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Huawei - like silkworms and gunpowder

The Chinese government has reacted angrily to the arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada and demanded her release threatening "dire consequences" should she remain in custody.

The charges related to Wanzhou’s alleged attempts to obfuscate the relationship her company has with a subsidiary called Skycom which is accused of sanctions-busting behaviour concerning Iran.

The charges follow a decade of reports which have fingered Huawei in a series of state-sponsored surveillance campaigns both inside China, and across the world.

For example, an entire evaluation project in the UK was set up to investigate the Chinese company in 2010. Called the Huawei Cyber Security Evaluation Centre (HCSEC), specialists were hired to monitor the use of Huawei’s equipment in the UK’s network infrastructure.

It is overseen by UK security agencies and reports to the National Security Adviser. A visit to Huawei facilities in Shenzhen last year led to major issues for the HCSEC, including a lack of scrutiny of third party components. This led to increased pressure being placed on the company to act in order to improve supply chain weaknesses.

Beijing responded to the arrest of one of its most powerful businesswomen calling Wanzhou’s treatment “human rights abuse”. At the same time, she has apparently asked for the details of the case to be kept confidential, and even asked that her arrest not be publicised.

But the arrest serves to highlight an aspect of China’s global tech dominance that has led Western nations to beginning to ban or sever ties with Huawei amongst other Chinese companies.

The US, Australia and New Zealand have blocked Huawei’s equipment in telecoms and internet infrastructure, while other countries particularly in the EU are considering further action. The company faces censure elsewhere and in the wake of Wanzhou’s arrest, more may be pressured to join the ban.

In February 2018, FBI Director Chris Wray appeared at a Senate Committee Hearing and said government “was 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.”

Many technology companies are founded by ex-military personnel and Huawei is no different. One-time China’s People’s Liberation Army engineer Ren Zhengfei started the company in 1987, responding to Deng Xiaping’s call for Chinese to speed up development.

Zhengfei’s story has added to the perception that the company is steeped in Chinese military propaganda and culture. He is a secretive man, who has hardly ever granted interviews and remains hidden from view. While his daughter is regarded as the future of the company, Ren Zhengfei remains opaque. That is in stark difference to other Chinese digital heroes like Alibaba’s Jack Ma.

Zengfei’s comments about Huawei and technology use across the world for strategic reasons has also not helped his daughter’s case.

Huawei started out with offices in Shenzhen. In the late 1980s both China and the People’s Liberation Army relied on telecom equipment from outside the country and Zengfei was one of the group of businessmen who decided that was a national security risk.

“Switching equipment technology was related to international security, and that a nation that did not have its own switching equipment was like one that lacked its own military,” he is quoted as saying.

His motivation to setup a company based on a military format and national security issues clearly flagged his nationalist aims. The idea was not just to build a great company, it was to build a great Chinese company that worked like the military. His corporate strategy was militarised and he was very clear about his goal. To protect his all powerful nation from outside influence and surveillance.

Ren has previously defended his position saying :

"When China becomes stronger, America hits it harder," during a company internal award ceremony reported earlier this year.

"Actually, Huawai really is not what the U.S. wants to strike, what they want is to strike China. Because America doesn't want to see China become stronger, they have to find some way to use their power to curb it. So, I think there would be difficulties for Huawei's development. We don't know how big the difficulties are but we have to try hard to figure out how to overcome them,” he said.

He had made it clear that his company is inspired by Chinese party leadership.

"First, we are a Chinese enterprise, so supporting the Communist Party and loving China are the bottom line," Ren said.

"Second, when Chinese staff go abroad, we will ask them to obey the local laws and ethics. We have a legal committee and a democratically elected moral committee to control staffers' actions in foreign countries. And the foreign employees should also obey China's rules and morals. At least they should understand China.”

This slavish support for a political line is anathema to American digital innovators, who regard themselves as anti-establishment, supporting a broader international vision while destabilising existing business rather than the restrictive vision of one party state nationalism.

It is also important to note that the first time the Huawei founder attended a media event outside his country was in 2013, more than two decades after he launched his company. Zengfei chose New Zealand.

But on 28 November 2018, New Zealand blocked Huawei from supplying technology for a next-generation mobile data network, with their national security agency saying using the Chinese technology would raise significant risks.

The tussle in the Pacific over control of the telecoms market continues, however, with Papua New Guinea deciding to honour an agreement with Huawei to build domestic internet cables, rejecting an offer from Australia, Japan and the USA.

Huawei’s development has tracked the growth of the digital economy globally. The original mission of the company was to offer consultancy services and some operations to enterprises inside China, but rapidly morphed into a hardware producer when Ren realised the threat posed by these devices.

Patents owned by Huawei have also come under scrutiny, with many emanating from prestigious universities across the world including Canada, the UK, Turkey, Russia and Sweden. The company has poured tens of millions of dollars into these projects with the proviso that it should own the patents produced by students it sponsors.

The arrest of Meng Wanzhou in Canada is ironic as the company opened its second international office outside of China/Hong Kong in the North American country after running an R&D operation in India starting in 2003.

Soon after the Canadian investment, Huawei began developing mobile technology and formed a joint venture called 3Com-Huawei to focus on networked products.

Huawei is now the largest telecom equipment manufacturer in the world, and is by far the largest company of its type inside China. Considering the value of its technology to the Communist Party, its unlikely Huawei is operating outside of Beijing’s direct influence.

With Beijing’s total control over media and connectivity, experts say its clear that the Chinese government is closely associated with the company that connects most of its citizens through its hardware.

It’s mobile phone arm is now the third largest in the world.

Recently, Beijing increased surveillance on its own citizens. For example, in 2018 it announced the trial of a new citizen rating system which it says will improve law and order in the country. Those who fail the rating wil be denied passports and be unable to travel abroad. While this has led to some push back from digital denizens, the Communist Party has made it clear that it is going to use digital products to closely monitor both its own citizens, and those of other countries.

Huawei has a relatively unusual ownership structure, with roughly 64 percent of employees part of a company share ownership scheme. These shares cannot be traded and only those who perform well are allowed to own the shares. Should an employee leave, the shares return to the company and the employees are paid out for the value. But this does not mean the employees have any say in the running of the company.

It’s management style replicates a Chinese Communist Party model for centralised control through a handful of picked leaders rather than the Harvard School of Business model. Huawei’s board is really a group of top management and owner Ren can veto any decision that he sees fit, similar to how a general runs an army.

As China expands its interests throughout the world, Huawei is at the forefront of the digital arm of that expansion. While Beijing regulates its own citizens closely and forbids a free media to exist, it is beginning to export its censorship model to these allies.

For example, in Uganda, where ZTE and Huawei have over 90% of contracts in Uganda’s telecom companies as that country seeks to clamp down on freedom of expression by arresting journalists. Singapore is to install over 100 000 facial recognition cameras using Chinese recognition technology developed by Huawei.

But the United States has also been spying on Huawei, with Wikileaks publishing documents in 2014 that showed the NSA had been carrying out covert operations against Huawei including breaking into its networks and tapping Ren Zhengfei’s communications.

In many ways, Huawei symbolises China’s rise in developing innovation and one of the reasons Beijing has responded so angrily is because the company is regarded as a home-grown scientific success. The company has developed from a small backroom military-backed experiment to a major industrial powerhouse.

By focusing on research, the powerful innovative company is now threatening the West with its obsessive owner who is a Chinese Communist Nationalist, and by its employment power. For example, there are more than 76 000 staff in its R&D department alone, and the relevance politically is obvious.

Like silk-worms and gunpowder, Huawei is very much a Chinese invention, and like those two commodities, it has contradictions built into its global business model.

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