JOE WU evaluates the evidence against Huawei and whether provable security concerns justify targeting Huawei and potentially fracturing the global telecommunications order.
On December 1st, 2018, Huawei CFO Meng Wanzhou was detained in Vancouver on suspicions that Huawei had violated economic sanctions on Iran. The unsealed indictment revealed additional allegations charging Huawei with obstructing justice and stealing technology. If the allegations are proven and the US implements export controls against Huawei, and even if Huawei avoids a collapse similar to which Chinese state-owned chipmaker Fujian Jinhua suffered, the effects will shape the global telecommunications order for decades to come.
Huawei is currently one of the largest suppliers of global telecommunications equipment, with over $100 billion estimated in sales last year. In addition, Huawei controls an estimated 10.4% of the global smartphone market, shipping an estimated 200 million devices in 2018 and becoming the world’s second largest phone maker ahead of Apple. Huawei is a key cog in China’s “Made in China 2025” initiative, which aims to establish self-reliant cutting-edge high-value industries that are globally competitive. Huawei’s central role in China’s grand economic plans has incited growing global concerns that the company is beholden to the Chinese state. Worries revolve around possible exploitation of Huawei’s products to facilitate cyber espionage activities by Beijing.
Australia and New Zealand have followed the US in restricting Huawei’s participation in developing their next-generation 5G mobile infrastructure. Australia, New Zealand, and the US are three of the five members of the intelligence-sharing alliance Five Eyes, and their opposition to Huawei has placed increasing pressure on remaining members UK and Canada to adopt similar stances, as they may be excluded from future Five Eye operations otherwise. Various American allies have enacted similar bans, restrictions and warnings, including Germany and Japan. Even countries with close economic and political links to China such as the Czech Republic have also begun to view links with Huawei with greater suspicion. Most recently the Czech Republic has excluded the company from bidding for a communications contract for President Miloš Zeman and his staff. This contract has been fulfilled by Huawei for the past three years and has become a symbol of national trust and cooperation, one which is now shattered.
This anxiety stems in part with China’s legislative framework, which could pose conflict of interest challenges for Huawei on matters of national security. For example, Article 7 of the National Intelligence Law requires “any organization or citizen” to “support, assist, and cooperate with state intelligence work according to law.” Article 14 of the same law empowers “state intelligence work organs” to “demand that concerned organs, organizations, or citizens provide needed support, assistance, and cooperation.” Although it is uncertain if Huawei will actively cooperate with Chinese intelligence due to the need to protect its “reputation and clientele,” it is difficult to know how the company may react if presented with threats from the Chinese state such as to preserve its existence or the freedom of its leadership.
Based on the available evidence, many of Huawei’s competitors have quantifiable links to their foreign governments. For instance, the Finnish government recently purchased a sizeable 3.3% stake in Nokia with the stated intention of “shoring up national ownership” and exerting “more influence” on the company. The Canadian government has invested US$30 million in Nokia to develop and research 5G technology, further increasing sovereign involvement in Nokia’s 5G technology. Huawei, in 2014 allowed the Financial Times to examine its books to report on its ownership structure stated it was almost 99% employee owned, with only employees able to purchase shares, excluding share ownership by external investors and that of the government. However, Huawei has also been given access to a $30 billion line of credit from the China Development Bank to “help it win telecoms contracts abroad.”
Huawei’s security record based on public knowledge is relatively mundane compared to other companies. Two of the worst privacy breaches in the past decade include the Cambridge Analytica scandal by Facebook (affecting 87 million users) and Google+ glitch by Google (affecting 52.5 million users) are both products of public US companies. US government contracts to break encryption codes for iPhones are provided by Israel-based Cellbrite, while other flaws are exploited to target human rights defenders with solutions provided by another Israel-based company, the NSO group and their solutions most notably used by the United Arab Emirates. In short, flaws will continue to exist whether by fault or design, and have potential to be exploited, but no records have shown that flaws in Huawei products have been exploited to date.
With this in mind, what are the possible consequences of excluding Huawei from the international telecommunications space? The global telecoms equipment sector is deeply interdependent and intertwined; 33 out of 92 of Huawei’s top suppliers are American companies, while chip providers Intel and NXP recently celebrated a decade’s worth of cooperation with Huawei. Export controls that constrain Huawei by controlling access to US technology could have devastating impacts on the company’s operations, even more so than restrictions that close off the US market. These consequences are not limited to affecting the global supply chain and technological development. Bans could even result in the creation of parallel and separate technological spheres with incompatible standards. Chinese retaliation would have knock-on effects for their respective equipment suppliers, including those in the US and Europe. Potential victims may include the suppliers which currently provide Huawei with chips or high profile American companies such as Apple, which are already in precarious situations given falling revenues from the Chinese market.
Responses by the telecom industry have also revealed uncertainty and anxiety, with European telecoms companies calling on European governments to establish a “testing regime” to prevent the “disruption” of excluding vendors from the market. They warn of the devastating consequences of exclusion, including disrupting the supply of telecoms equipment, increasing costs to the industry and customers, delaying the rollout of 5G services by years, and potentially hobbling existing networks. These fears reflect the clout of Huawei as an essential player in the global communications infrastructure and the international dependence on their products. In essence, the costs of constraining Huawei could be quite high especially in the long run, and it is unclear what security threats Huawei poses. Should the US government or any government have additional evidence that reveal legitimate security concerns with Huawei products, this should be publicized so that others can make their own informed decisions. Only by knowing the tangible risks can calculated decisions and adequate responses be formulated.
Joe Wu can be contacted at joezi.wu@mail.utoronto.ca.