The Ongoing Battle With Huawei

In June, the U.S. Federal Communications Commission (“FCC”) officially designated China’s Huawei as a national security threat.  As shown by my recent interview on The Point, a popular current affairs programs on the China Global Television Network (“CGTN”), China and the United States look at the FCC action very differently.

Chinese observers look upon the ruling as an extension of the Trade War that represents a reprisal for COVID, Hong Kong and other such issues that the United States has with China. Meanwhile, the United States considers the FCC action as just one more chapter in an ongoing dispute that began in the early 2000s, and believes that equipment produced by the company includes “backdoors” that can provide China with sensitive information about the U.S. economy and the country’s transportation and telecommunication infrastructure.    

Founded in 1987 in China’s southern city of Shenzhen, Huawei is a leading global provider of information and communications technology infrastructure and smart devices. The company has more than 194,000 employees; operates in more than 170 countries and regions; and serves more than three billion people around the world. Huawei is one of the world’s largest smart phone companies, second only to Samsung, with a 17.6 percent market share, and is a global leader in the development of 5G technology.  In 2019, Huawei had revenues of $123 billion and Net Profit of $9 billion.

China is Huawei’s largest market, while Europe is its second largest source of revenues. However, Huawei’s billionaire founder, Ren Zhengfei, has always been intrigued by the United States, and began efforts to enter the U.S. market in the early 2000s. Unfortunately, Huawei’s U.S. initiative got off on the wrong foot when Cisco Systems Inc. announced in January 2003 that it had filed a lawsuit against the company, claiming unlawful copying of its intellectual property. While the two companies agreed to settle the lawsuit out of court in October of that year, suspicions about the company and its intentions were hatched.

Huawei’s next major setback in the United States came in January 2018 when AT&T Inc. abruptly pulled out of a deal to sell Huawei smartphones in the United States due to security concerns. According to reports, AT&T was pressured to drop the deal after eighteen members of the U.S. Senate and House intelligence committees sent a letter to the FCC citing concerns about Huawei’s plans to launch consumer products through a major U.S. telecom carrier. The letter noted the committee’s concerns “about Chinese espionage in general, and Huawei’s role in that espionage in particular.”

In March, 2020, President Trump signed the Secure and Trusted Communications Networks Act of 2019 into law. The bill establishes a mechanism to prevent communications equipment or services that pose a national security risk from entering U.S. networks, and a program to remove any such equipment or services currently used in U.S. networks. In a related action, the US Senate unanimously approved a bill that would provide $1 billion to 40 rural carriers that have purchased Huawei’s 4G equipment to help them remove and replace the gear. The latest action by the FCC on June 30 is merely the formalization of a vote taken by the FCC in November 2019 to label Huawei as a national security risk. The ruling effectively prevents U.S. carriers from accessing $8.3 billion of government subsidies to purchase Huawei equipment and services.

At issue is the relationship between Huawei and the Chinese government. While the widespread perception in the United States is that Huawei and the China government are one and the same due to Ren Zhengfei’s background as an officer in China’s People’s Liberation Army, Huawei insists that it is a privately held company with no government ownership. According to Huawei’s website, all of Huawei’s shares are owned by 104,572 of its employees through the Union of Huawei Investment & Holding Co., Ltd., and that no government agency or outside organization holds shares in the company.

Nonetheless, the United States contends that China’s 2017 National Intelligence Law requires organizations and citizens to “support, assist and cooperate with the state intelligence work.” For this reason, U.S. lawmakers are concerned that Huawei would be compelled to turn over to the Chinese government sensitive economic, transportation and telecommunications information that it might obtain through “backdoors” in Huawei equipment that is installed in U.S. telecommunications networks. In response, Ren Zhengfei insists that he would never agree to turn over sensitive information to China, but China experts argue that the company would not have a choice.

Finally, Huawei argues that the United States has never provided any evidence that the company has installed backdoors in its equipment and turned over sensitive information to China. In fact, Robert O’Brien, the U.S. National Security Adviser, recently said in an interview that Huawei maintains the capability to secretly access sensitive and personal information in systems that the company sells around the world. U.S. officials say that they have observed Huawei’s backdoor access capability from the company’s initial 4G networking equipment since 2009.

If the governments of China and the United States had the best of relationships, and if a high degree of “mutual trust” existed between the two countries, it would still be very difficult to overcome legitimate U.S. security concerns. Telecommunications networks in any country are strategically sensitive, which is why China itself does not permit any foreign ownership of its own. Once embedded in a country’s telecommunications infrastructure, equipment with backdoors would be difficult to remove. For this reason, the battle between the United States and Huawei will be an ongoing story and source of friction between the two countries. The U.S. Federal Communications Commission (“FCC”) officially designated China’s Huawei as a national security threat.  China and the United States look at the FCC action very differently.

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