Philippa Kaur

FEW LIFE stories are as soap-operatic as Lai Xiaomin’s. The fallen state financier dallied with more than 100 mistresses, according to Chinese media. He was subsequently caught with three tonnes of cash in one of his dozens of homes. The sheer scale of his thievery—1.8bn yuan ($279m) in kickbacks, the largest bribery case since the founding of the People’s Republic of China in 1949—justified the death penalty, a judge opined. In a tragic denouement, Mr Lai was executed on January 29th.
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The moneyman’s most serious offense—and the one that ultimately cost him everything—may have been something else. Under Mr Lai’s control, Huarong Asset Management, a state-run financial group, became the lender of last resort to China’s riskiest corporate borrowers. When state banks said “no” to loans, Huarong said “no problem”. Its lending helped private conglomerates get around capital controls and scoop up assets overseas. This enabled some of them to enlarge their balance-sheets—occasionally to breaking point. These strains put the broader financial system at risk. And that perturbed the communist regime’s paramount leader, Xi Jinping, who prizes stability—including the financial sort—above all else.

The latest example came within hours of Mr Lai’s execution. HNA Group, a sprawling conglomerate with interests in airlines, finance, logistics, property, tourism and much else besides, said that its creditors had applied to a local court to initiate bankruptcy and restructuring proceedings. Huarong was among the groups seeking to claw back lost loans from the bankrupt concern.
HNA became known for amassing more than $80bn in debts and large stakes in Hilton, a large American hotel operator, and Deutsche Bank. But in recent years it often found itself short of cash. In 2019 it was in effect taken over by a state-backed management team, installed to stop the rot infecting the rest of the financial system. To make matters worse, disclosures made public on January 30th by HNA’s listed units, such as Hainan Airlines Holding, revealed that an internal investigation had found that some existing shareholders and associates had misused around $10bn of company money.
HNA’s demise, like Mr Lai’s, marks the end of an era for China Inc’s overseas ambitions. The conglomerate’s rise to prominence began in 2015, when it paid $7.6bn for Avalon, an Irish aircraft-leasing business. Such transactions fuelled a boom in outbound Chinese mergers and acquisitions. In 2016 Chinese firms splurged $218bn on foreign deals, more than twice as much as the year before, according to Dealogic, a data-provider.
Some purchases looked strategically sound—for instance ChemChina’s $43bn acquisition of Syngenta, a Swiss chemicals firm. Less disciplined buyers picked up trophy assets, such as the Waldorf Astoria hotel in New York (bought by Anbang, which started out in insurance) and Club Med (purchased by Fosun, another unwieldy holding company).

The globetrotting bonanza was short-lived (see chart). By 2018 Chinese authorities had grown wary of the domestic financial repercussions of reckless overseas adventures. At the same time, officials in America and Europe began to fret about the national-security implications of some Chinese investments.
In April 2018 Mr Lai was detained by the Chinese authorities. Three months later HNA’s co-chairman, Wang Jian, fell to his death in the French countryside. The incident was deemed an accident by local police. After that his group began to sell assets. Earlier that year the chairman of CEFC Energy, a conglomerate with interests in oil and finance and another of Huarong’s clients, was also detained, after attempting to buy a $9bn stake in Rosneft, Russia’s state-controlled oil giant. Chinese regulators were forced to take over Anbang. After more than two years they are still trying to offload its blingy assets, many of which have lost their sheen.
Not all of the era’s acquisitions were duds. Volvo, an iconic Swedish marque, seems to have thrived under Geely, a Chinese carmaking giant which bought it in 2010. In 2016 Midea, a white-goods manufacturer, bought Kuka, a German robot-maker, for $5bn and absorbed its valuable know-how. ChemChina appears to be a decent custodian of Syngenta. On February 2nd Alibaba reported 37% year-on-year growth in revenues for its international retail business; this, China’s e-commerce titan said, was mainly thanks to the strong performance of Lazada, a Singapore-based online-shopping platform it snapped up five years ago, and of Trendyol, a Turkish retail group in which it purchased a large stake in 2018.
These quiet success stories are, however, overshadowed by spectacular failures like that of HNA. They may be the last winners for a while, at least in the West, where governments and the public view Mr Xi’s unconcealed authoritarianism with growing anxiety. In 2020 Chinese firms spent just $32bn on foreign acquisitions, the lowest figure since 2007. ■

This article appeared in the Business section of the print edition under the headline “Too close to the sun” More

GOTTLIEB DAIMLER and Carl Benz built the world’s first motor cars at the same time in 1886, not far apart in Germany. Their names have been tied together since a merger of their firms in 1926. Daimler is the parent company of Mercedes-Benz. Yet the two men never met. So perhaps they would not have minded that on February 3rd it was announced that their names would go their separate ways.
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A majority stake in Daimler Truck, the group’s lorry-and-bus business, will be spun off to existing shareholders and listed in Frankfurt later this year. The luxury-car arm, to be renamed Mercedes-Benz, will retain a minority stake. The manoeuvre has set pulses racing in the staid lorry business. Ola Kallenius, the group’s boss, called it an “emotional and exciting day”.

The split is an acknowledgement that making cars and lorries are not the same business. Mr Kallenius noted the different “customer groups, technology paths and capital needs”. Car buyers care about brands, styling and plush interiors. Businesses with wares to ferry are concerned with the total cost of ownership, not what the badge says about them as a person. Electric lorries will probably run on hydrogen, not batteries, which are too expensive.
Splitting also has the advantage of giving investors a clear choice between which business they favour. It could unlock hidden shareholder value. Daimler Truck is the last of the world’s biggest lorry-makers to do so. Sweden’s Volvo split apart in 1999. Volkswagen spun off a 10% stake in its lorry division in 2019 and may go further. Bernstein, a broker, reckons Daimler Truck, which delivered around 500,000 commercial vehicles in 2019, more than any rival, could be worth €35bn ($42bn). That is around half of the undivided company’s current market capitalisation. Mr Kallenius hopes that the car business will also “significantly re-rate”.
The car division needs all the help it can get. Operating profits of $6.6bn in 2020 comfortably beat analysts’ expectations in a year blighted by the pandemic. Its has plans for an impressive range of electric vehicles and is on course to cut costs by 20%. But the car industry is changing. Tesla and other newcomers without the legacy of the internal combustion engine will make the business ever more competitive.
Lorries are a different matter. Yes, the challenges of electrification and self-driving remain. Tesla and other startups are snapping at the incumbents’ exhaust pipes. But the big three have a tight grip. Bernstein reckons they control 75% of the market in important regions, aside from China. Martin Daum, current chairman of Daimler Truck, says that by going it alone his business will be more nimble in “shaping its own destiny”. He can build on an illustrious legacy. In 1896 Gottlieb Daimler also constructed the world’s first lorry.■
This article appeared in the Business section of the print edition under the headline “Driving apart” More

ON FEBRUARY 2ND Amazon, America’s third-most valuable public company, announced its best-ever quarter. Propelled by the covid-19 pandemic, which has confined consumers to their homes, the firm reported that quarterly sales had risen 44% year on year, and exceeded $100bn for the first time. It was a barnstorming performance. But it was not the main story. On the same day the firm announced that Jeff Bezos, its boss and founder, will step down as chief executive this summer after nearly three decades in charge.
Mr Bezos will not depart the company. He plans to boot himself upstairs to become executive chairman. That role, he said, will allow him to remain “engaged in important Amazon initiatives”, but also give him more time to focus on other interests, notably space travel, fighting climate change and the Washington Post, a newspaper he bought in 2013. His replacement as CEO will be Andy Jassy, a long-serving Amazon employee who built and runs Amazon Web Services (AWS), the firm’s highly profitable cloud-computing division.

The news prompted gushing tributes to a man who began selling books online in 1994 with a recycled wooden door for a desk. Bernstein, a broker, described Mr Bezos as the “greatest of all time”. Mr Bezos has certainly made a mark. In 2019 Amazon delivered 3.5bn parcels, one for every other human being on the planet—and that was before the pandemic turbocharged online shopping. His rigorous, tight-fisted insistence that Amazon’s employees treat every day as if it were “day one” at a hard-pressed startup has helped the firm move into new lines of business, from smart speakers and video-streaming to advertising and cloud-computing. Its valuation has risen 3,000-fold since its market debut in 1997.
Mr Jassy, in other words, will take control of a firm in an enviable position. Amazon is not without problems—it has struggled in some overseas markets, and faces attention from trustbusters in America and elsewhere. But few companies are in better nick to face those challenges down.
Founders often find it hard to let go. One immediate question is therefore how much control Mr Bezos will actually cede. “I think it’s inevitable that there will be at least a bit of back-seat driving for the first few years,” says Nick McQuire of CCS Insight, a research firm. But Mr Bezos may not need day-to-day involvement to see his company carry on in his image. “Amazon has the most codified culture of any big tech firm,” says Aaron Levie, the boss of Box, a cloud-computing company. “It is built to outlast its founder.”
Mr Jassy is in any case more of a continuity candidate than a revolutionary. Brian Olsavsky, Amazon’s finance chief, reassured analysts on the earnings call that “he’s been here almost as long as Jeff”. Mr Jassy joined in the year Amazon went public and has been close to Mr Bezos since. He comes across as detail-oriented and more than a little nerdy—much like Mr Bezos in his first couple of decades in charge.

That does not mean that nothing will change. Bernstein expects Amazon’s combined revenues from AWS and online advertising to surpass those from its retail division in 2023. By 2024 digital adverts may be the company’s biggest source of profits, and retail may actually add to the bottom line (see chart). Last year Jeff Wilke, who ran the mammoth retail arm, said he would leave the company, depriving Mr Jassy of an able lieutenant.
Customers in America are beginning to grumble that Amazon is becoming a flea market, with ever more shoddy products juiced with faked reviews. This has yet to stop them shopping there, as the latest results attest. But it could turn into a problem. Abroad, where sales grew briskly last year, the incoming boss will have to decide whether to pursue expansion in places like South America and India, where Amazon faces stiff local competition.
At least one investor worries that Mr Jassy’s background in cloud computing may leave him struggling to direct the firm’s retail arm. Meanwhile, those who would prefer to see the money-spinning AWS hived off into a separate company may wonder if the man who created it has any more appetite for such a radical move than Mr Bezos did.
Those aren’t the only dilemmas in Mr Jassy’s in-tray. Amazon’s demands on workers in its warehouses and at times intrusive surveillance have come under scrutiny. The firm has spent heavily on improved working conditions and pays a $15 minimum wage in America. But it continues to attract criticism, especially as it resists unionisation among logistics workers. Many of AWS’s well-paid programmers empathise with their colleagues on the warehouse floor. In May Tim Bray, an AWS executive, quit in disgust over what he described as Amazon’s “chicken-shit” sacking of workers who had complained about poor safety during the pandemic.

Amid a general souring on the Utopian promises of big tech, Amazon’s success has also attracted attention from American trustbusters. They worry it may be using sales data from the third-party sellers on its platform to inform the development of in-house products which then drive those sellers out of business. A congressional report in 2020 cited claims that Amazon used the juicy profits from AWS to subsidise its unlucrative retail operations—but said that the firm had not provided the data necessary to decide one way or another. Some politicians have talked of barring Amazon from competing with its third-party sellers, or even of splitting it up. Amazon denies doing anything wrong.
Some speculate that such looming political awkwardness may have influenced the timing of Mr Bezos’s decision to stand back. Perhaps. Mr Bezos, for his part, gives every indication of being a man with a higher calling. When Bill Gates stepped down as the boss of Microsoft in 2000, he threw himself wholeheartedly into the Gates Foundation, which, as the world’s biggest private charity, funds everything from malaria-prevention to AIDS research.
Mr Bezos, whose near-$200bn fortune is even larger than Mr Gates’s, may be planning a similar change of focus. He is sympathetic to at least some environmental concerns: he has said before that growing resource consumption is not compatible with a finite planet. Of his many other businesses, Blue Origin, his rocketry firm, is widely reckoned to be his favourite. Like Elon Musk, who this year overtook him as the world’s richest man, Mr Bezos is a fully paid-up space cadet. Blue Origin is already involved in America’s plans to return astronauts to the moon.
In 2019 Mr Bezos sketched out a vision of the future in which a trillion humans live in gigantic, artificial space-going habitats, relieving the pressure on a crowded planet. It is an apocalyptic idea—and, to put it mildly, a bold one. To Mr Bezos it may seem more fun than running an online department store with a sideline in server farms and virtual billboards—even one as era-defining as Amazon. More

GERMAN FIRMS have, like their country itself, a reputation for being staid. Look closer, though, and many brim with intrigue. Albert Darboven, a coffee tycoon, pushed his own son Arthur out of JJ Darboven and tried to adopt a friend as his heir and successor. The five children from the first marriage of Rudolf-August Oetker, grandson of the eponymous founder of a pudding dynasty, and the three offspring from his third have been at each other’s throats for years. The feud among the billionaire scions of the Tengelmann retail empire led to speculation that Karl-Erivan Haub, the group’s fifth-generation CEO, faked his own death in a skiing accident. This month his brother, Georg Haub, reportedly withdrew the application to have him declared dead.
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Apart from ripping families apart and tearing down reputations, such feuds destroy shareholder value—including that accruing to the warring clans. Hermann Simon, a management consultant to many powerhouses in Germany’s Mittelstand of medium-sized firms, says succession is their biggest problem. Families that quarrel risk a split, a sale to a rival or bankruptcy. With early planning and discussions many rows could be avoided. Yet most founders prefer to keep their options open. And few wish to contemplate retirement.

Dynastic dissonance
More than 90% of German firms are family companies. Unusually, that includes many multinationals across a range of industries: appliances (Miele), carmaking (BMW, Continental and Volkswagen), chemicals (Henkel), engineering (Bosch, Heraeus, Knorr-Bremse), food (Oetker), media (Bertelsmann), medicines (Merck) and retail (Aldi and Schwarz, which owns Lidl grocers). Fully 30% of companies with more than 500 employees are in the hands of their founding clans.
The profusion of family companies is partly a function of inheritance tax. This has historically been high in America and France but modest in Germany—and, crucially, waived for heirs who keep their family business running for at least seven years, and protect jobs and wages. Another explanation is culture. Whereas Americans admire self-made men, Germans respect old money. Neureiche (newly rich) are dismissed as arriviste vulgarians.
Whatever the reasons, the upshot is ubiquitous strife. For conflict is built into family businesses, says Arist von Schlippe of the Wittener Institute for Family Companies, a think-tank. Each is a paradox, he says, combining the inclusive logic of a family with the selective logic of business. As an example, he recalls advising a founder who wanted each of his four sons to inherit one-quarter of the family concern, while also encouraging all of them to strive for the qualifications to become its next boss. That is a recipe for discord.

Succession is easier when there is only one descendant, or when others show little interest in business. It gets complicated in dynasties with plenty of children from multiple marriages. Ferdinand Piëch, a former boss of Volkswagen Group and grandson of the carmaker’s founder, Ferdinand Porsche, had six daughters and seven sons from three marriages and a couple of liaisons. Ever since Piëch died in 2019 his 13 children have been fighting in court with his last wife. An estimated €1.5bn ($1.8bn) in family wealth is at stake.
The trickiest succession is from the first generation to the second. If a family can pull that off without bad blood, subsequent handovers are likelier to succeed, says Kirsten Baus of the Institute for Family Strategy, a think-tank in Stuttgart. In America 70% of family firms fold or get sold before the second generation gets a look-in. Just 10% remain privately held going concerns into the third generation, according to a study in the Harvard Business Review. In Germany 16% of small or medium-sized companies say that they will probably close down when the boss retires (though this does not count firms that go bust). Most would like to stay in the family but are unable to persuade a relative to take over.
Conflict is often not chiefly over money. Relatives spar because they have different aspirations for the business, or feel they are being mistreated. Arthur Darboven was pushed out by his father, and stripped of a part of his stake. Among other things, Mr Darboven reportedly disapproved of his son’s launch of a racy new brand called Coffee-Erotic. At the age of 83 Albert Darboven remains at the helm of his firm. (After a court denied his adoption strategy, he is reportedly pondering creating a foundation to control the firm.)
To avert such to-dos, some clans organise an annual family day, holiday camps for their youngsters and even dedicate a house to family reunions, often the home of the founder. Most also draw up codes of conduct, says Herbert Wettig, an adviser of family companies. The 680 members of the Haniel clan (who until recently owned Metro supermarkets) have an 80-page code, which stipulates that no family member can work for the company, not even as an intern. The Reimanns, billionaire owners of JAB, a coffee-to-cosmetics group, have a similar rule. The Trumpfs have a code that covers succession and the sale of shares in the firm, but also includes guidelines for religious tolerance, modesty and respect for others.
No charter is foolproof; the Oetker codex did not stop them clashing. Some families unable to find agreement decide to sell out or, if they are large enough, go public. In 2017 Wirtgen, a construction firm with annual sales of €3bn, was sold to John Deere for $5.2bn. The founder’s sons worried they would be too old to run a company by the time their children could take over. After falling out bitterly with his only son, Heinz Herrmann Thiele listed one-third of Knorr-Bremse, the company he built into a leading purveyor of train and lorry brakes, on the Frankfurt stock exchange in 2018. He and his daughter raked in €3.9bn with the flotation.
Or quarrelsome clans can go their separate ways. Some of corporate Germany’s biggest names are the result of break-ups. A fight between the shoemaking Dassler brothers led in 1948 to the creation of Adidas and Puma, each of which now makes pricey trainers. A feud in 1960 between the Albrecht brothers over whether to sell cigarettes also resulted in a bifurcation: Aldi Nord operates in northern Germany and a number of other, mostly western and central European countries; Aldi Süd covers southern Germany, remaining parts of Europe, plus Australia and China.
A split may make sense for groups with diverse interests, says Klaus-Heiner Röhl of the German Economic Institute, another think-tank. But it weakens specialist firms of the sort that populate the Mittelstand. The latest generation of Aldi Nord heirs has fought over money and power for a decade. The row is preventing a sensible re-merger of the Aldis. Never mind that it would help both businesses. ■
This article appeared in the Business section of the print edition under the headline “Mittelstand-off” More

IN 2020, as demand for crude went up in smoke amid covid-19 lockdowns, so did energy firms’ budgets. That left oilmen with less money to spend on assessing reservoirs, drilling new wells and maintaining existing ones, which they typically outsource to specialist oil-services firms. Between January and June the number of active rigs worldwide fell by half, to just over 1,000. On January 19th Jeff Miller, boss of Halliburton, a service-industry giant, called last year “the worst in our history”. His firms’ revenues fell by 36%, to $14.4bn, leading to an operating loss of $2.4bn.
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Still, Mr Miller insisted, the future looks brighter. He predicted “a multi-year upcycle” beginning in 2022. On January 22nd Olivier Le Peuch, chief executive of Schlumberger, a big rival, echoed this sentiment, declaring “a new growth cycle”. A day earlier executives at Baker Hughes, the third big provider, sounded a similarly chirpy note. Is this optimism misplaced?

Recent history gives grounds for scepticism. Although Halliburton’s share price has almost recovered to its pre-pandemic levels, it is less than a third what it was in 2017. Schlumberger and Baker Hughes have performed only a bit better. The trio have torched $128bn in shareholder value in the past four years, as low fossil-fuel prices have squeezed oil firms’ budgets.
At the same time newcomers piled in, particularly across America’s shale fields. The industry’s global ranks swelled, from about 100 companies in 2014 to nearly 1,000 last year, reckons Muqsit Ashraf of Accenture, a consultancy. Competition meant that most of the rewards from improved efficiency went to customers, in the form of lower prices. Returns collapsed. The sector’s gross operating profits fell by half from 2014 to 2019, according to Bernstein, a research firm. Then came covid-19.

The long-term risks beyond the pandemic look as daunting. Oil majors’ spending on new rigs may not keep pace with any rise in the oil price. Investors are keener on cashflow than on costly new gushers. Governments are getting serious about climate change. On January 27th President Joe Biden announced an indefinite pause to new drilling permits on America’s federal lands. Against this backdrop, the prospects for service firms can resemble those of horse farriers at the dawn of the car age.
Even a shrinking market offers an opportunity, however. The giants have spent the past year slashing costs. Schlumberger laid off 21,000 workers, a fifth of its total, cut its dividend by 75% and said that senior managers would voluntarily forgo 20% of their pay. It has enough cash (as have its two rivals) to invest in better services for traditional customers. Mr Miller boasted that his firm sealed a wellbore in the North Sea with cement in a process that was, for the first time, fully automated.
The big firms are also expanding into new, cleaner ventures. In November Baker Hughes said it would acquire a carbon-capture company. Schlumberger has set up a “new energy” business unit and on January 11th its joint venture in France to manufacture equipment for clean-hydrogen production received the EU’s blessing.
Most important, the three giants benefit from attrition. North American service firms entered the pandemic with $32bn to repay by 2024, according to Moody’s, a ratings agency. Speculative-grade companies accounted for nearly two-thirds of that. Few are attractive takeover targets; unlike an oil firm, which obtains drillable land when it buys another, an acquisitive service company gets rigs and other kit it already has in abundance. Sreedhar Kona of Moody’s sees “way too much equipment chasing way too little cashflow”. The big three hope that what cash is left will increasingly flow to them. ■

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This article appeared in the Business section of the print edition under the headline “Will baby drill?” More

HOWARD SCHULTZ, former boss of Starbucks, used to imagine its coffee shops as a “third place”: a spot to hang out, as you do at home or in the office. Yet even free Wi-Fi persuaded only one in five Americans to stick around; the rest ordered to go. Then covid-19 collapsed the distinction between hearth and work. Being a two-and-a-halfth sort of place was not all bad in a plague. On January 26th Kevin Johnson, Mr Schultz’s successor, reported Starbucks’s best quarter of the pandemic so far. But global same-store sales, a benchmark metric, still fell by 5%.
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Recovery is furthest along in China, the firm’s largest international market, which got the pandemic under control faster than the West. Same-store sales in China grew by 5% last quarter, year on year (possibly helped by the downfall of Luckin Coffee, a local rival embroiled in a fraud). Including the nearly 600 new outlets, too, total China revenues rose by 22%, to $911m.

The pace of new openings slowed from the previous quarter, when a new Chinese outlet opened every eight hours or so, but it remained faster than before the pandemic. In November Starbucks broke ground on a Coffee Innovation Park in the province of Jiangsu, which will roast and distribute beans to the 6,000 coffee shops the company plans to run in China by 2022.
Chinese coffee-drinkers have been lapping up its app-based loyalty programme, which now has 15m members in China, up from 10m at the start of 2020. That bodes well for future sales in a traditionally undercaffeinated market where the beverage is winning over ever more converts.
The app propped up sales in America, too. Those fell by just 5% year on year, despite two in five coffee shops facing renewed limits on in-person caffeination. Although the Starbucks app was overtaken by Apple Pay in 2019, it remains one of America’s most popular mobile-payments systems. Gamified challenges and promotions (as well as contactlessness, on which covid-19 placed a premium) tempted American coffee-drinkers out of their houses and increased the amount they bought on each visit, which rose by 19% between October and December, year on year. Drive-through lanes at suburban outlets, which are mushrooming as those in city centres once did, also helped. By 2023 Starbucks wants 45% of its American outlets to allow drive-through or curb-side pick-up.
But covid-19 continues to cloud prospects for businesses that involve human contact—as latte-peddling does. By the time the pandemic is over up to 400 Starbucks in American city centres may be shut for good, the firm says. Until recently investors did not seem to mind, perhaps concluding that not every street corner needs one. The company’s market capitalisation climbed steadily since the market crash in March to an all-time high of $126bn in late December. The disappointing results shaved 6.5% off Starbucks’s share price. Normally stock-traders are highly strung after too much coffee. Too little can evidently have the same effect. ■

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This article appeared in the Business section of the print edition under the headline “Espresso lane” More

CHRISTMAS means rich pickings for Apple. The pandemic year was no different. The iPhone-maker’s quarterly revenue exceeded $100bn for the first time, two-and-a-half times Microsoft’s own record sales and four times Facebook’s. Among the tech giants only Amazon boasts bigger annual revenues—though much thinner margins.■

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This article appeared in the Business section of the print edition under the headline “Apple’s quarterly sales exceed $100bn for the first time” More

COMMERCIAL TIES between Ericsson and China date back to the 1890s, when the Swedish company sold 2,000 telephones to Shanghai. It has been welcome in the Chinese market ever since, most recently selling speedy 5G telecoms gear. Now, fears Borje Ekholm, Ericsson’s boss, those bonds are in jeopardy, as a result of the Swedish government’s anti-Chinese turn.
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After centuries of cordial relations—from the Swedish East India Company’s ships sailing between Gothenburg and Guangzhou in the 18th century to Sweden’s early recognition of the People’s Republic in 1950 and its blessing in 2010 of the Chinese takeover of Volvo, a much-loved carmaker—the mood has changed. Last October the Swedish telecoms regulator barred Huawei, Ericsson’s Chinese rival, from the country’s speedy 5G mobile networks, citing “theft of technology” by China. This month, after an auction of Sweden’s 5G radio spectrum that forbade the winners from using kit from Huawei and ZTE, another Chinese supplier, China’s commerce ministry hinted that the ban could compromise bilateral economic ties.

That would be bad news for Ericsson, which derives 13% of its revenues from China. It is the only foreign company that provides China with certain types of 5G kit—which China is well ahead of most other countries in installing, thanks to gargantuan sums channelled into telecoms infrastructure. But Mr Ekholm’s fellow bosses are equally worried, if not quite as outspoken. Plenty of Swedish blue chips have a large exposure to the Asian giant, from ABB and Atlas Copco, two engineering groups, to Essity, a maker of nappies, and AstraZeneca, a Swedish-British pharmaceutical giant (see chart).

Joakim Abeleen, the Beijing representative of Business Sweden, a lobby group, observes that diplomatic ties soured after 2015. That year Chinese agents arrested Gui Minhai, a Swedish national who sold books in Hong Kong that were critical of the Communist Party. This, along with Chinese buyers’ aggressive pursuit of Swedish assets, including a port, infuriated Sweden’s government, which has since become one of Europe’s staunchest critics of China.
Even so, Mr Abeleen says, relations between the two countries’ corporate worlds remained cordial. Swedish exports to China (mainly medicines, vehicles and machinery) rose by 15% in the first ten months of 2020, year on year. It is Sweden’s fifth-biggest source of imports and sixth-largest export market. Around 600 subsidiaries of Swedish companies operate there; the 30 biggest reported an 18% increase in their Chinese sales in 2019, compared with a year earlier. A year ago a survey of Swedish businesses in China found that 34% planned to increase their investments in the country.
The 5G ruckus risks undermining this mutually beneficial state of affairs. China appears ready to use Sweden as a cautionary tale for other EU countries, showing what happens if they bar Huawei from their 5G networks, says a prominent Swedish industrialist. That would be tricky for Ericsson—which, as Mr Ekholm points out, needs China for global scale.
It could also harm Sverige AB more broadly; a well-functioning trade system is “pivotal” for a small, open country like Sweden, the industrialist warns. No wonder many bosses are quietly hoping that the country’s highest administrative court will reverse the telecoms regulator’s decision, which Huawei has appealed against. ■

This article appeared in the Business section of the print edition under the headline “Stockholm syndrome” More