China threatens retaliation against Ericsson if Sweden doesn’t drop Huawei 5G ban

Beijing is giving Sweden one last chance to reverse its ban on telecommunications-equipment giant Huawei Technologies Co., a Chinese state media outlet said, before it could retaliate against rival Ericsson AB.

Ericsson’s participation in the next round of China’s massive 5G build-out is linked to whether Stockholm changes its stance on Huawei, according to the Global Times, a Chinese Communist Party publication.

Swedish regulators banned wireless carriers from using the Chinese company’s 5G equipment in October, citing national-security concerns. Huawei is challenging the decision in Swedish courts, with a ruling expected in the coming weeks.

A spokesman for Stockholm-based Ericsson declined to comment. A spokesman for Sweden’s foreign-trade ministry didn’t respond to requests for comment. Ericsson shares were down nearly 4% Tuesday, trading slightly lower than its peers amid a broadly lower tech market.

The warning in the Chinese media is the latest example of Beijing using the heft of its domestic market to protect its business and foreign-policy interests. China last year restricted imports of Australian wine, beef and other goods after Australia enacted its own Huawei ban and called for an investigation of Beijing’s handling of the coronavirus pandemic.

After Swedish regulators banned Huawei last October, Chinese officials and state-controlled media outlets called the decision unfair, saying that Huawei presented no security risks and that Sweden was trying to protect a homegrown champion in Ericsson. They threatened to retaliate against Swedish companies doing business in China, including Ericsson and its largest shareholder, Investor AB, the investment company of Sweden’s influential Wallenberg family that has major holdings in several big European companies.

The prospect of retaliation prompted Ericsson’s Chief Executive Börje Ekholm to mount a lobbying campaign on Huawei’s behalf. He criticized Swedish politicians and solicited lawyers to help Huawei fight the Swedish ban. He said Ericsson gets only 1% of its sales from Sweden, versus 8% from China, where the company also employs 13,000 people and runs a factory.

China is the world’s largest 5G-equipment market. Its four major state-owned wireless carriers are conducting another round of 5G equipment tests to determine which suppliers to use in the next phase of building nationwide cellular networks, the Global Times said in its article published Monday.

In March, Chinese media outlets and Communist Party-affiliated groups encouraged a purge of Swedish retailer Hennes & Mauritz AB’s H&M brand from much of the Chinese internet. The move came after the fashion brand said it was seeking to ensure that its cotton didn’t come from the Chinese region of Xinjiang, where the U.S. and U.K. governments and human-rights groups have alleged the Chinese government is committing genocide and using forced labor. China has called those accusations lies, saying its actions in Xinjiang are meant to combat terrorism and improve livelihoods.

H&M has stuck to its stance, which resulted in landlords closing some of its outlets in China. Other companies such as Japan’s Muji have gone the other way, advertising its use of Xinjiang cotton.

The business environment has forced Swedish companies that do business in China to consider exit strategies, said Jerker Hellström, director of the Swedish Center for China Studies and member of the Sweden-China Trade Council.

“I’m not saying that companies are preparing to leave China, but for the first time they’re thinking seriously that the challenges will be too high,” Mr. Hellstrom said. “There will be conditions for them to stay in China. What’s in it for China? They always have to think about it.” WSJ