The U.S.-China Tech War Is Being Fought in Central Europe

PRAGUE—When Chinese President Xi Jinping and his Czech counterpart, Miloš Zeman, raised a beer from a terrace overlooking the spires of Prague in 2016, they were hailing an era of deepened economic cooperation: Beijing would invest billions of dollars in the Czech Republic, and Zeman, in turn, would tout China as a business partner for Europe.

Zeman has been a staunch supporter of Beijing ever since, and in particular of the Chinese telecom giant Huawei Technologies, promoting the company’s efforts to roll out across the Czech Republic cutting-edge wireless technology known as 5G.

But Huawei’s role here has come under growing domestic scrutiny in recent months, with the country’s cybersecurity agency labeling it a threat. That has triggered a political dispute that is, in varying forms, playing out across Central Europe and the wider world. It puts the Czech Republic at the center of a geopolitical tug-of-war between the United States, its longtime ally and fellow democracy, and the growing economic heft of China.

Read: America’s cold war with Chinese tech turns hot

With Huawei at the heart of the Trump administration’s wide-ranging trade dispute with China, the Czech Republic’s quandary is a microcosm of a debate raging across Europe—whether to stand with Washington, at the risk of delays in integrating a new technology that could set the course for business in the modern age.

That tension is now set to play out in a very public fashion: The Czech Republic’s prime minister, Andrej Babiš, is to meet with President Donald Trump in the White House this week, just weeks before Zeman heads to Beijing for talks with the Chinese leadership.

“The Czech Republic and many other countries are now sitting in two chairs that are pulling apart,” said Martin Hala, the director of Project Sinopsis, a Prague-based think tank specializing in Chinese relations. “This schizophrenic position—when one part of the political establishment is looking east and the other west … will eventually need a resolution. Something will have to give.”

Fifth-generation wireless technology, which is in the early stages of being rolled out around the globe, promises to transform entire industries and economies, and would form the backbone of countries’ communications infrastructures. Few companies have both the technical know-how and the global reach to build such systems, though, and Huawei is one of them. The company insists it is a private enterprise, with no official links to China’s government, but officials in an array of countries—including the United States, but also India, New Zealand, and elsewhere—are skeptical. In Canada, Huawei’s chief financial officer, who is also the daughter of its founder, faces extradition to the United States on fraud charges.

In Europe, the divisions over Huawei are stark. British authorities have said they can manage any risks presented by Huawei, but Germany is eyeing tougher controls on the company. Indeed, even within the Central European countries known as the Visegrád Four—the Czech Republic, Hungary, Poland, and Slovakia—views differ. Hungary and Slovakia have said they do not see Huawei as a threat, but Prague and Warsaw have been more cautious, with Poland arresting a company employee in January on allegations of spying. (Underlining the stakes, U.S. Secretary of State Mike Pompeo traveled to the region last month, to warn that China was targeting Central Europe in an effort to divide the West.)

Here in the Czech Republic, intelligence officials warned last year that the company and ZTE, another Chinese technology firm, posed risks to national security and were tools of Chinese espionage. Zeman—whose position has limited scope beyond some foreign-policy duties and the appointment of certain officials—dismissed that assessment, arguing that the national cybersecurity agency, NUKIB, has resorted to “dirty tricks” to undermine Chinese business ties that he had worked to cultivate. But Babiš, a populist billionaire, ordered his office to discard any Huawei equipment being used and has tried to court American investment instead.

“We put a lot of pieces together, and if we see a threat, we are obligated by law to report it,” Radek Holy, a NUKIB spokesman, told me. “When the risk is so high, we have to report it.”

The decision to label Huawei and ZTE a national-security threat triggered a national audit of the technology used by government ministries. The Czech tax authority subsequently blocked Huawei from taking part in a now-canceled tender to build an online tax portal, while the defense ministry ordered its employees to wipe sensitive applications from any Huawei phones they were using.

Though significant attention has focused on Russian disinformation campaigns and alleged efforts by Moscow to influence elections in Europe and North America, some security experts argue that China’s efforts pose as much, if not more, of a threat. Intelligence officials argue that, because of Huawei’s apparent links to the government in Beijing, were the company to build the architecture on which countries’ entire telecom systems rest, China could retain enormous leverage over their communications and their economies.

“The Chinese have been very active here,” said General Andor Šándor, a former chief of the Czech military-intelligence service who is now a security consultant. “They don’t want to undermine our relationship with NATO, or the EU, unlike the Russians. What they are really keen on is to squeeze as much technological information from us as possible.”

Read: The fate of Huawei foreshadows the fate of China

While there are real geopolitical consequences for what happens here in the Czech Republic, however, the dispute over Huawei is as much a domestic political standoff between two men who have sought to play the various sides off one another for their own advantage.

Since entering office in 2013, Zeman has often courted controversy. He has stood on the side of Russia and China despite the Czech Republic’s repressive history under communism, and has at times showed disdain for democratic institutions: He once wielded a mock rifle with the words for journalists emblazoned across it during a press conference. His strong ties to Chinese companies predate Huawei. CEFC China Energy, a firm with connections to the government in Beijing, made more than $1 billion in investments in the Czech Republic in a matter of years, and the company’s leader, Ye Jianming, was so close to Zeman that he was named a special adviser to the Czech leader. (Ye is now reportedly being held by the Chinese authorities for unspecified reasons.)

Babiš, too, has tried to press the diplomatic row to his favor. Elected in 2016 on an anti-establishment, anti-migrant platform, the Czech Republic’s second-richest man has survived numerous conflict-of-interest scandals associated with his European agricultural empire. In one of them, he was accused last year of kidnapping his own son to obstruct a high-profile fraud investigation over the misuse of $2.25 million in subsidy funds from the European Union. He has repeatedly denied the charges.

He has ordered his office to stop using Huawei equipment, while eagerly pursuing American businesses. In January, Babiš met with both Tim Cook, the Apple chief executive, and John Donovan, the AT&T head, on the sidelines of the World Economic Forum in Davos, saying afterward that he’d invited AT&T to develop 5G in the Czech Republic and that Cook had agreed to open an Apple store in Prague. Yet he has also refused to explicitly pick sides in Trump’s trade war with China, and declined to bar Huawei completely.

“Babiš is pragmatic and knows that he needs the West more than the East, so to speak, if only because his business activities are spread throughout Europe, so he wants to be on good terms with western Europe,” said Jiří Pehe, a political analyst at New York University’s Prague campus.

Huawei representatives declined to comment for this story, but referred me to an interview that Huawei’s Czech and Slovak country director, Radoslaw Kedzia, gave to the Czech newspaper Právo. In it, he said that Huawei wishes to resolve the matter in “a friendly and open way.” Kedzia added, however, that “if all other ways fail, we have no other choice, and we have to defend ourselves.”

The company’s dispute with Prague appears likely to rise in prominence in the weeks to come, as the country’s politics split along pro- and anti-Huawei lines.

In an effort to alleviate China’s concerns ahead of Zeman’s visit next month, Vojtěch Filip, head of the Czech Communist Party, which is currently propping up Babiš’s coalition government, visited China in January to meet government officials and Huawei executives. Filip told me he’d used the time to reassure the Chinese that their interests would be protected in the Czech Republic, a message Zeman plans to echo.

In a televised address in January, the Czech president made that stance clear. Arguing that NUKIB had “threatened our position and our economic interests in China,” Zeman said that “instead of achieving the digitization of our economy,” the Czech Republic would be left having to pay even more for 5G technology. “That,” Zeman concluded emphatically, “is all.”