Huawei robbery: A giant with a target on its back

Business

Huawei robbery: A giant with a target on its back

The US has raised the stakes in its superpower showdown with Beijing after the arrest of Huawei's CFO

James Titcomb and Laurence Dodds


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 cellphones in the US and Europe during the early 2010s, it found 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 shockwaves 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 1980s and early 90s, 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 15.7% year-on-year to 603 billion yuan (R1.2 trillion). Besides telecoms networks, it has become the world’s second-biggest 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 French newspaper Le Monde even accused it of snooping on the African Union headquarters that it helped 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.
Take Broadcom, a Singapore-based microchip company whose $117bn 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 in 2017 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. Cellphone 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.
– © The Sunday Telegraph

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