China’s spyphone mystery: How Huawei got caught in the espionage game

PUBLISHED: 12:00 10 June 2018

Earlier this year the FBI officially warned US consumers to not purchase anything from Huawei on national security grounds Picture: PA

Earlier this year the FBI officially warned US consumers to not purchase anything from Huawei on national security grounds Picture: PA

PA Wire/PA Images/Philip Toscano

It is a familiar brand in the UK but almost unheard of in the US, where it is tainted with accusations of Chinese espionage. CHARLES TURNER reports.

Huawei remains an obscure name in the United States, even after the Chinese company passed Apple to be the second largest smartphone maker in the world. It will also soon pass Samsung, according to tech news site The Verge. But many Americans would likely struggle to pronounce the company’s name (HWah-Way).

This is largely because the US government doesn’t trust the company, and has effectively blocked it from selling products on American soil. In 2012, the Permanent Select Committee on Intelligence cited concerns that Huawei’s products could be used to conduct espionage on American citizens, and earlier this year the FBI officially warned US consumers to not purchase anything from the firm on national security grounds. The announcement also covered ZTE, another controversial Chinese phone maker.

“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,” FBI director Chris Wray said, in congressional testimony.

Both AT&T and Verizon abruptly walked away from partnerships with Huawei because of the espionage accusations – effectively handicapping their ability to sell phones in the US.

Whether the concerns are justified depends on how much independence Huawei has from the Chinese communist party. The company has long faced accusations of helping Beijing conduct espionage, according to the New York Times. Though as of now, no evidence is publicly available indicating how Huawei products have been used in Chinese spying.

The exact nature of the company’s relationship with China’s government is unclear. Huawei CEO Ren Zhengfei was a technology officer for the communist party and former CIA director Michael Hayden said in a 2013 interview that there was hard evidence that Huawei shared details of calls and messages from foreign users when the Chinese government asked to see them.

National security concerns about Huawei and ZTE first came to a head in Washington in 2012 when the House of Representatives released a report finding Chinese telecoms to be “influenced” by their country’s government. Similar to the recent FBI announcement, the congressional report did not produce examples of espionage.

The 2012 congressional report focused on US businesses using Huawei routers and switches, which act as mediums for internet traffic and telephone calls, and thus a portal through which to siphon data. These concerns were rational, according to the MIT Technology Review, considering the corporate structure of Huawei remains a mystery.

The firm advertises itself as “a private company fully owned by its employees”. In reality, the business model gives some workers shares of the company as a means of incentivising better performance.

The Center for Strategic and International Studies, a US think tank, says the “employee-owned” moniker is a thinly-veiled attempt to hide government influence. Critics have argued that Huawei could eliminate scepticism if it went public and allowed investors to see how the company was managed.

Huawei’s employee-owned concept is not without value for the workforce. The Harvard Business Review found that far more of the company’s earnings have gone directly to employees than to corporate coffers. The case study estimated that money dedicated to compensating employees was 2.8 times greater than Huawei’s reported profits between the mid-1990s and 2015.

America’s aggressive stance towards Huawei is unusual considering that the company has operated for 17 years, and is widely accepted by the international community. Jannie Hong, spokesman for Huawei USA, said: “We remain committed to openness and transparency in everything we do and no government has ever asked us to compromise the security or integrity of any of our networks or devices.”

Major retailers, such as Best Buy, pulled Huawei products from store shelves following the FBI warning. However, their smartphones and laptops are still available on Best Buy’s website. Meanwhile, Huawei’s Nexus 6P smartphone, which was co-designed by Google, is available for $440 on Walmart.com, and Huawei’s Matebook received favorable reviews on website Techspot as a laptop that rivals Apple’s MacBook, despite being roughly $100 cheaper.

“Let’s be clear. We’re not banned in this market… we still have smartphone and tablets and wearables on the market, and you can purchase these online,” said Hong. And unless Huawei is explicitly banned in the US it has no intention of pulling out of the country – a market that the Chinese company has invested heavily in since 2001. That was when the firm opened a corporate office in Plano, Texas, but it did not sell products or services for another three years. Instead, the company invested millions in research and development and infrastructure projects, including partnering with more than 50 universities and colleges.

In 2017, Huawei reported that they had invested $13.8 billion worldwide in research and development, much of which has gone to higher learning. The University of Illinois at Urbana-Champaign was one of Huawei’s first school partnerships in the US.

According to Professor Steven LaSalle, who was also briefly employed by Huawei, most of the funding went to cloud-based technology and other projects unrelated to telecommunications. He said this capital was necessary.

“Companies help support the university and the research there, the universities get overhead for the research support that’s provided by the companies… a lot of this is because of decreasing amounts of tax dollars going to support public universities,” said LaSalle. After seeing the level of commitment in the US, he doubts Huawei would conduct espionage and potentially risk more than a decade of investment.

Whether Huawei will continue to invest in American universities is difficult to say. The New York Times reported that the company laid off at least five US executives in April and has dramatically reduced its lobbying budget since 2012.

Meanwhile, it faces no accusations of espionage or government roadblocks in other countries. European countries, including the UK, have embraced the competitive prices of Huawei phones and the companies investments at local universities.

LaSalle said that Huawei’s name recognition inside the US is markedly different. “People seem to have no idea what Huawei is, let alone pronounce it, and I think that if they do know something about it, it may be from unfortunate press,” he added. “On the other hand, if I talk to Europeans, or Asians… they know I [worked] for a top company.”

• Charles Turner is an American journalist for wikitribune.com, where this piece also appears

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