China is restricting the use of European telecom equipment suppliers Nokia and Ericsson in its networks. According to Business Standard, Chinese state-backed buyers of IT equipment must now submit contracts from these companies to national security checks. The Cyberspace Administration of China conducts what sources describe as black box reviews. Companies are not informed how their equipment is assessed.

Reuters reports that state buyers must now require bidders to include detailed documentation on every component in their systems. The portion of local content must also be documented. These reviews can take three months or longer. Chinese firms do not face such checks. Even when European companies receive permission, the lengthy approval process puts them at a disadvantage.

The restrictions reflect President Xi Jinping's push to reduce China's reliance on Western technology. Last month, Xi said China stands strongly on its own with self-reliance. A 2022 update to China's cybersecurity law required operators of critical information infrastructure to submit purchases with potential security risks for CAC review.

Impact on European Vendors

The policy has reduced European market share in China. Ericsson and Nokia's combined market share in China fell to about 4 percent in 2024 from 12 percent in 2020, according to Stefan Pongratz of Dell'Oro Group. Both companies have reported declining revenues in China. Nokia has seen double-digit revenue drops from 2023. Nokia also laid off around 2,000 employees in Greater China last year. The company plans to cut up to 14,000 jobs by 2026 to save €800 million to €1.2 billion.

The EU Chamber of Commerce in China warned that localisation rules in IT and telecom pose an existential threat to European companies. Foreign companies have included details of Chinese R&D efforts to strengthen their bids. However, the extensive requirements still place them at a disadvantage compared to domestic suppliers. HMD Global, which produces Nokia-branded phones, announced in November last year that it is relocating much of its manufacturing from China to India.

Reciprocal Trade Tensions

China's restrictions mirror similar European concerns about Chinese telecom suppliers Huawei and ZTE. However, the response has been uneven. According to IEEE Spectrum, only 11 of the EU's 27 countries had restrictions on Huawei or ZTE as of August 2024. European policymakers continue to voice security concerns. Most countries have been hesitant to impose bans because Chinese equipment is low-cost. Banning it could strain relations with Beijing.

Germany ordered operators to remove Huawei and ZTE components from 5G core networks by the end of 2026. Several other European countries, including Spain, Portugal, Holland, Austria, Switzerland, and Finland have opted not to implement similar bans. These countries still rely on Huawei equipment in their mobile networks. The European Commission concluded that ransomware and destructive malware carry large potential for spillover harm into other sectors. The risk of disruption is heightened where a telecommunications operator is the sole provider for critical entities.

Huawei holds approximately 25 percent of the global telecom equipment market. Ericsson and Nokia each hold about 15 percent. When China is excluded from the comparison, Ericsson and Nokia each hold about 20 percent of the rest of world market. Huawei maintains an 18 percent share despite sanctions and limitations. The telecom equipment market is valued at approximately $315 billion in 2024.

Further Reading

For deeper insights into global adoption trends and regulatory frameworks affecting alternative financial and technological systems, our Alternative Financial Systems Index tracks policy developments and adoption metrics across 50 countries. The index provides data on how governments worldwide are responding to technological sovereignty concerns.