Huawei, the tech cham­pion caught in su­per­power slugfest

The US has raised the stakes in its su­per­power show­down with Bei­jing af­ter the ar­rest of a Huawei ex­ec­u­tive, write James Tit­comb and Lau­rence Dodds

The Sunday Telegraph - Money & Business - - Front page -

Lit­tle more than a decade ago, not many peo­ple in the west­ern hemi­sphere had heard of Huawei. When the Chi­nese tele­coms com­pany started sell­ing its mo­bile phones in the US and Europe dur­ing the early 2010s, it found that it could barely get peo­ple to pro­nounce its name, let alone buy from it.

But in the years since, it has be­come the world’s big­gest provider of tele­coms equip­ment, a sym­bol of China’s tech­no­log­i­cal as­cen­dancy – and that has made it a tar­get. If Huawei’s protes­ta­tions of in­no­cence are true, it is one of the un­luck­i­est and most un­justly vic­timised com­pa­nies on Earth. If not, it has been very naughty.

Last week’s ar­rest of Meng Wanzhou, the com­pany’s chief fi­nan­cial of­fi­cer and the daugh­ter of its founder Ren Zhengfei, sent shock waves through the world econ­omy. Mar­kets plunged in the 24 hours af­ter her de­ten­tion in Van­cou­ver, Canada, fear­ing that it would cre­ate a fis­sure be­tween the US and China just days af­ter Don­ald Trump had trum­peted an “in­cred­i­ble” trade deal with Bei­jing.

In the­ory, Meng was ar­rested for the sus­pected vi­o­la­tion of break­ing US sanc­tions against Iran. Cer­tainly Huawei has been ac­cused of sup­ply­ing equip­ment to Iran in the past. But Meng is only the high­est-level Chi­nese ex­ec­u­tive caught up in a se­ries of Amer­i­can in­ves­ti­ga­tions tar­get­ing a much broader spec­trum of al­leged mis­deeds. Her sit­u­a­tion il­lus­trates how a com­pany founded 31 years ago on the banks of the Pearl River delta in south­ern China has found it­self at the cen­tre of es­ca­lat­ing ten­sions be­tween the world’s two su­per­pow­ers.

Once upon a time, Ren was just an en­gi­neer­ing grad­u­ate who could not join the Com­mu­nist Party due to his fa­ther’s Right-wing con­nec­tions. He served as a re­searcher in the Peo­ple’s Lib­er­a­tion Army, though he did not gain a mil­i­tary rank, and left in 1983 af­ter cutbacks. De­spite his lack of political con­nec­tions, he made a name for him­self sell­ing tele­phone exchange switches, slowly com­ing to dom­i­nate ru­ral mar­kets that his com­peti­tors ne­glected.

Even then, though, Huawei’s work was bound up with ques­tions of na­tional se­cu­rity. It was not just the nec­es­sary political dance that most Chi­nese com­pa­nies must per­form (Huawei has long re­ferred to it­self as a “col­lec­tive”, not a pri­vate com­pany, al­though Chi­nese me­dia has re­ferred to its em­ployee own­er­ship sys­tem as “al­most im­pos­si­ble to un­der­stand”). Nor was it merely a ques­tion of loans from state-owned banks or con­tracts with the army.

Through­out the Eight­ies and early Nineties, China’s telecom­mu­ni­ca­tions equip­ment was mostly im­ported, and while Ren re­port­edly spent some ef­fort re­v­erse-en­gi­neer­ing for­eign tech, he had big­ger ideas. In 1994, given the chance to meet the Com­mu­nist Party’s gen­eral sec­re­tary, Ren told him that tele­coms equip­ment was cru­cial to China’s fu­ture, and that a coun­try with­out its own net­work was like a coun­try with­out an army. Two years later, the Chi­nese gov­ern­ment be­gan to act on that be­lief, des­ig­nat­ing Huawei as a “na­tional cham­pion” and plough­ing money into the sec­tor.

Thus be­gan the great paradox of Huawei: founded on the con­vic­tion that China could not trust for­eign com­pa­nies to build its in­fra­struc­ture, it has nev­er­the­less prof­ited hugely from build­ing the rest of the world’s.

Af­ter the fall of the Iron Cur­tain, when Bill Clin­ton spent thou­sands of lawyer hours bring­ing China into the World Trade Or­gan­i­sa­tion, Huawei agreed many such con­tracts. It worked on net­works in Den­mark, Bri­tain, the US and nu­mer­ous African coun­tries, serv­ing also as a part­ner for West­ern com­pa­nies open­ing branches in China. In 2017, ac­cord­ing to the com­pany’s an­nual re­port, its rev­enues in­creased by 15.7pc year-on-year to 603bn yuan (£68.6bn). Be­sides tele­coms net­works, it has be­come the world’s sec­ond­biggest smart­phone man­u­fac­turer, push­ing Ap­ple into third place, and a ma­jor player in cloud com­put­ing. Its rise was as­sisted by the col­lapse of Nor­tel, a Cana­dian ri­val, which went bank­rupt af­ter years of thefts by sus­pected Chi­nese hack­ers.

With fi­nan­cial suc­cess, how­ever, came a trickle and then a tor­rent of ac­cu­sa­tions from busi­ness ri­vals and West­ern in­tel­li­gence agencies. As early as 2004 a Huawei em­ployee was caught pho­tograph­ing com­peti­tors’ cir­cuit boards af­ter hours at a trade show. In 2014, T-mo­bile ac­cused it of steal­ing parts from a test­ing ro­bot named Tappy.

Ger­man se­cu­rity re­searchers have found call-snoop­ing mal­ware on its phones, while an in­ves­ti­ga­tion by the French news­pa­per Le Monde even ac­cused it of snoop­ing on the African Union head­quar­ters that it helped

With fi­nan­cial suc­cess came a trickle and then a tor­rent of ac­cu­sa­tions from busi­ness ri­vals and West­ern in­tel­li­gence agencies

build. In 2012, a re­port by a US con­gres­sional com­mit­tee deemed Huawei and ZTE, an­other Chi­nese tele­coms com­pany, to be a na­tional se­cu­rity threat. Then came Don­ald Trump. With his pres­i­dency, long-time China hawks in the US de­fence ap­pa­ra­tus have found their mo­ment. He ap­pointed Peter Navarro, an un­ortho­dox econ­o­mist famous for books such as Death by China, as a trade ad­viser, and Matthew Pot­tinger, who was at­tacked by gov­ern­ment thugs while work­ing as a jour­nal­ist in Bei­jing, as a na­tional se­cu­rity ad­viser.

Ac­cord­ing to for­mer CIA an­a­lyst Chris John­son, Amer­i­can of­fi­cials now view China as “an im­pla­ca­ble en­emy [in] a global strug­gle for in­flu­ence and maybe dom­i­na­tion”. And, just as Trump re­fused to see Iran’s covert aid to armed groups as a sep­a­rate is­sue from its com­pli­ance with Barack Obama’s nu­clear deal, his ad­min­is­tra­tion has made ev­ery as­pect of Amer­ica’s deal­ings with China part of the trade war. Broad­com, a Sin­ga­pore-based mi­crochip com­pany whose $117bn (£92bn) bid for US ri­val Qual­comm was blocked by Trump in March, cit­ing na­tional se­cu­rity con­cerns. Broad­com was not an ob­vi­ous threat and was in the process of re­lo­cat­ing to the US. But of­fi­cials were con­cerned that the deal would mean less in­vest­ment from Amer­i­can

com­pa­nies in the new 5G mo­bile com­mu­ni­ca­tion stan­dard, ced­ing in­no­va­tion to Huawei and risk­ing China be­com­ing the world leader in the next gen­er­a­tion of mo­bile net­works.

“A weak­en­ing of Qual­comm’s po­si­tion would leave an open­ing for China to ex­pand its in­flu­ence on the 5G stan­dard-set­ting process,” Ai­men Nir, the trea­sury depart­ment’s deputy as­sis­tant sec­re­tary for in­vest­ment se­cu­rity, wrote in a let­ter block­ing the deal. “Given well-known US na­tional se­cu­rity con­cerns about Huawei and other Chi­nese telecom­mu­ni­ca­tions com­pa­nies, a shift to Chi­nese dom­i­nance in 5G would have sub­stan­tial neg­a­tive na­tional se­cu­rity con­se­quences for the United States.”

In other words, Washington feared that if Huawei de­vel­oped faster, cheaper and more re­li­able 5G tech­nol­ogy than what was avail­able else­where, its equip­ment would be­come yet fur­ther em­bed­ded into the tele­coms net­works of US al­lies.

Al­low­ing Huawei to win the 5G bat­tle would give Amer­ica the un­ap­petis­ing choice of ei­ther al­low­ing its mo­bile net­works to fall be­hind the rest of the world or al­low­ing the com­pany’s tech­nol­ogy into its most crit­i­cal sys­tems.

To un­der­stand how dan­ger­ous US spooks think that would be, look at how cen­tral mo­bile net­works are now be­com­ing to daily life. Not only smart­phones but driver­less cars, mil­i­tary com­mu­ni­ca­tions and en­ergy grids now all make use of them.

That is why last year the White House des­ig­nated 5G as a na­tional se­cu­rity pri­or­ity. In Au­gust, Trump went fur­ther, sign­ing a Bill that ef­fec­tively banned the US gov­ern­ment or any­one work­ing with the US gov­ern­ment from us­ing Huawei’s com­po­nents, as well as those from ZTE. Mo­bile phone net­works have also been strongly dis­cour­aged from

sell­ing Huawei de­vices. The prob­lem for Huawei is that even if it were to­tally in­no­cent, it would not es­cape this cli­mate of mu­tual sus­pi­cion.

“What’s changed is a much more as­sertive China,” says James An­drew Lewis, a for­mer US com­merce depart­ment of­fi­cial deal­ing with Chi­nese es­pi­onage and now a direc­tor at the Cen­tre for Strate­gic and In­ter­na­tional Stud­ies. “Up until I’d say 2015, US pol­icy was based on this premise that we could get along … But the level of Chi­nese es­pi­onage is now un­prece­dented.”

Xi Jin­ping, he says, has stud­ied the fall of the Soviet Union and thinks Gor­bachev’s down­fall came from be­ing too soft. Amer­ica, for its part, is keen to show it still rules the world.

Ear­lier this year the gov­ern­ment forced ZTE to pay $1.4bn af­ter find­ing it had mis­led reg­u­la­tors af­ter break­ing trade em­bar­goes against Iran and North Korea. The penal­ties, along with a seven-year ban on buy­ing Us-made equip­ment, al­most brought the com­pany to its knees. In a strange twist it was saved by the in­ter­ven­tion of Trump him­self, who spun the move as a favour to Xi.

Last week’s ar­rest of Meng may be the start of a sim­i­lar act with Huawei, al­though the stock mar­ket tur­moil that fol­lowed sug­gests the US will find it more dif­fi­cult to take on Huawei than it did ZTE. Soon af­ter she was ar­rested, China’s for­eign min­istry called it a “vi­o­la­tion of hu­man rights” and de­manded her im­me­di­ate re­lease. Bring­ing one of China’s cor­po­rate jew­els into his trade war may be a riskier gam­ble than Trump thinks.

Soon af­ter she was ar­rested, China’s for­eign min­istry called it a ‘vi­o­la­tion of hu­man rights’

The ar­rest of Meng Wanzhou, Huawei’s chief fi­nance of­fi­cer, led to a global stock sell-off

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.