Huawei CFO arrest: the US government’s concerns about the Chinese tech giant, explained

Chinese telecommunications giant Huawei has been in the headlines recently after Canadian authorities arrested one of its top executives as part of a United States extradition order.

Meng Wanzhou, Huawei’s chief financial officer and the daughter of its founder, is under scrutiny over Justice Department allegations that she violated sanctions on Iran, but the US government’s concerns about Huawei go far beyond its dealings with Tehran. There have been worries for years about potential national security concerns posed by Huawei as well.

First, a bit about Huawei: Founded in 1987 and headquartered in Shenzhen, China, Huawei is one of the biggest technology companies in China — think Google’s name recognition and Verizon’s major role in US telecommunications. It is the second largest smartphone seller in the world, behind Samsung but ahead of Apple. And beyond consumer electronics, its business segments also include telecommunications networks, smart devices, and cloud services.

But Huawei, which brought in $92.5 billion in revenue last year, isn’t your ordinary technology company — at least many officials and experts in the US and around the world don’t think so.

For years, congressional committees, the FBI, the National Security Agency, and others have flagged close ties between Huawei and the Chinese Communist Party, and the US even banned the company from bidding on government contracts. At a Senate Intelligence Committee hearing in February, top US intelligence chiefs said Huawei and another Chinese tech company, ZTE, posed potential national security risks to the US and warned American companies about doing business with them.

“We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks that provides the capacity to exert pressure or control over our telecommunications infrastructure,” FBI Director Christopher Wray said in his testimony. “It provides the capacity to maliciously modify or steal information, and it provides the capacity to conduct undetected espionage.”

In other words, officials are worried that Huawei will help the Chinese government spy on or attack the US.

The United States is worried about what Huawei could potentially enable the Chinese government to do

Huawei is the “emblem” of a variety of fears about China and its technological prowess packed into a single company, Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies, told me. And a lot of concerns about it aren’t necessarily tied to what it has done, but instead what it might do.

US political and business leaders have long been anxious about Beijing’s high-tech drives, which are designed to help China surpass the West’s technological prowess — an area in which the United States definitely doesn’t want to be overtaken. Huawei is a research and development powerhouse: This year, the company said it would increase annual spending on R&D to $15 to $20 billion annually, and it has tens of thousands of patents in China and abroad.

That’s played into questions about how much US market access to give Chinese companies amid concerns about intellectual property rights. These worries help animate President Donald Trump’s trade war, which at least for his advisers, the US intelligence community, and the military is about much more than the trade deficit he often laments.

Intelligence officials caution about the national security implications of Chinese technology outpacing the US or being used for nefarious ends. In particular, officials are concerned that companies like Huawei might sell products compromised by “back doors” that allow Chinese government hackers access to data or surveillance. Alternatively, Huawei might turn over the data it has collected to the Chinese government, or the Chinese could somehow weaponize Huawei’s technology.

“Since China has become more nationalistic, the possibilities that the US and China might end up in a tangle are higher,” Kennedy said.

No one has yet found a back door in a Huawei product, Adam Segal, director of the Digital and Cyberspace Policy Program at the Council on Foreign Relations, noted. There’s been no “smoking gun.”

But the risks surrounding Huawei increase with “fifth-generation” technology, or 5G, he explained. Huawei is one of many companies with a stake in the race to deploy the next generation of wireless technology, and is currently one of the major providers of products that enable superfast 5G networks globally. The US has pressured allies to find alternatives, eyeing a future where ever more aspects of everyday life are connected to these networks, opening them up to surveillance and manipulation.

“It’s going to involve so much data passing over the systems and, in particular, the concern would be more the internet of things and autonomous cars,” Segal said.

The government has been sounding the alarm about Huawei for a while

Concerns about Huawei are hardly new. Officials in the US and around the world have been keeping an eye on them for quite some time.

As Bloomberg’s Eli Lake explains, the worries about Huawei have historically stemmed from the fact that the company’s founder, Ren Zhengfei, was a technician for the People’s Liberation Army prior to founding Huawei — not to mention the tens of billions of dollars invested in the company by the Chinese government. Fears have been exacerbated in the wake of China’s passage of its National Intelligence Law and other cybersecurity laws in 2017, which, according to Lake, “compel corporations to assist in offensive intelligence operations” instead of just requiring them to cooperate with law enforcement on national security matters.

In 2011, Huawei sent an open letter to the US government denying security concerns and requesting a thorough investigation from American officials, which it said would prove that Huawei is “a normal commercial institution and nothing more.”

That’s what prompted the 2012 House Intelligence Committee report on Huawei and ZTE, though it didn’t produce the exoneration the company hoped for. The committee said that Huawei “did not fully cooperate with the investigation and was unwilling to explain its relationship with the Chinese government or Chinese Communist Party.” It concluded that the US “should view with suspicion the continued penetration of the US telecommunications market by Chinese telecommunications companies.”

In 2014, the US banned Huawei from bidding on US government contracts, and in August, Trump signed a bill that would bar Huawei and ZTE from use by the US government and contractors. This year, the Pentagon banned Huawei and ZTE phones from being sold at US military bases.

In January, AT&T backed out of a deal with Huawei to sell its smartphones in the US. And in March, the Federal Communications Commission proposed a rule that would stop US companies from using money from its Universal Service Fund on equipment services from China. The FCC’s Universal Service Fund provides subsidies to boost phone, wireless, and broadband services to poor and rural communities.

It’s not just the US that is sounding the alarms. Canada and the United Kingdom have expressed concerns about the risks associated with working with Huawei on 5G deployment. On Monday, Japan banned Huawei and ZTE from official government contracts.

This probably isn’t the end of the US-Huawei story

Meng’s arrest earlier this month could herald a new slate of actions by the US government to constrain Huawei and other Chinese tech companies. It’s just not clear exactly what they’ll be.

“The challenge is, there have been boundaries placed around business with Huawei and Chinese industry and high tech, but we’re now in an environment where it’s unclear where those boundaries are, and if they need to be redrawn,” Kennedy said.

In an extreme case, the US could go as far as banning US companies from doing business with Huawei, along the lines of the Commerce Department’s trade ban barring US companies from doing business with ZTE in April. (Trump intervened earlier this year to strike a deal and lift the ban.) Cutting off Huawei “would certainly have an effect, but not like it did for ZTE,” Segal said, because it’s not as dependent on US suppliers.

But the tensions are unlikely to end with Meng, who appeared in a Canadian court on Monday for the second day of a bail hearing. It is unlikely the US will imprison Meng, out of fear of retribution, but a wider game of push-and-pull could result from this latest provocation.

“This is part of an increased level of attention on Huawei in which this case is one of several potential actions the US and others could take,” Kennedy said. “I think that this is far from the last shoe to drop.”

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