring massive investment. Huawei, Nokia and Ericsson are listed as project partners in the area of infrastructure building. In Europe, however, the first network was established by Ericsson, Telia and Intel. In South Korea, the largest telecom has partnered with Samsung. Orange in France announced that Huawei will not be its partner for 5G. Deutsche Telekom is said to be considering ditching Haiwei in order to win approval for the merger between T-Mobile and Sprint. The establishment of the 5G network in Poland will require investments valued between 11.3 and 20.3 bn PLN (3 to 5.3bn USD), where each of the leading telecom operators is supposed to spend around 2bn PLN. While more and more countries became increasingly cautious about Huawei’s engagement, until January this year Poland was very receptive to Chinese participation in the project. Huawei has already partnered on setting up the 5G network not only with Play but also with Orange and T-Mobile. The implementation of the 5G network will probably lead to further market consolidation; small players will be eliminated and Huawei partners will gain additional market share. Orange and Huawei’s tests of the 5G network in Gliwice continued in December, after the first tests in September. In Warsaw, Huawei and T-mobile have conducted similar tests.
Huawei offers competitive prices that attract customers As Huawei is a much larger company than its main competitors, scale effects help to reduce costs. On the other hand, Huawei has already invested in 5G network development, which will not produce returns if the company does not enter new markets. Building infrastructure is one thing; selling 5G-ready devices is another. Huawei has already announced that its first 5G-ready foldable smartphone will be available in a few months. A 5G network, with transmission speeds hundreds of times faster and much greater capacity will probably also be a driver for the development of a wide range of IoT devices. Since Huawei is already one of leading companies in Poland, with an established brand in the consumer electronics segment, the quick introduction to the market of 5G devices could greatly boost the company’s market position.
Huawei plans for Poland are probably not the only reason for the relatively soft stance Beijing has adopted so far. As already mentioned, Polish imports greatly exceed exports to China. While the Polish market only accounts for a fraction of the total Chinese exports, companies focused on European markets could still feel the chill. Poland’s pace of growth also makes it an attractive partner when compared to the sluggish performance of many European economies. Poland is also an important country as the rail link between China and Europe. While the connection can be adjusted with block trains and the quantity of direct connections increased, for some years to come they will still have to go through Poland. Apart from economic reasons, Poland is important political partner in Europe and one of the key countries in the 16+1 Initiative. All of these reasons can also influence the way Beijing handles relations with Warsaw regarding Huawei’s future in Poland.
Łukasz Sarek is a researcher and China market analyst. He writes about China-Europe economic relations with focus on Poland and CEE.