Huawei

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| The European | 15th January 2019
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The twenty-first century is all about technology. Mobile communications, both voice and data have revolutionised the human lifestyle. The mobile operating system arena saw Blackberry being crushed by Apple’s iOS; which was then outclassed by its tech rival, Google’s Android platform. Android, being an open source platform took the centre stage and now is the leader of mobile operating systems.

China because of its indigenous manufacturing facilities and cheap army of labours is infamous for replicating West’s technology. The country soon setup smartphone manufacturing units. Its local mobile manufacturing industry grew at a fast pace. China is now exporting cheap smartphones having “tweaked versions” of Android to the developing and underdeveloped countries of Asia and Africa. However, there are some Chinese mobile brands that manufacture good quality (stable) smartphones. One of them is Huawei.

Huawei is a flagship brand of Huawei Technologies Co. Ltd, which is a Chinese multinational conglomerate which specialises in telecommunications equipment, consumer electronics and technology-based services and products. The company is headquartered in Shenzhen, Guangdong. Lately, Huawei is taking flak from America and its allies. The (alleged) charge is “State Espionage” (for China). The charge has yet to be proven, but America and its allies have distanced themselves from the company.

Business activities and practices of Chinese companies are monitored by the US and its allies because of two reasons;

  • Chinese companies by and large are funded by the state itself and therefore do not give other companies fair opportunity to compete in bidding for projects.
  • To keep a check on Chinese investment in sectors that influence national security.

There is now a third reason, and it is causing worry for the US and its allies. The American and European companies have been outsourcing manufacturing of their products and components to manufacturers in China for many years. The Trump administration’s mantra of “Made in America” brought to light that even companies like Boeing and Airbus are using Chinese manufactured parts. In late 2018 it was discovered that Dell PCs manufactured in China had a tiny chip (embedded in the motherboard) for conducting “industrial espionage”. This was enough to raise alarm bells in the West that China is spying on West by using Chinese tech companies as a front. The compromised Dell PCs were in use by almost 30 US companies including Amazon and Apple.

Huawei

Huawei is under fire from the West for (alleged) committing state espionage through its equipment and services. It is not only about mobile phones. The bone of contention is access to the 5G network and taking part in the auction of 5G networks.

Huawei is trying to assure the Western governments and companies that it has no links with the Chinese government and the company is “employee-owned”. The relevant extract from its Financial Statements for the year ending 31 December 2017 is given below:

“Huawei Investment & Holding Co., Ltd. (the “Company” or “Huawei”) is a private company wholly owned by its employees. Huawei’s shareholders are the Union of Huawei Investment & Holding Co., Ltd. (the “Union”) and Mr. Ren Zhengfei.

Through the Union, the company implements an Employee Shareholding Scheme (the “Scheme”), which involved 80,818 employees as of 31 December 2017.

The scheme effectively aligns employee contribution and development with the company’s long-term development, fostering Huawei’s continued success”.

When national security is at stake, financial statements are not the barometer to assess the true intentions of any foreign company. In fact, people in power corridors believe Huawei’s claim of “employee-owned” is a ruse.

Iran Factor

America unilaterally ended the Iran Nuclear Deal talks last year. The US administration has imposed stiff sanctions to bring “Iranian economy and government on its knees”. Mike Pompeo, the US Secretary of State has adopted a hawkish tone on this issue and reiterates US commitment to make good on its promise on his foreign trips.

In April 2018 the US Justice Department launched a probe against Huawei for its (alleged) violation of Iranian sanctions. The situation took an interesting twist when Canada arrested Meng Wanzhou, the CFO of Huawei, who also happens to be the daughter of the Founder of Huawei, Ren Zhengfei on 1 December 2018 in Vancouver. The arrest sparked diplomatic furor between China and Canada. Ren is former People’s Liberation Army engineer and is connected to the Chinese Communist Party.

The above geopolitical scenario and developments indicate that it is not only Huawei’s business practices that are on the radar of the West but simmering political tensions between America and Iran are also part of the bigger picture.

Huawei, UK, Europe and Australia

Reuters (17 January 2019) reported;

“The German government is actively considering stricter security requirements and other ways to exclude China’s Huawei Technologies from a buildout of fifth-generation (5G) mobile networks”.

AFP News (7 December 2018) reported;

“Embattled Chinese telecoms giant Huawei has agreed to British intelligence demands over its equipment and software as it seeks to be part of the country’s 5G network plans”.

The AFP news report also stated;

“BT (BT Group plc) also announced it was removing Huawei’s telecommunications equipment from its 4G cellular network, following a warning from the head of the MI6 foreign intelligence service that singled out the Chinese company as a potential security risk”.

Orange S.A. (France) and the Australian government have also refused to work with Huawei on their countries’ 5G network projects. Deutsche Telekom (Germany) is reviewing its “vendor policy” considering growing concerns about the business practices of Huawei.

Future of Huawei

Huawei has become an unwelcome candidate for every country that has ties with the US. The arrest of its CFO and efforts to extradite her to the US has added fuel to fire. HSBC and Standard Chartered Bank have cut their ties with the embattled company because of fear of violating US sanctions on Iran.

Huawei will likely be used as a political weapon by America against China. The future of its business with the West and its allies looks grim.

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