Analysis: What's the Problem with Huawei?

Frank Lenk


Published: 06/07/2019 01:27:52 AM EST in Frank Lenk

Analysis: What's the Problem with Huawei?

President Trump has declared economic war on Huawei. Like so many of his actions, this one makes little sense.

The story is complex, and includes multiple steps taken by Trump's government to restrict US trade with China. The most important one was a May 15 Executive Order, in which Trump prohibited US use of "information and communications technology and services" supplied by "a foreign adversary," and posing "an unacceptable risk to the national security of the United States."

More or less simultaneously, the US Commerce Department added Huawei its so-called Entity List, identifying it as a supplier that should fall under the restrictions of the Executive Order. This one-two punch effectively barred US companies from buying Huawei equipment, or selling tech products to Huawei.

Various companies subsequently announced that they were complying with the ban and breaking off trade with Huawei. These included Google, which supplies the Android OS used by Huawei phones and tablets, as well as chipmakers Intel and Qualcomm, and chip-designer ARM.

Of course, Canada got involved even before the conflict officially kicked off. In December of last year, at US request, Canada arrested Meng Wanzhou, Huawei CFO and daughter of Huawei founder. The allegation was that the company had violated unilateral US trade restrictions against Cuba, Iran or other countries.

So we've firmly planted our flag in Trump's camp. Was that wise? It's worth taking a closer look at the facts.

Proving a Negative

What has not been obvious from the news headlines is the nature of Huawei as a company, and how much Canada has to lose by becoming a party to a US-China trade war.

Fair disclosure: I've just returned from a week in Shenzhen, China, touring Huawei's headquarters at the company's expense. As you'd expect, Huawei is trying to build some favorable publicity. You'll have to judge for yourselves whether this article has been fatally skewed by two sleepless 15-hour flights, bookending four days touring R&D labs and manufacturing facilities. Plus some very tasty Cantonese meals.

I will say this much: nobody has told me what to write. And, airfare notwithstanding, I feel under no obligation to report anything other than what I've observed with my own eyes, and corroborated with my own research.

One thing I can state categorically: my visit to China did not alter my opinion of the attack on Huawei. I formed that opinion by keeping track of the evidence as it became available. Anyone can do a quick search and confirm the basic facts. One would expect a devastating billion-dollar global embargo to be justified by reams of credible facts. And yet, no solid evidence of security ‘backdoors' in Huawei equipment has been presented.

The strongest allegation against Huawei is summarized in an April report by US-based news outlet Bloomberg, stating that Vodafone Group Plc, in Italy, found "vulnerabilities" in Huawei routers, back in 2011 and 2012. At that time, says Bloomberg, Huawei explained that these were necessary remote-management (telnet) interfaces.

Huawei P30 Assembly LineApparently there was some debate between the two companies, but the issue was ultimately resolved to Vodafone's satisfaction. Bloomberg admits that Huawei has now become Vodafone's fourth-largest supplier, and that Vodafone has in fact staunchly "defended Huawei against the US onslaught."

To be sure, some US-based analysts were eager to call the Vodafone vulnerability a ‘backdoor.' But the truth is that this sort of thing is typical of vulnerabilities found in all communications gear, including US-made products. For example, similar backdoors have repeatedly been found in Cisco routers. A 2013 report from Germany even alleged that the NSA was using them for spying.

Unfortunately, it's almost impossible to prove a negative. And, indeed, during my China tour Huawei failed to prove conclusively that its technology has no backdoors. However, Huawei did point to certifications by international bodies, such as the ISO. So whatever tests exist that should ensure security and absence of backdoors, Huawei has clearly passed them.

That's about all we can hope for, until some new global security watchdog is created. Since the controversy started, Huawei gear has surely been subject to deeper scrutiny than that of any other maker. If there were digital ‘WMDs' to be found, you'd think we'd have seen detailed accounts by now, from every media source. Until we do, Huawei deserves the benefit of the doubt, regardless of where it's based.

Truth or Consequences

Of course, there's not much doubt that the Huawei blockade is really a back-handed attempt to bring down an extremely successful competitor. (Or, at least, to prove to a certain component of the US electorate that America is being made economically great again.) It won't work. In fact, it can only do more harm than good.

Reuters refers to Huawei as "the largest telecommunications equipment producer in the world." That was easy to believe from the tour last week. The company's campus extends over a vast swath of northern Shenzhen (just inland from Hong Kong), and includes endless buildings devoted to marketing, research and manufacturing.

A whole new campus is just being finished, destined to house about 20,000 additional employees. Each building is designed to mimic the style of a different European country - a Rhine castle from Germany, a cobbled plaza from Italy, and so on. An electric train shuttles workers (or visiting reporters) around the campus in a loop, Disney World style. It's a flamboyant show of economic might, apparently the brainchild of Huawei found Ren Zhengfei himself.

Huawei can afford such indulgences. Its sales totaled about US105 billion in 2018. It has a stated policy of spending at least 10% of annual revenues on R&D. Currently, it reports having 188,000 employees, about 80,000 of them involved in R&D. The company employs a significant number of people in its Ottawa R&D center - jobs that could become collateral damage in an escalating trade war.

Huawei Smart City systemHuawei owns tens of thousands of patents, including many of the basic patents on 5G technology. It is almost certainly the world leader in 5G back-end gear. That, coupled with its roots - providing phone equipment to rural markets - makes it a particularly advantageous supplier for the Canadian market. (One of the chief benefits of 5G is its ability to cover large areas with very few antenna towers.)

Does Huawei work closely with the Chinese government, as the US alleges? My impression is that they do - just as closely as any large company would with our own government. I attended a press event a few months ago where Ontario's minister in charge of industry flatly stated that his job was to make things as easy as possible for business. I'm sure China takes a similar interest in the success of Huawei.

However, the Chinese approach is also distinctly different from our own. The central government is stronger, less ephemeral, and more forward-looking. There's a definite master plan - and it's working.

Shenzhen is a perfect example. About 40 years ago, it was a fishing village. Today, it's a buzzing modern metropolis of about 13 million residents (20 million or more, by some estimates).

Shenzhen is a city with no houses; one sees nothing smaller than a low-rise apartment building. It's also a city with no visible homelessness. By all accounts, very little crime. Certainly, by my own observation, no graffiti. (You don't notice its absence, it until you come back to thoroughly spray-painted Toronto.) Car licensing strongly favors electric models; mango trees line the major boulevards, to absorb dust and pollutants; tripod-like reinforcements safeguard practically every tree against the area's periodic typhoons.

The residents clearly vary in affluence, but they don't look oppressed. On the contrary, they seem smugly happy to be where they are. Business is booming, and there are plenty of opportunities to entertain oneself - as, for example, at the world's largest electronics market, which towers many stories into the sky over several vast city blocks.

When we think of China, we still tend to visualize a grey, rural, poverty-stricken country. Shenzhen grew up as one of China's half-dozen Special Economic Zones. These Zones suggest that there's also a colorful, ultra-modern, economic powerhouse China - a sizable country in itself, with a population of perhaps 100 million people or more. A ‘new' China that's already ahead of the West in many ways, and likely to only become stronger as time goes on.

Embracing the Future

It hard to imagine the current dispute doing much to slow this economic express train. It's even harder to see the economic success of China - a colonial backwater just a century ago - as some sort of threat to our lives here in Canada. In a way, it's reassuring to see things improving for so many people. It would appear that China needs very little from us - other than the ability to do business here.

Obviously, Canada should be concerned about its own economy first. But there may be much to learn from the Chinese. One of the basic principles of the Special Economic Zones, for example, was to encourage foreign investment and the influx of foreign technology. That approach has clearly worked well for China. It might be even more appropriate for a ‘small' country like Canada.

Even Donald Trump himself is ambivalent about Huawei. He has called the company "extremely dangerous" on some occasions, yet on others has stated that the company could be included in a trade deal with China. It seems like a love-hate relationship. But perhaps neither emotion is appropriate in the realm of international trade.

To be sure, we should not drop our guard. Security is of growing importance, and any equipment we use, especially in our communications backbone, should be subject to rigorous scrutiny. But economic decisions affecting a country's entire future can't be based on unfounded fears and vague allegations. We need to look at the facts, scientifically and dispassionately.

As it happens, this perfectly summarizes the case that Huawei presented to its journalist guests: judge the technology on its own merits. Huawei seems confident that if we take that hard-nosed, businesslike approach, its products will stand up to scrutiny.

[Images: top - yes, it's China, Huawei's new mini-European campus; middle - Huawei P30 phone assembly line; bottom - Huawei 'smart city' system showing Shenzhen.]





Article Tags:  Huawei, China, Shenzhen, P30, phone, Trump, backdoor, vulnerability, embargo, Vodafone, Cisco

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Analysis: What's the Problem with Huawei?








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