U.S. Message to World With Huawei Case: Don’t Trust China on 5G

By David Tweed and Yuan Gao (Bloomberg Businessweek)

  • Huawei charged with stealing trade secrets, misleading banks
  •  China accuses U.S. of trying to ‘smear and attack’ Huawei

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The scores of pages of U.S. indictments handed down Monday against Huawei Technologies Co. don’t explicitly mention anything about 5G networks or China’s spy agency.

But they sent a clear message to world leaders weighing whether to use Huawei equipment for next-generation wireless networks connecting everything from phones to cars to supertankers: China’s largest technology company is a threat to national security.

“They aren’t just going after the notion that there is hard evidence of previous spying,” said Graham Webster, a fellow at Washington-based research group New America who studies China’s digital economy. “They are trying to undermine trust in Huawei overall, saying that this company cannot be trusted in your infrastructure.”

The case is a further sign that wider strategic tensions between the world’s two largest economies will persist even if they reach a deal to end a months-long trade war that is starting to hit global growth and company earnings. That may be harder now as Chinese President Xi Jinping’s top economic aide visits Washington this week for talks to stave off more tariff increases.

The indictments intensify the spotlight on Huawei, which has come to symbolize China’s economic rise and challenge to the U.S.’s status as the world’s top superpower. In particular, the decision to prosecute Meng Wanzhou — daughter of billionaire Huawei founder Ren Zhengfei — has riled Beijing and increased concerns around the globe of a new Cold War.

Ren Zhengfei

For Huawei, the indictments couldn’t come at a worse time. Since Meng — Huawei’s chief financial officer — was arrested in Canada on Dec. 1 after a U.S. request, the company has struggled to convince the world its equipment won’t be used for espionage. This month, Poland arrested one of its employees for spying, prompting Huawei to disavow any responsibility for his actions. Canada has until March 1to assess a U.S. request to extradite Meng.

Ren, Huawei’s founder and CEO, used a rare press appearance this month at its Shenzhen headquarters to insist the company doesn’t help Beijing spy.

“I love my country, I support the Communist Party, but I will not do anything to harm the world,’’ Ren said. On Tuesday, Huawei issued a statement saying once again it had done nothing wrong in either case.

Another Reason U.S. Fears Huawei: Its Gear Works and It’s Cheap

The indictments, however, are a direct attack on Huawei’s credibility.

In one, the U.S. alleges that Ren and Meng misrepresented Huawei’s business with Iran to the American government and four financial institutions since 2007, in violation of U.S. sanctions. The indictment also accused the company of destroying evidence once it became aware of the investigation.

The other set of charges cite emails between Huawei USA and China to explain how engineers conspired to steal trade secrets from T-Mobile USA Inc.They show how employees in China repeatedly pressed their colleagues to collect key information on “Tappy,” a robot used to test mobile phones that Huawei wanted for its own use.

T-Mobile’s phone-testing robot, Tappy.

When T-Mobile complained about the attempted theft, Huawei allegedly covered up the matter with a faulty internal investigation and blamed rogue employees for any wrongdoing. In fact, Huawei had set up an internal committee that handed out monthly bonuses to employees who stole the most valuable intellectual property from competitors, the suit alleges. Twice a year, special bonuses were paid to employees from three regions who had collected especially important confidential information.

How Huawei Became a Target for the U.S. Government: QuickTake

“Employees were directed to post confidential information obtained from other companies on an internal Huawei website, or, in the case of especially sensitive information, to send an encrypted email to a special email inbox,” the indictment says.

Taken together, the charges bolster the Trump administration’s case that Huawei is operating at the behest of the Chinese government. While there’s no explicit evidence that the company’s products are compromised, it’s very difficult to know for sure — a risk the U.S. argues is too big for critical infrastructure like 5G.

“While this wouldn’t change the opinions of the Pentagon and intel agencies, which would already be well set, it certainly would make the public case easier to push to other countries,” said Victor Abramowicz, a former Australian Department of Defence intelligence analyst who is now a security researcher at Curtin University in Perth.

Already Australia and New Zealand have joined the U.S. in keeping Huawei out of its 5G networks. Other countries like Canada, the U.K., Germany and France have yet to make a decision.

Huawei Under Fire

Governments are barring the telecom equipment maker from mobile rollouts

It’s not an easy choice. On the commercial side, Huawei presents a cheaper option than its competitors: The company said it has already won more than 30 5G contracts globally, including 18 from European countries. Australia’s TPG Telecom Ltd. on Tuesday pulled the plug on plans to build the country’s fourth mobile network, saying it no longer made financial sense after the government banned Huawei.

“Because the global market is now deeply consolidated and Huawei enjoys a lead in technology and solutions, I don’t think the recent news about the company will impact Huawei’s 5G deployment — both in China and abroad,” said Bing Duan, an analyst with Nomura Asset Management.

‘Cannot Be Naive’

Even more than current technology, control over 5G networks could allow an enemy to wreak mass industrial sabotage and social collapse, according to U.S. officials. This week the European Union’s digital chief Andrus Ansip urged companies to reconsider partnerships with Chinese companies due to an intelligence law that says any organization and citizen must assist Beijing’s spy agencies with investigations.

“We cannot be naive anymore,” he said.

China’s government sees the charges as part of a bigger U.S. plan to hold back the world’s second-biggest economy. On Tuesday, the foreign ministry in Beijing urged the U.S. to revoke Meng’s arrest warrant and stop its “unreasonable crackdown” on Chinese companies.

“For some time now, the United States has used its national power to smear and attack specific Chinese enterprises in an attempt to stifle their legitimate operations,” foreign ministry spokesman Geng Shuang said in a statement. “There are strong political attempts and manipulation behind this.”

‘Tech War’

China has threatened countermeasures against governments that ban Huawei, and detained two Canadians on espionage charges — a move that Prime Minister Justin Trudeau’s government saw as retaliation for Meng’s arrest. Those actions have only helped confirm the links between Huawei and the government, according to a European diplomat in Beijing who asked not to be identified.

Huawei’s “Balong 5000” chip for 5G devices.

The battle over Huawei and 5G is only part of the fight. The U.S. is also looking to curb China’s “Made in China 2025” plan to dominate other vital technologies, from robotics to new-energy vehicles to biotechnology, as part of its trade war.

“The tech war between the U.S. and China is going to intensify over the course of this year,” David Loevinger, a former Treasury official who is now a managing director at TCW, a Los Angeles based asset manager, said on Bloomberg Television. “And it’s not just legal actions against Chinese firms and Chinese executives: We’re going to see much broader restrictions on exports of technology to China and much broader restrictions on Chinese investment in the tech sector.”

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