The Furious Rise of Huawei

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This article is the second in a three part series that focuses on the global battle for 5G in the Fourth Industrial Revolution between USA and China, the choices available, Huawei’s rise and its association with Communist Party of China (CCP) and finally India’s 5G conundrums in rolling out next-gen services that will shape its economic and geopolitical future.

Huawei was founded in 1987 and is one of China’s biggest technology companies. It is headquartered in Shenzhen and clocked $100 billion in revenues in 2018. It is a complete network solutions and cloud services provider and is the second largest smartphone seller in the world behind Samsung and before Apple. Its founder Ren Zhengfei was a technician for PLA. Huawei is one of the world’s largest patent holders with 87,805 patents with 1,80,000 employees. It describes itself as a private company wholly owned by its employees. Ren himself owns only 1% of the company with the rest owned by “The Trade Union Committee”. Huawei represents the rise of China’s technological prowess against the dying monopoly of the US. Its rise is nothing short of a David vs. Goliath story and must be lauded. However, it is also proof of western arrogance and complacence that refused to accept that a developing country could emerge as a serious challenger to its invincibility and is now daring to gate crash its cosy world.

The US Congress, FBI, NSA and others have red flagged Huawei for some time now regarding its close ties with China’s Communist Party and prevented it from bidding on government contracts.  A 2005 report by Rand Corporation states “Huawei maintains deep ties with the Chinese military, which serves a multi-faceted role as an important customer, as well as Huawei’s political patron and research and development partner. The major players in telecommunications -Huawei, Datang, Zhongxing, and Great Dragon (Julong)—appear to be independent, private-sector actors and are grouped under ostensibly commercially oriented conglomerates, such as China Electronics Corporation. However, one does not need to dig too deeply to discover that many of these electronics companies are the public face for, sprang from, or are significantly engaged in joint research with state research institutes under the Ministry of Information Industry, defence-industrial corporations, or the military. Indeed, each of the “four tigers” of the Chinese telecommunications equipment market (Huawei, Zhongxing, and Datang, originated from a different part of the existing state telecommunications research and development infrastructure, often from the internal telecommunications apparatus of different ministries or the military”. There is no doubt that Chinese state power, significant financial backing, government protection from foreign vendors and a huge local market has helped Huawei into becoming a technological powerhouse though Huawei has denied receiving any state aid.

But for the United States to use these accusations to prevent other countries from adopting Huawei smacks of complete arrogance and double standards as the US has always exercised its soft power through its foundations and companies. Everyone is aware of Wall Street and US MNC’s overwhelming influence on US foreign policy and its bilateral and other trade agreements. It is also laughable that US is afraid that China will use Huawei’s infrastructure for espionage and weaponize the large volumes of data it will gain access to when US intelligence agencies have capitalized on US technology for ages to spy on both friends and foes to gather intelligence and project military might. Edward Snowden and other whistle blowers have already demonstrated how US uses Google to spy and Microsoft to plant backdoors.

The Trump administration government has not presented any evidence publicly about Huawei’s spying though in June 2019, Finite State, the pioneer in IoT device intelligence serving US Fortune 50 and US intelligence agencies since 2 decades released a damning report on the eve of G20 summit. Finite reviewed more than 1.5 million files embedded in 9,936 firmware images supporting 558 Huawei enterprise networking products. The review found hard-coded backdoor credentials, unsafe use of cryptographic keys, indicators of insecure software development practices, and the presence of known and zero-day vulnerabilities that can be used for cyber-attacks. Huawei had set up backdoor remote access by coding its firmware with a default user name and password, coding a specific password into the firmware or using a special encryption key coded into the software. Of all the devices tested, over 55% had minimum one backdoor access point. Finite State categorically said, “The results of the analysis show that Huawei devices quantitatively pose a high risk to their users; and in virtually all categories we studied, we found Huawei devices to be less secure than comparable devices from other vendors”.

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The US is worried that Huawei will help the Chinese government spy on or to attack US. China’s 2017 National Intelligence Law and other cyber security laws compel corporations to assist in offensive intelligence operations instead of just requiring them to cooperate with law enforcement on national security matters. However, facts point to a much closer relationship between the two confirming that Huawei and the Chinese government are the same.

Who Really Owns Huawei

There is a clear difference between the way corporates function in US and China. There is no doubt that US corporations are very powerful and have extensive lobbying power with the administration to get rules tweaked in their favour and this is an open secret. China under CCP is all about state control. This means that no private corporation can become a worthy player without state backing and patronage. Unlike capitalism which states that government has no business being in business, communism is completely government ownership and control of business. China has many powerful state enterprises like Sinopec, China National Petroleum, China Mobile, China Railway Construction etc. China uses these companies aggressively in the pursuit of its hard and soft power; and is proud to be associated with them. Considering Huawei is China’s largest technological company and a huge symbol of its tech advancement shouldn’t China be proud and quick to claim Huawei as one of its own; especially when multiple facts point to Chinese state ownership of Huawei? Astonishingly, the reality is reverse. PLA/CCP go to great lengths to deny any affiliation with Huawei and Huawei repeatedly states it has no significant ties with the state. Thus, considering China’s government and corporate structure, the facts available and Huawei’s actions; only one conclusion can be arrived at – Huawei is very much a Chinese state owned corporation masquerading as a private company in order to perform “certain critical tasks” for the state that its state owned enterprises cannot “legally carry out within the ambits of global law”. Simply put, Huawei grants China plausible deniability for actions the state may task the company to carry out on its behalf!  

Let us briefly examine Huawei’s chequered history. In 2003 Cisco sued Huawei for copyright violations, in 2007 FBI interviewed founder Ren for violating US trade sanctions on Iran, in 2010 Motorola filed a lawsuit accusing Huawei of corporate espionage, in 2010 Sprint barred Huawei from bidding for a contract worth hundreds of millions to upgrade its network, in 2012 US House Committee warned against using any Huawei/ZTE equipment, in 2014 T-Mobile filed a lawsuit accusing Huawei of stealing technology from its headquarters, in 2018 the White House named Huawei as a strategic threat; and Pentagon banned sales of Huawei/ZTE phones on US military bases. In 2019, US filed criminal charges accusing Huawei with over a dozen allegations of conspiring to evade US trade sanctions, spying and stealing trade secrets.

Huawei workers have also teamed with various organs of the PLA on at least 10 research endeavours from AI to radio communications. They include a joint effort with the investigative branch of the Central Military Commission  to extract and classify emotions in online video comments and an initiative with the elite National University of Defense Technology to explore ways of collecting and analysing satellite images and geographical coordinates. An online sentiment classification study which lists Shanghai-based Huawei employee Li Hui as its lead author focused on video and improving the accuracy of natural language processing algorithms according to a paper published in the May 2019 edition of Netinfo Security, a journal owned by a research institute of the Ministry of Public Security. Zheng Chuangming, author of a 2006 paper on America’s combat network radio from the Shenzhen Huawei Base looked into how US software algorithms helped boost efficiency and conserve power and listed his affiliation with the state-owned 7th Research Institute of China Electronics Group Corporation. Another Huawei employee, Li Jie, is listed as working with two military researchers on the genesis and outlook of the geographical information system used to collate and parse location data. In another paper published in 2013, Huawei employee Zhou Jian worked with a PLA hospital on ways to help doctors detect heart signals better. The study was funded by the PLA’s 12th Five Year project where Zhou is identified as an employee of Huawei Technologies Co.

Huawei has repeatedly said it never discloses sensitive information to the government and wouldn’t even if asked. Huawei’s founder Ren has shrugged off Huawei’s relationship with the military stating “We have no cooperation with the military on research; perhaps we sell them a small amount of civilian equipment. Just how much, I’m not clear on because we don’t regard them as a core customer”. Critics of the above will argue citing similar research grants from the US government with private companies but they conveniently forget that in China there is no such thing such a private company and any private company of some significance has the strong backing of the state and is effectively a proxy of the state.

A 2019 paper by Christopher Balding and Donald Clarke titled “Who owns Huawei” states “We know nothing about the internal governance procedures of the trade union committee. We do not know who the committee members or other trade union leaders are, or how they are selected.  Trade union members have no right to assets held by a trade union.  What have been called “employee shares” in “Huawei” are in fact at most contractual interests in a profit-sharing scheme. Given the public nature of trade unions in China; if the ownership stake of the trade union committee is genuine; and if the trade union and its committee function as trade unions generally function in China, then Huawei may be deemed effectively state-owned.  Regardless of who, in a practical sense, owns and controls Huawei, it is clear that the employees do not”.  The paper clearly explains how Huawei, initially registered as Shenzhen City Huawei Technologies underwent a major corporate structural change in 1997, pursuant to which  Shenzhen banks started lending Huawei obscene sums of money from 10 billion Yuan to 26 billion Yuan! Huawei was forced to reply to this paper to explain its ownership to prove that it was not a Chinese state owned company and the result was a complete dud which only complicated Huawei ownership claims further.

Now that it has been more or less established than Huawei is merely a proxy of China’s CCP, the ramifications have significantly changed. Considering that most technology companies have significant manufacturing setups in China, US is now protecting itself by insisting that no critical technology must be sold to China and no sensitive technology that is made in China must find its way into American systems. This has triggered a global disruption of supply chains as companies are being forced to move part/complete operations away from China to mitigate risks. The United States has also taken the battle to Huawei’s handset business preventing all American companies from doing business with Huawei. This includes software licences and all other components. As a result chipmaker ARM, Google, Microsoft, Intel, Qualcomm and Broadcom have announced decisions to suspend ties.

At the same time, US actions of triggering tariff wars with its allies and forcing terms has not gone down well with a greater part of the world. Germany and Britain have refused to support President Trump in totality.  President Trump would be well advised to obtain a copy of “How to win friends and influence people” if he desires better geopolitical outcomes and a pole position for the United States. Malaysia, Vietnam, and US ally Thailand are considering Huawei for their 5G networks as are European and NATO allies such as Spain, Portugal, Italy, and Hungary, while Germany and the United Kingdom are unlikely to ban it. Thailand and South Korea are letting Huawei launch 5G projects. The fight with Huawei will envelop the whole world with US forcing countries to take stands.

With Europe choosing to adopt a middle ground, Germany, Russia and UK choosing Huawei and Japan, Australia, Saudi Arabia and New Zealand towing the US line, India will find itself bang in the middle of this ideological technological war where it will need to carefully examine its strategic interests and take an independent stand away from the bullying of either country. China has created global dominance playing the quantity over quality game and the same is reasonably true for its 5G network infrastructure. However, the real tech battle for 5G lies in the millimetre band spectrum. Thus, India must remember that in the short term, Huawei may enjoy a dominant position in sub-6GHz 5G networks but the race for the real 5G of high frequency, millimetre waves 5G is still wide open.

Part I – 5G: The Technological Cold War

Part III – 5G: A Matter of India’s National Security

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