China restricts use of Nokia and Ericsson in telecoms networks

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China has significantly tightened the security requirements for foreign telecoms equipment suppliers. As the Financial Times reports, Nokia and Ericsson are now subject to extended national security checks, which significantly delay the process of awarding contracts for network components. The measures coincide with similar restrictions imposed by Western countries on Chinese suppliers, such as Huawei.

The new regulations require European manufacturers to make extensive disclosures on the components used and local content. Chinese authorities are particularly scrutinizing the origin of critical components and compliance with local safety standards. These requirements go well beyond the inspection procedures that Chinese suppliers are subject to in their country—a circumstance that further exacerbates the distortion of competition.

Equipment suppliers are alarmed

The effects on the market position of European companies are already being felt. Ericsson is experiencing falling sales in China and is facing increasing pressure from domestic competitors such as Huawei and ZTE. The Swedish company already announced restructuring measures last year in response to the changed market conditions. Nokia is facing similar challenges, with both companies seeing their global competitiveness threatened by the loss of market share in the world's largest telecommunications market.

The Chinese measures are taking place against the backdrop of a global reorganization of telecommunications infrastructure. While Western countries are forcing Chinese providers out of their networks, Beijing is now responding with countermeasures. In Germany, the federal government and mobile network operators have agreed to remove critical Huawei components from the 5G networks by 2029. Other European countries and the USA are also taking similar steps.

Tensions in the global technology competition

The stricter requirements are part of a pattern of increasing technological compartmentalization. Security authorities in several countries have been warning for months about cyberattacks on the telecommunications infrastructure, which are suspected to originate from Chinese actors. At the same time, the EU Commission has barred Huawei representatives from its buildings following corruption investigations and prohibited access to Commission officials.

This development shows the extent to which the telecommunications industry has become pawn in geopolitical disputes. The EU had already filed a complaint against China with the WTO in 2022 because Chinese courts were making it more difficult for European patent holders to enforce their rights. The current restrictions on Nokia and Ericsson can be considered a further escalation in this conflict.

Effects on digital sovereignty

The reciprocal restrictions raise fundamental questions about digital sovereignty. German companies see themselves as heavily dependent on the USA and China—a situation that is exacerbated by the increasing fragmentation of the global technology market. Experts warn that the compartmentalization of markets could stifle innovation and drive up the costs of expanding the telecommunications infrastructure.

The Chinese measures represent a significant strategic setback for Nokia and Ericsson. Both companies must now rethink their business models and focus more on other markets. At the same time, the question arises whether European manufacturers without access to the Chinese market will be able to keep up with the heavily subsidized Chinese competitors, who are increasingly expanding into third markets, in the long term.

(mki)