The UK’s Huawei ban risks crippling its ambitions in technology and science – Business Insider

Visiting China last year, I knew the country excelled at technology and innovation.

But it was a pleasant surprise to find that its science parks were not only world-leading R&D centers but also welcoming to UK startups and set up to add value for companies entering the market.

I also met investors with a significant appetite for UK innovation especially in medtech, AI, IoT, and other areas of deeptech.

The UK government's ban on the use of Huawei 5G equipment has, therefore, been hard to stomach. The decision has soured UK-China relations, endangering UK startups' access to Chinese growth funding and the world's largest market.

The government risks throwing the baby out with the bathwater, jeopardizing its own vision of building a prosperous future economy on the back of early-stage deeptech R&D.

It's not that we weren't warned.

Until the recent escalation of the ongoing trade war, the US had a secure position as the leading foreign recipient of Chinese venture capital.

Now, many Chinese funds both state-run and privately-held have become significantly less active in the US.

Rhodium Group, which tracks US-China investment trends, identified 236 rounds into US companies featuring at least one Chinese investor in 2018, amounting to $10.8 billion. In 2019 there were just 163, totalling $6.5 billion.

The UK had been well-positioned to capitalize on the cooling of the US-China relationship, with Chinese investment into the UK growing in recent years. Indeed, China has put more money into the UK economy over the past five years than in the previous 30.

During his 2015 state visit, President Xi Jinping called for more "mutually beneficial cooperation" on innovation; significant Chinese investment into UK funds and startups followed, with technology and media conglomerate Tencent a bellwether.

2019 was its most active year, including a $24 million round into Cambridge AI company Prowler, a $35 million investment in fintech firm Truelayer, a $20 million round for Everledger, a blockchain company, and a $10 million investment into spacetech startup SenSat.

It also launched an AI lab with medtech startup Medopad, and invested in Oxford Sciences Innovation , the University of Oxford's fund.

My conversations in China certainly reflected a preoccupation with the UK and deprioritization of the US.

Since the Huawei ban, however, some contacts have alluded to a hedging strategy, lining up operations in competing ecosystems such as France, Germany, Finland, and Poland alongside prior plans for the UK market.

By banning a company crucial to China's global brand as a tech pioneer, the government risks triggering a similar response to that which has hit the US, stunting the inflow of Chinese money to support the growth of innovative UK companies.

Recent UK government policy announcements from Chancellor Rishi Sunak's Budget speech in March to more recent statements from Boris Johnson have focused on "leveling up" investment in early-stage R&D to fuel high-tech innovation.

China has played a significant role in building the infrastructure to facilitate such a strategy, partly through the formation of academic joint ventures such as a 25 million Marine Research Centre with the University of Nottingham and, in deeptech, the York-Nanjing Joint Centre for Spintronics and Nano Engineering.

Such is the level of UK-China academic collaboration that China is one of the UK's most important partners for research, innovation, and education, according to the Russell Group, and its second-strongest research partner. The UK has also overtaken Japan to become China's second-most popular partner.

Huawei itself has led projects intended to contribute to the UK ecosystem including a 1 billion initial investment into a new chip R&D centre in Cambridge and surrounding infrastructure, and a 5 million investment into a new 5G-enabled tech hub at Imperial's West London campus.

It remains to be seen whether either project will go ahead following the government's decision and wider investment and collaboration on R&D must be in question, with the potential to put a significant dent in the government's "science superpower" plan.

The Huawei ban came with the concession that it would set back rollout of 5G by two to three years significantly delaying the windfall of 15.7 billion by 2025 forecast by Barclays Corporate Banking.

While major cities have already received considerable investment to make them 5G-ready, early coverage of the regions has been limited. This further delay will prove a significant barrier to increasing productivity as we enter a future in which workforces and therefore innovation become increasingly distributed.

"Industry 4.0" technologies that enable everything from remote patient assessment and monitoring (which O2 estimates could free up over a million hours of GPs' time) to autonomous vehicles and smart traffic management depend on 5G's faster, more reliable connectivity and lower latency.

The UK has world-leading expertise in many such technologies. But the impending delay might give founders pause could they commercialize and get to market quicker somewhere else, unencumbered by the fallout of political decisions?

It's too early to say for certain whether the Huawei ban will trigger an exodus of Chinese investors and home-grown innovators but on the first count the data from the US tells a cautionary tale, and the second could ultimately come down to a question of pragmatism and ambition.

At the very least, we should expect UK startups to start finding it much more difficult to sell and expand into China as the backlash to the Huawei ban becomes apparent. The repercussions of this decision could deal a major blow to the government's economic vision for the UK.

Stephen Page is the founder and CEO of SFC Capital.