Huawei’s problems deepen as western suspicions mount
The Chinese telecom company Huawei is at the centre of an increasingly tense standoff between China and the US.
What began as a trade spat and grievances over corporate intellectual property theft has developed into a global standoff involving “hostage diplomacy”, death sentences and allegations of Chinese espionage.
Huawei’s senior executive Meng Wanzhou, was arrested in Canada in December over allegations of sanctions violations and awaits extradition to the US. Meanwhile, three Canadians remain in police custody in China; one of them was sentenced to death this month. Washington, meanwhile, has said it will file a formal extradition request for Meng by the 30 January deadline.
The US is reportedly investigating Huawei for stealing trade secrets while US lawmakers are calling for a ban on selling American-made chips and other components to the company.
Last week, Vodafone became the latest company to flag concerns over Huawei, announcing a decision to “pause” use of the company’s equipment in its core mobile phone networks. Oxford University and the Prince’s Trust, Prince Charles’s charity, said this month they would no longer accept donations from Huawei.
Huawei and its defenders have tried to paint the company as an innocent bystander, politicised against its will. Global Times editor Hu Xijin tweeted this month that: “By escalating its crackdown on Huawei, the US sets a bad precedent of applying McCarthyism in hi-tech fields. It deprives a hi-tech company of the rights to stay away from politics, focus on technology and market.”
Yet, in many ways Huawei is used to scrutiny over its political associations. Critics point the finger at the possible connections between its founder Ren Zhengfei’ and the Chinese government.
Ren, 74, a former engineer for the People’s Liberation Army, has been a party member since 1978 and was deemed one of 100 entrepreneurs who safeguarded “the leadership of the Chinese Communist party.”
Huawei is also one of China’s so-called “national champions”’ referring to companies whose global expansion is considered in the national interest.
Critics say Huawei’s rapid expansion is suspicious. Founded in 1987 and focused on selling telecom equipment in rural areas of China, it has grown into the world’s largest supplier of telecoms equipment and second largest smartphone maker. It operates in more than 170 countries, employing about 180,000 people.
Others point to Huawei’s corporate structure, describing it as opaque. Huawei has long claimed that it is an employee-owned company, with Ren holding just 1.4% and the rest distributed among employees.
“There are so many doubts about Huawei,” said Li Datong, an outspoken commentator and former journalist. “That Huawei is able to expand and hold a large share of the market has people wondering what other power there is behind the company? Everyone knows the answer,” he said.
The US has been wary of Huawei’s state links since at least 2010, with the former head of the CIA claiming evidence of espionage – allegations that have not been proved. In 2015, when the company emerged as the largest supplier of networking equipment, concerns grew among US officials that Huawei-made routers and modems could be used to spy on Americans.
This month, Ren went on a media blitz, breaking years of silence to say the company has never engaged in espionage on behalf of Beijing. “China’s ministry of foreign affairs has officially clarified that no law in China requires any company to install mandatory back doors. Huawei and me personally have never received any request from any government to provide improper information,” he said.
Yet Huawei, like all companies operating in China, would have no choice but to supply information to Chinese security. China’s national intelligence law requires all organisations and individuals to “support, provide assistance, and cooperate in national intelligence work”. China’s counter-espionage law says all companies and citizens have to “truthfully provide information” and “must not refuse”.
“The fact is, in China no single company can avoid this,” said Li. “You have to do what the government asks you to, no matter if you are state-owned or private. If you refuse, your business is over, so Huawei suffers from both sides, from the Chinese side and the democratic countries.”
Outside China, Huawei’s troubles have morphed in recent months into an international web of allegations, threats and outright bans that would destroy a less powerful company.
In the US, concerns have been compounded by hardening attitudes towards China in the Trump administration and Washington more broadly. US legislators introduced a rare bipartisan bill last week that would ban the sale of US chips or other components to Huawei or other Chinese companies deemed to have violated US sanctions or export control laws.
“The United States government has basically declared war on Huawei and is using it as a proxy to push back against some of the ways the Chinese communist party operates,” said Isaac Stone Fish, a senior fellow at the Asia Society’s Center on US-China Relations.
Concerns about Huawei’s relationship with the Chinese government have led US politicians and telecoms executives to call for banning Huawei from the rollout of the 5G network in the US, the next generation of the cellular technology.
New Zealand and Australia have already moved to block the use of Huawei’s equipment as part of the 5G rollout citing similar concerns.
In the UK, BT said in December it had removed Huawei equipment from parts of its network after the head of MI6 said it was time for the UK to decide whether it was “comfortable with Chinese ownership of these platforms”. Huawei has pledged to spend $2bn (£1.5bn) to alleviate those security concerns.
Poland, where a Chinese employee of Huawei has been arrested on allegations of spying, has called on the European Union and Nato to decide whether to exclude Huawei from their markets.
Even the Chinese firm’s sideline business in solar panels is under investigation. American politicians have claimed the firm’s panels “may pose a threat to our nation’s infrastructure.”
An effective ban in the western world would be a blow to Huawei but it is likely the company can weather a fight with just the US. It still has its huge home market, South America and parts of Asia to fall back on. Other Chinese firms, including chipmaker ZTE, have run into trouble in the US, but the extent of Huawei’s woes is likely to chill the appetite of Chinese firms for the US market.
Huawei has come under IP theft accusations before. US federal prosecutors are reportedly investigating allegations that Huawei stole trade secrets from US businesses.
The investigation grew in part out of a civil lawsuit that starred a robot called Tappy. In 2014, T-Mobile filed a suit against Huawei in Seattle, accusing the Chinese firm of “theft of trade secrets, breaches of confidentiality and nondisclosure agreements” among other things. The telecom firm had spent years developing Tappy, a robot that uses a small, fast-moving finger to test and help improve handset quality, simulating human touch and adaptable to a range of devices.
According to T-Mobile, Huawei instructed its employees to steal Tappy’s technology. One Huawei employee who was “continually peering into a security camera” tried to hide a stolen robot finger tip behind a monitor in the T-Mobile lab and then took the hidden part with him when he left.
Huawei admitted two employees had acted inappropriately and said they had been fired but challenged T-Mobile’s claims that Tappy’s technology was secret, pointing out that video of the device in action was available on YouTube.
In 2017, a jury sided with T-Mobile, ruling that Huawei had breached its contract and misappropriated its technology. But it did not award damages for stealing trade secrets and awarded the telecoms company a modest $4.8m (£3.6m).
That investigation opened the door to a wider inquiry just as Donald Trump was gearing up for a trade war with China, one that made a political pawn of the already troubled Huawei.
“The United States has the power, the desire and the allies to make Huawei’s life difficult not only in America but in other countries around the world,” said Stone Fish.
He feels the real threat with Huawei may not be what it is doing now but the potential it has to act if tensions with the US and China really worsen. He said: “Because they are such an opaque company, we can’t trust them. We just don’t have enough information to give them the benefit of the doubt.”