Huawei soon to face charges in the USA? The economic power struggle over new technology continues.

26/01/2019 - - -

Huawei is becoming a symbol of the economic power struggle between China and America to exert control over new information and telecommunications technology. The Wall Street Journal reported on Wednesday that the Chinese group, the world’s leading manufacturer of telecommunications equipment, is under criminal investigation by US federal prosecutors. The prosecutors suspect Huawei of having stolen technology and commercial secrets on several occasions from its US business partners. That same day, senators submitted a bill recommending a ban on selling US electronic components to any Chinese telecom group that fails to comply with US laws or international sanctions imposed by the USA.

 

Telecoms: power games in a highly strategic sector

Telecommunication networks are modern resources and central to the power strategies that many countries implement to control access to their data. Chinese giant Huawei has been in the USA’s firing line for several years now. The USA accuses it of posing a danger to its national security because of its supposed links with China’s army and government. It is worth noting that the group’s founder, Ren Zhengfei, used to be a telecom engineer for the Chinese army which he left in 1982.

The USA is aware of the strategic importance of telecommunications and soon became suspicious of Huawei’s plans to buy up or become involved with US companies. As far back as 2008, the government vetoed Huawei’s takeover of 3Com, which supplies intrusion prevention systems to the Pentagon and military intelligence to the US army and thus owned software critical to the country’s defence interests. In 2011, the USA even prevented telecom operator Sprint from using Chinese components manufactured by Huawei. Similarly, Washington cited the risk of espionage in 2012 when it excluded Huawei from the contract to build subsea cables linking the USA to Ireland and the United Kingdom (the Hibernia Express project). Then, in 2017, Congress opposed the planned alliance between Huawei and America’s AT&T. Such protectionism shows just how wary the USA is about the Chinese group’s infiltration of its market.
Huawei overtook the USA in August 2018 by promoting its 5G technology worldwide, which some might have described as a victory for China in the technological race under way in the telecommunications sector. To a large extent it can thank the China Development Bank and its colossal financial resources for this victory; the bank is a spearhead for China’s commercial expansion worldwide. But the USA has always been top dog in the world of telecommunication channels and has no intention of giving up its no.1 position.

 

The full force of the USA’s legal arsenal to destabilise Huawei 

The USA wants to thwart its rival’s rise in power and is planning to campaign to destabilise Huawei in its own territory and those of its allies. Its offensive is motivated by the possibility that Huawei might use its new 5G network for espionage and supply intelligence to China.
America’s main telecom operators and distributors (BestBuy, AT&T, Verizon) decided in March 2018 to stop selling Huawei’s products for “national security” reasons following a warning from Congress. The following month, the Department of Justice launched an investigation to find out whether not only Huawei but also ZTE (another major Chinese maker of telecom equipment) had breached US sanctions against Iran. ZTE was accused of making false statements during the investigation and banned from using US components for 7 years. The group said this jeopardised its very survival.
Legal measures are being taken to isolate Huawei from the rest of the US market. For instance, the FCC (Federal Communications Commission) introduced a regulation governing subsidies paid to operators using equipment like that manufactured by Huawei and ZTE.
Between August and December 2018, Australia, the United Kingdom, New Zealand and Canada also began talking about the security risks involved in using Huawei’s technology. They especially emphasised the cybersecurity bugs in 5G so as to avoid pointing the finger explicitly at Huawei and thus violating free competition rules. But Australia nevertheless expressed specific concerns about Chinese espionage, citing article 7 of China’s national intelligence law passed in 2017 requiring all national companies to cooperate with the state intelligence services. The Wall Street Journal says the USA will carry out a similar campaign across France, Italy and Germany.

 

Pressure stepping up on the group’s no.2

 

Huawei’s CFO and Ren Zhengfei’s daughter, Meng Wanzhou, was arrested in Canada on 1st December 2018 at the request of America’s Justice Department. The USA suspects her of “conspiracy to defraud” and skirt trade sanctions against Iran. She has since been freed on bail after paying 10 million dollars but is being monitored and wears an ankle bracelet. She awaits a hearing on her extradition to the USA to be held on 6th February.
America’s strategy in recent years has been to weaken or buy up the competition (another example is reflected in the testimony of Frédéric Pierucci, a former top executive at Alstom, in his book American Trap which describes the USA’s efforts to undermine Alstom, for instance by throwing him in a US prison); this suggests that Ren Zhengfei’s potential imprisonment could be used as a formidable weapon in future negotiations that are bound to take place between Beijing and Washington if Huawei is charged and ordered to pay a fine.

This legal action is representative of the fierce economic power struggle between the USA and China in the field of information and telecommunications technology. The USA seems determined to thwart Beijing’s progress because of suspicions of technology theft by Chinese companies along with Chinese state subsidies and control over foreign companies operating on Chinese soil (which are forced to create joint ventures); above all, it faces the risk of losing its leading global position in this sector. While 5G is under the spotlight right now, other technologies are sure to create tension between the two world powers in the future, such as big data, artificial intelligence and the internet of things… the battle for data has only just begun.