Huawei and China–USA Relations

Why was Huawei’s CFO, Meng Wanzhou, detained and what are the chargesagainst her

On December 1, 2018, Canadian authorities arrested Meng Wanzhou as she was waiting for her flight at Vancouver International Airport. Acting on a request of the US Department of Justice, theRCMP detained the CFO of Huawei, one of China’s largest corporations and a leader in communication technology. The US Department of Justice alleges that Wanzhou and by extension Huawei violated the Iran sanctions back in 2012 when they misrepresented their ownership of a company that sold electronic equipment to Iran. US authorities have also filed further charges against Huawei itself (Russell, 2019), alleging that the company is responsible for the theft of trade secrets owned by T-Mobile USA Inc. Meng is currently out on bail by the Canadian authorities while a Canadian court examines the case of her extradition to the United States, the country whose laws she has allegedly violated. In apparent retaliation and attempt to apply pressure on Canada to release Wanzhou, China arrested two Canadian citizens (CBC News, 2019) and applied the death penalty in the case of a third who had been convicted of drug smuggling and previously sentenced to 15 years in prison.

Despite the official stance by the US government that these charges against the Huawei relate to their dealings with a sanctioned country, the media and diplomatic community have viewed this affair as a method through which the US is applying pressure on China as they continue their trade talks. President Trump has hinted that the issues of Wanzhou’s arrest and the charges laid againstHuawei are part of the discussion (Morrow, 2019) during his recent meeting with Chinese Premier Xi Jinping. An outcome where the charges are dropped around the time the United States and China reach an agreement on their trade relationship should not be a surprise outcome. They are also viewed as a method of pressuring Huawei itself. Viewed by many as part of the Chinese state, Huawei represents more than just a technology company. It is a symbol of China’s evolution into a technologically advanced and innovative economy. And it is Huawei’s ambition to become part ofthe new communication infrastructure of the new digital economy around the world that troubles the US. To understand US concerns about Huawei, we first have to understand how 5G technology has the potential to transform our global economy.

What are the concerns about Huawei’s access to 5G networks in othercountries

5G (from “5th Generation”) is the new set of technology and communication standards (Auchard & Nellis, 2019) that will have the potential to allow for transformative advances in what technology can do. Like 3G and 4G before it, 5G will allow for faster, more reliable, and less energy intensive communication between electronic devices. By doing so, communication of huge amounts of data between every-day devices and appliances will become common. Kitchen appliances, washing


machines, smart home devices, fitness trackers, self-driving cars, and more could soon be able to communicate with each other and exchange vast amounts of data allowing them to coordinate and program themselves to better serve our needs. This is the promise of the Internet of Things (IoT), a network of everyday devices that are connected via the Internet sending data to each other. By providing more reliable and faster communication, 5G allows huge amounts of data to be exchanged between the different devices of the IoT. While such networks were of course previously available, the limitations of 4G wireless communication hampered its applicability in everyday life. 5G can change that. That will obviously have a significant impact on our way of life as all our devices become reliant on data. But in order for such a technology to work, the infrastructure for it must be built. Network providers around the world are now planning and building their 5G capabilities. American network providers such as AT&T and Sprint have even set a date for the launch of 5G support on their networks, slated for 2019 (Kastrenakes, 2019).

In order for the network providers to support 5G capabilities, they must begin using electronic devices in their network communication grid that support the technology. Device manufacturers (for now mostly cell phone manufacturers) need to also use new chips in their phones that allow them to connect to the new network. By and large, both the network providers and cell phone manufacturers do not produce their own chips, but source them from one of the chip providers in the market. These include Ericsson, Nokia, Qualcomm, and now newly on the scene, Huawei. The suppliers of these chips will have their devices installed in networks around the world, and will be integral to making the system work. The less trustful among the technology and cybersecurity community fear that by having their devices in phones and network grids, Huawei will be able, should it want or be compelled by the Chinese government, to spy on or view data exchanged by those devices. This would obviously represent a glaring security risk. Even if the company may not be able to view data directly, metadata such as caller information and call duration may also be at risk. While such information may seem harmless, it can be used to de-anonymize callers. In fact, the collection of such information was at the heart of the NSA PRISM surveillance scandal that roiled the US security community in 2013.

These fears are compounded by concerns that Huawei is controlled by or is part of the Chinese government. While the company and its senior management deny that, Huawei operates in China and is subject to Chinese laws, including a cybersecurity law that compels all companies (Wagner, 2019) to hand over to Chinese authorities any data that they may require in their investigations. While the US maintains such laws as well, US authorities remain wary of having potential security vulnerability in their infrastructure. As such, the United States has banned its network providers from purchasing or using Huawei equipment. Furthermore, the US is using its economic and diplomatic influence to attempt to get other countries to do the same. For example, Secretary of State Mike Pompeo warned American allies (Reuters, 2019) in a speech that using Huaweiequipment would make partnering with the US “more difficult”. The US is not the only country to scrutinize the security of Huawei devices. Australia (Bourke, 2019) and Japan (Shida & Takemoto, 2019) have all similarly banned the company’s gear from their network infrastructure, as well that of ZTE Corp, another Chinese communications manufacturer. Germany (Cerulus & Delcker, 2019),


New Zealand (Withers, 2019), and Canada (Deschamps, 2019) are all examining the potential security risks attached to using Chinese hardware, and are currently studying its usage.

The US is also troubled by the increased role of Chinese companies in directing the standards bodies(Shields & Sebenius, 2019) and setting the common standards for 5G technology. To simplify, any technology needs to have a set of standards that ensures that devices manufactured by different vendors are compatible with each other. Companies can influence the process in two ways. First, companies can have their representatives receive leadership positions in the standards-setting bodies. This allows them clout to influence the standards in ways that may be beneficial to their parent companies. Second, companies can apply to standards bodies to adopt their patents as the standards to be used by all companies following the standard. The companies would then receive royalty fees for usage of their patents. In addition to adoption by manufacturers around the world with all the associated material benefits, adoption of patents gives companies further influence in shaping how the technology evolves. Such clout in developing such technology will be of greatadvantage to companies that obtain it. US authorities’ concerns stem from their belief that Chinese companies are controlled by the state. However, it can be equally argued that any country would prefer that its companies are able to set global standards and guide how future technology develops. This interest in remaining a world leader in technology is part of the reason for the Trump administration blocking the acquisition (Reuters, 2019) of Qualcomm by Broadcom Corporation. The concern was that the Singapore-based company would shift focus from research and development or would syphon away key patents that Qualcomm holds and use them to develop patents of their own whose benefits would not accrue to the United States.

What does the future 5G market look like

With the market still in its infancy, we can only continue to speculate as to who will gain the upper hand in providing infrastructure for the future 5G network. However, there are estimates of the potential size and growth opportunities in that market ranging from $22.6B by 2026 (Sanders, 2019) for 5G chipsets and $251B by 2025 (, 2018) for the overall market. Some of the potential market players (Market Research Future, 2018) include:

  •   Huawei
  •   Nokia Networks
  •   Ericsson
  •   Qualcomm
  •   Cisco
  •   Samsung
  •   NEC Corporation
  •   ZTE
  •   Mobile TeleSystems
  •   Deutsche Telekom
  •   Orange


 Broadcom Corporation

Historically, it took a few years after the introduction of new technology for it to achieve widespread use. For example, while 4G technology was introduced in 2009, it did not achieve widespread use until 2012. So expect that the market for the technology will begin to realize its true growth potential a few years from now.

The issue of 5G communication crystalizes the technology race between China and the United States. Its outcome may hint to us how Chinese ascendency may play out.

Source from: MERatings