Huawei: Chinese technology beacon fades in US

Huawei has engineered an enviable position in the tech industry and become a symbol of forward thinking and innovative development, as its R&D arm shows. But policymakers in America claim it has become a risk to national security.

A Huawei worker checks an electronic board for a computer in Dongguan. Kin Cheung / Reuters
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Like many tech firms of its size, Huawei’s campus is a model of efficiency and industry, with research and development (R&D) centres set in green landscaping, with water features and pleasing architecture.

The Chinese multinational company sells products to more than 140 countries, and by the end of last year served in excess of one third of the world’s population. It had revenues of 113.8 billion yuan (Dh68.61bn) in the first half of the year and is on track to increase revenues by 10 per cent this year in the full 12 months. The company expects to grow by 10 per cent every year, and it will do this without any mergers or acquisitions.

Here in Shenzhen, the company has 40,000, mostly young, employees, nearly three quarters of whom work in R&D. Shenzhen is a major city in the south of southern China’s Guangdong Province, situated immediately north of Hong Kong. The area became China’s first – and one of the most successful – special economic zones in 1979.

Inside the building known as the “White House”, the eager R&D technicians work on a range of technology – from dealing with extreme temperature drops to expanding mobile networks in cities and making smartphones faster, slimmer and better looking.

During a recent visit, there were demonstrations of cutting-edge technology, such as a container data solution whereby a company, local government or organisation can set up an entire data management system using solutions carried in containers.

Or big data storage like the Cloud Engine 12800, that can ship colossal amounts of data per second.

“In 16 years we have expanded from one country of operation – China – to 140,” said the international media relations chief Scott Sykes.

“Of the 66 per cent of revenues from outside China, 35 per cent come from Europe, Middle East and Africa.

“It’s important for people to know who we are and what our intentions are because of the two new businesses and because the relative strategic importance of telecoms has risen dramatically in the last decade,” he said.

New products, a driven workforce and rising revenues; but Huawei has a problem.

Last year, a report by the US house permanent select committee on intelligence (SCI) claimed that Huawei’s equipment posed a threat to national security.

In July, the former head of the US Central Intelligence Agency (CIA) and National Security Agency (NSA), Michael Hayden, said he believed Huawei Technologies was a significant security threat to the US, that it had spied for the Chinese government and that intelligence agencies had hard evidence of its activities.

And in October, Australia’s federal government decided to confirm a ban on Huawei supplying equipment to that country’s national broadband network.

The challenge Huawei faces is not innovation or creating the right products, but it must convince the world that it’s not spying on global communications for the Chinese government.

The company admits that it has had a problem with secrecy and hopes to tackle this by being transparent.

Huawei has produced a technical paper, penned by the company’s head of cyber-security, John Suffolk, who used to be the UK government’s chief information officer, called Cyber Security Perspectives: Making cyber security a part of a company’s DNA – A set of integrated processes, policies and standards.

The paper outlines the company’s information security program and structure, discusses its core governance principles and describes in detail how it oversees its suppliers, including its 400 US suppliers and thousands of international partners, that make up the supply chain.

Huawei’s critics suspect it is a front for the People’s Liberation Army (PLA), the military arm of the Communist Party of China, and believe that its equipment can be used to spy on other countries.

The suspicions surrounding Huawei are not plucked out of thin air.

In 2001, for example, the company said it had supplied equipment for the PLA’s first national telecoms network, which it reportedly maintained and upgraded.

The company founder Ren Zhengfei, a Communist Party member since 1978, was formerly in a PLA engineer, and he never gives interviews, at least until May this year, Mr Ren gave his first media interview to a group of New Zealand journalists, in which he said intense scrutiny from the United States over Huawei’s contracts with the Chinese government and the military was partially due to jealousy about the company’s success. He firmly denied any espionage links.

“Huawei has no connection to the cyber-security issues the US has encountered in the past, current and future … Huawei equipment is almost non-existent in networks currently running in the US. We have never sold any key equipment to major US carriers, nor have we sold any equipment to any US government agency,” he said.

Last month, the US senator Dianne Feinstein, the chairman of the SCI, and senator Robert Menendez, who leads the committee on foreign relations, sent a letter to the US defence secretary Chuck Hagel, the secretary of state John Kerry and James Clapper, the director of national intelligence. The policymakers expressed concern that Huawei’s involvement creates risks for the US-South Korea alliance, including for US troops based on the peninsula.

“Maintaining the integrity of telecommunications infrastructure is critical to the operational effectiveness of this important security alliance,” the two senators wrote on November 27 in the letter obtained by Bloomberg News.

“Reports that Huawei has been selected to develop and/or supply the Republic of Korea’s advanced LTE telecommunications backbone raise serious questions and potential security concerns.”

In response, the company said there was no basis for US scrutiny of its contract to supply broadband equipment for the project.

“Our gear is world-proven and trusted, connecting almost one-third of the world’s population,” said Scott Sykes, a spokesman for Huawei.

“The motivations of those that might groundlessly purport otherwise are puzzling.”

Walking through the exhibition space, we come across an intelligent video surveillance system where you can read the sign on a building 2km away. This is the slightly creepy side of the business that raises overseas’ eyebrows, but Huawei is hardly unique in providing this kind of equipment.

The company says the alleged spying issue hurts the whole industry, so it is not in its interest to try to gain political capital from it.

“We’ve been careful not to comment directly on that. On the one hand it has the potential to create a crisis in confidence in IT and telecoms equipment. We have done our best to be open and transparent. We publish what we think about cybersecurity. It’s right there. Because of our heritage and because of where we are headquartered, we’ve been challenged. The lack of trust is broadly about China, not specifically about Huawei, we get painted with that brush sometimes. We know that the bar is higher for us,” said Mr Sykes.

With two thirds of Huawei’s revenues from outside China, alienating overseas markets is not in the company’s interests, he said.

There are signs that the struggle to build in the US might be getting too much. Ren Zhengfei said in a recent interview with the French publication Les Echos that in order to avoid tensions between the US and China, Huawei has “decided to exit the US market, and not stay in the middle”.

This probably does not mean a complete withdrawal, but certainly a rethink of strategy.

Huawei started life in a grungy apartment building in the Wanyou district of downtown Shenzhen where the Chinese telecoms equipment firm began its life in 1987 with 10 employees and its first product was a PBX phone system.

Today, the building sports a grubby pair of voluminous underpants hanging out to dry, drawing chuckles from the visiting journalists. It is perhaps symbolic of the China’s efforts to become more transparent: no more dirty laundry.