Bottom line: A brouhaha involving Lenovo’s branding as unpatriotic for not supporting homegrown technology is likely to blow over quickly, and spotlights China’s continued reliance on foreign technology.
In a story that looks like a something from the McCarthy era, embattled PC maker Lenovo (HKEx: 992) has landed at the center of a controversy that’s seeing it branded by some as a traitor for choosing foreign technology over a homegrown Chinese alternative. This kind of thing isn’t at all that uncommon in China, where politics, business and everyday life mix freely.
We’ve seen a few examples of such mixing over the last few months, all involving western companies that were forced to repent after making the egregious error of listing places like Hong Kong and Taiwan as separate “countries” from China on their marketing materials. Such missteps ended up causing outrage by some nationalists on the web, prompting sleepy regulators to step up and demand such places be labeled as part of China. I’m not a big fan of Donald Trump, though I did find his branding of this kind of thing as “Orwellian nonsense” as both humorous and also a nice gentle rebuke to China.
But there is nothing really humorous when you’re a Chinese company that gets branded a traitor within your own country, which is what happened to a Lenovo that is already suffering on multiple fronts. The company’s core PC business is stagnating as its newer smartphone business goes down the toilet, prompting compilers of the Hang Seng Index to kick it out of the Hong Kong benchmark stock index last week.
Now the company’s founder, the venerable Liu Chuanzhi, is speaking out about some online articles that have accused Lenovo of “selling out China” for not supporting a homegrown technology at a key meeting in 2016. (English article) The egregious misstep apparently occurred at a France-based initiative where standards for fifth generation (5G) wireless technology were being hammered out. The accusers said Lenovo failed its country by not supporting a technology developed by hometown giant Huawei at the meeting, and opting for a US-developed technology instead.
In an open letter on the topic, Liu disputed the criticism, and said the accusations were denting his company’s reputation. That’s especially important in this particular case, since China is just about the only bright spot for Lenovo these days, acting as the largest market for its PCs. Thus any boycott of the company’s products by Chinese consumers could be devastating to its already-suffering business.
The larger backdrop to this story is that a concurrent story involving new US sanctions against Chinese telecoms equipment giant ZTE (HKEx: 763; Shenzhen: 000063) has exposed just how reliant China’s tech titans are on imported technology. (previous post) That reality is putting pressure on China as the US looks for concessions in its effort to create a more balanced trade relationship in ongoing trade talks.
An interesting aside to this particular story is that Lenovo is getting defenders from somewhat unusual quarters. Specifically, the People’s Daily, the official newspaper of the Communist Party, is pointing out that Lenovo’s accomplishments over the last three decades shouldn’t be “rubbed away” because of this one particular incident. At the same time, Internet bad-boy Zhou Hongyi, founder of Internet security firm 360 has written on his microblog that business issues shouldn’t be politicized. (Chinese article)
Defense from these two very different quarters probably reflects at least partly the huge amount of respect that Liu and Lenovo command in China. The company was arguably the nation’s first global high-tech brand, and was China’s pride and joy when it made its landmark purchase of IBM’s (NYSE: IBM) PC assets in 2005. That move went on to propel the company to the top of the global PC market, though it more recently lost that crown to HP (NYSE: HPQ), again, reflecting its more recent woes.
At the end of the day, this Lenovo tidbit is really just part of a larger debate on the state of China’s high-tech industries and how far the country still has to go despite its huge strides over the last three decades. My guess is that the controversy will quickly die down, thanks to Liu and Lenovo’s own prestige. But that won’t change the realities that China is still very much an up-and-comer that has yet to arrive as a global high-tech trend-setter, or that Lenovo is a company that is in dire need of new leadership.