Mar­kets plunge over doubts on trade deal

The ex­plo­sive ar­rest of the Chi­nese com­pany’s chief fi­nan­cial of­fi­cer has shone a spot­light on its global role in tele­coms – and its links to the Peo­ple’s Lib­er­a­tion Army and Com­mu­nist party, writes Rob Davies

The Observer - - Business & Cash -

US stock mar­kets fell sharply on Tues­day as in­vestors lost faith in a trade truce be­tween the US and China that had been ne­go­ti­ated by Don­ald Trump at the G20 sum­mit. The Dow Jones in­dus­trial av­er­age lost close to 800 points – just over 3%. Other mar­ket in­dexes also fell sharply: the S&P 500 lost 3.2% and the Nas­daq dropped 3.7%.

Many ex­ec­u­tives con­sider them­selves fig­ures of great sig­nif­i­cance, but few are ca­pa­ble of send­ing a chill through global mar­kets sim­ply by get­ting ar­rested. Meng Wanzhou, also known as Sab­rina Meng or Cathy Meng, is one.

The chief fi­nan­cial of­fi­cer of the Chi­nese tele­coms gi­ant Huawei – and the daugh­ter of its bil­lion­aire founder, Ren Zhengfei – was de­tained in Van­cou­ver last week. She could face ex­tra­di­tion to the US on charges thought to be re­lated to al­le­ga­tions that Huawei breached sanc­tions levied by Washington against Iran.

Meng’s ar­rest, and Bei­jing’s de­mand that she be re­leased amid al­le­ga­tions of “hooli­gan­ism” from the Chi­nese me­dia, has dashed hopes of a thaw in US-China trade ten­sions. Chances of a rap­proche­ment had ap­peared to be on the rise fol­low­ing a 90-day tariff truce agreed be­tween the two coun­tries at the re­cent G20 sum­mit in Buenos Aires.

Stock mar­kets in the US, UK and Europe – al­ready skit­tish dur­ing this par­lous pe­riod for re­la­tions be­tween the world’s two big­gest economies – gy­rated on Tues­day and Thurs­day as in­vestors con­sid­ered the pos­si­bil­ity of a fresh tariff es­ca­la­tion un­der­min­ing an al­ready frag­ile global econ­omy.

While its fi­nance direc­tor’s ar­rest has placed the com­pany squarely at the cen­tre of world af­fairs, Huawei is no stranger to be­ing scru­ti­nised with open dis­trust. It has been banned from in­volve­ment in the in­stal­la­tion of 5G mo­bile net­works in In­dia, New Zealand and Aus­tralia, blocked from mak­ing ac­qui­si­tions in the US and banned from sell­ing phones on mil­i­tary bases by the Pen­tagon.

There is no of­fi­cial pro­hi­bi­tion in the UK, but BT has ex­cluded Huawei tele­coms in­fra­struc­ture from its own 5G roll­out and removed some of its equip­ment from the 4G net­work.

Con­cerns about Huawei seem to em­anate, at least in part, from the his­tory of its 74-year-old founder, Ren (see box), who has long had ties with both the Peo­ple’s Lib­er­a­tion Army, where he served as an en­gi­neer, and the Com­mu­nist party. More­over, his com­pany has grown into a globe­strad­dling colos­sus, the world’s largest tele­coms equip­ment man­u­fac­turer, sell­ing in 170 coun­tries. It also over­took Ap­ple ear­lier this year to be­come the world’s sec­ond-largest smart­phone man­u­fac­turer be­hind Sam­sung, churn­ing out 54m hand­sets in three months.

But how­ever great its suc­cess, Huawei has never been able to dis­pel the cloud of sus­pi­cion that hangs over both Ren and his cre­ation. Given the vol­ume of es­pi­onage and cy­ber­at­tacks that orig­i­nate in China – tar­get­ing na­tions and com­pa­nies alike – ques­tions have in­evitably been raised about the se­cu­rity im­pli­ca­tions of us­ing Huawei’s tech­nol­ogy.

It is, af­ter all, a com­pany founded by a mil­i­tary tech ex­pert. Concern has fo­cused on whether Huawei’s kit could be used to spy on for­eign com­peti­tors, steal in­tel­lec­tual prop­erty or even in­stall “kill switches” in en­ergy or in­dus­trial projects. Some an­a­lysts have warned that, in the event of a con­flict, Bei­jing could ex­ploit hid­den back­doors in Huawei tech­nol­ogy to shut down a for­eign power’s in­fra­struc­ture at the touch of a but­ton.

Ren him­self has, in his rel­a­tively rare pub­lic ap­pear­ances, sought to dis­miss such con­cerns as scare­mon­ger­ing. At the World Eco­nomic Fo­rum

in Davos in 2015, he told an au­di­ence: “There’s no way we can pos­si­bly pen­e­trate into other peo­ple’s sys­tems and we have never re­ceived such a re­quest from the Chi­nese gov­ern­ment.”

That, of course, is ex­actly what you’d ex­pect a spy to say.

But the real ques­tion isn’t so much whether Huawei is a covert es­pi­onage op­er­a­tion but whether it could be co­erced into be­com­ing one. For a start, Chi­nese com­pa­nies – and Huawei is no ex­cep­tion – typ­i­cally have a Com­mu­nist party com­mit­tee within their cor­po­rate ar­chi­tec­ture. What these com­mit­tees do, or how much in­flu­ence they wield, is hard to gauge.

A new na­tional in­tel­li­gence law that came into force last year may be of even greater concern. Ar­ti­cle seven of the law states: “All or­gan­i­sa­tions and cit­i­zens shall, in ac­cor­dance with the law, sup­port, co­op­er­ate with, and col­lab­o­rate in na­tional in­tel­li­gence work, and guard the se­crecy of na­tional in­tel­li­gence work they are aware of.

“The state will pro­tect in­di­vid­u­als and or­gan­i­sa­tions that sup­port, co­op­er­ate with, and col­lab­o­rate in na­tional in­tel­li­gence work.”

Alarm­ing con­di­tions such as these lend some cre­dence to Huawei’s bo­gey­man sta­tus among gov­ern­ments, even in the ab­sence of any hard ev­i­dence to sup­port their fears.

The com­pany has gone to great lengths to ad­dress its im­age prob­lem, hir­ing le­gions of PR ad­vis­ers and al­low­ing GCHQ to run the rule over its tech at a spe­cial cen­tre in Ban­bury, Ox­ford­shire. The com­pany even hired the Bri­tish gov­ern­ment’s for­mer chief in­for­ma­tion of­fi­cer John Suf­folk as its global cy­ber-se­cu­rity of­fi­cer.

Suf­folk him­self has pointed out that any fears about Huawei ought to equally ap­ply to any firm that has a role in projects of na­tional sig­nif­i­cance. “Be­lieve no one and check ev­ery­thing,” he told the Econ­o­mist.

Huawei’s prob­lem ap­pears to be that no mat­ter how closely it is ex­am­ined, the facts of its founder’s past – cou­pled with the global im­por­tance of tele­coms – mean it can never be given the ben­e­fit of the doubt.

Ac­cord­ing to Ren, the com­pany’s name comes from a pa­tri­otic slo­gan that he saw on a wall one day:

zhonghua youwei, or “China makes a dif­fer­ence”. Un­for­tu­nately for Huawei, that dif­fer­ence ap­pears to be an aura of mis­trust that is nigh-on im­pos­si­ble to es­cape.

‘There’s no way we can pos­si­bly pen­e­trate into other peo­ple’s sys­tems’

Ren Zhengfei, chief ex­ec­u­tive

Pho­to­graph by Eric Gail­lard/Reuters

Huawei’s stand at the Mo­bile World Congress in Barcelona last year.

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