If, according to an ancient Chinese proverb, “a crisis is an opportunity riding the dangerous wind”, then Huawei is barrelling in on a storm force 12. Where the hurricane takes it, though, may be out of the telecoms giant’s control.
A slew of bombshell allegations have raised troubling questions about the telecoms company’s probity and revived long-held concerns about its relationship with China’s intelligence services. The UK, in need of friends as Brexit looms, is struggling to negotiate the fallout. To ignore the mounting brouhaha risks alienating its closest ally, the United States, currently locked in a bitter trade war with China which has become synonymous with Huawei. But the UK needs Chinese technology to keep pace with the 21st century.
“The UK, like much of the west, struggles to know whether to see China as threat or opportunity,” said Robert Hannigan, former director of the British intelligence centre’s GCHQ and now European chairman of the cybersecurity company BlueVoyant. “It’s a difficult balance. My view is that we want the benefits of Chinese technology and inward investment and we should find ways of managing the risks, pushing back where necessary.”
Last Monday a 13-count indictment unsealed in a New York court, charging Huawei and its chief financial officer, Meng Wanzhou, with Iranian sanctions-busting – charges rejected by the company – made the balancing act that bit more difficult. A second indictment, unveiled the same day, alleged that the firm tried to steal technology from mobile operator T-Mobile US. Huawei insists the matter has been settled.
It was just another bad week for a company that is making a habit of garnering negative headlines. Not a week goes by without a UK politician taking aim. Defence secretary Gavin Williamson expressed “grave concerns” about Huawei in December. Last week Chris Bryant, the Labour MP and member of the foreign affairs select committee, claimed: “Day by day we see more evidence that Chinese companies like Huawei are breaking all the rules and undermining British security.” In December a Huawei executive was arrested in Poland on charges of spying for China, a dramatic development that the company insisted had nothing to do with its operations, a rebuttal that did little to convince sceptics who view it as an appendage of China’s Communist party (CCP).
While Huawei likes to portray itself as an independent enterprise wholly owned by its employees (“we’re the John Lewis of China,” one claimed), no Chinese company could succeed abroad so spectacularly without the party’s patronage, said Martin Thorley, an expert on international engagement with China at the University of Nottingham. “There are a growing number of exciting Chinese companies that could compete abroad in a range of sectors, but the CCP has made it’s choice, and it has chosen to retain power in all spheres to the detriment of these companies’ international aspirations.”
For westerners who struggle to understand the power of CCP patronage, Thorley offers an analogy. “Imagine if the Conservative party in the UK controlled the army, the judiciary, all newspapers, the police force, major companies, all universities. It would be a very different country indeed.
“Huawei is a part of this network and subject to these forces, so the question is whether a company ultimately subject to the whim of the CCP should be involved in sensitive security projects abroad. Some may argue that it should but they need to understand that when called upon Huawei must do as the party says.”
In the UK, however, Huawei has gone to great lengths to present itself as a paragon of corporate accountability. It hired the government’s chief information officer, John Suffolk, as head of cybersecurity and its UK board is the envy of many FTSE 100 firms. Notable appointments include ex-BP boss Lord Browne of Madingley, Sir Andrew Cahn, the government’s former chief trade ambassador, and, until her death in 2017, Dame Helen Alexander, a former CBI president.
In addition to the links it has forged with academia, the company is a donor to the Chatham House thinktank and has funded two influential parliamentary technology committees. A former global sponsor of Arsenal football club, Huawei will achieve a rare PR coup on Monday when an unfinished symphony by Schubert, completed using the company’s smartphone technology, will be performed for the first time at London’s Cadogan Hall.
But its expert deployment of soft power cannot stanch the flow of bad publicity. Amid growing disquiet about Huawei’s activities, UK operator BT has announced that it will remove Huawei’s technology from parts of a network it acquired from a rival, a move that some suggested was down to security concerns. Last week Vodafone confirmed that it was restricting its involvement with Huawei in the UK. Huawei is already barred from supplying next-generation 5G equipment – the technology that will connect “the internet of things” – to Australia and New Zealand.
Company insiders insist these developments have nothing to do with security issues, but the optics don’t look good and several UK institutions have taken fright as the charges have piled up. Oxford University and the Prince’s Trust, two venerable organisations that have received Huawei funding, have broken links with the company in the last few days. Some 19 UK universities still enjoy Huawei sponsorship, but, given events, they may now be reconsidering their positions.
More bad news is to come, on both sides of the Atlantic. The Observer understands a report to be presented to parliament’s intelligence and security committee in the coming months will flag further concerns about the use of Huawei’s software in the UK telecoms networks, something that will be seized upon by the company’s critics, who warn that sensitive data generated in the UK is at risk of being re-routed to China.
In the US, alongside its broader attack on Chinese imports, the Trump administration wants to ban US companies from using Chinese equipment in their critical telecoms networks. Some believe the administration’s ultimate goal is to push Huawei out of Europe and the US, leaving America to frame the global standards for 5G.
Behind the scenes, some see a level of coordination in the way the US and its allies have been gunning for Huawei. “Each week there’s a new hit,” one seasoned Huawei watcher observed. “It’s really quite impressive, from a PR perspective.”
As China has pushed back, for one person at least the geopolitical row has become a matter of life and death. Following Meng’s arrest in Canada at the request of the US, the Chinese authorities seized two Canadians and sentenced to death a third man, Robert Schellenberg, who had initially been sentenced to 15 years in prison. The decision prompted the Canadian prime minister, Justin Trudeau, to accuse China of “arbitrarily” applying the death sentence.
In a rare meeting with journalists last month, a sign the company knows it needs to halt the flow of negative headlines, Meng’s father, the company’s founder, Ren Zhengfei, insisted the decision was “not related to Huawei in any way”.
“We are like a small sesame seed, stuck in the middle of conflict between two great powers,” said Ren during the round-table discussion, a transcript of which has been shared with the Observer.
Not that small a seed. With 180,000 staff around the world (1,500 in the UK), Huawei produced revenues last year of more than $100bn. In 2017 it invested $13bn (£10bn) in research and development, half what the UK spent. Not bad for a company founded in a small flat with a $2,500 loan barely more than 20 years ago. Curiously, as the row over Huawei’s activities has sucked in each of the UK’s intelligence-sharing partners in the so-called “Five Eyes” spying alliance – the US, Australia, New Zealand and Canada – Theresa May’s government has been strangely quiet about its position. But then, to be seen taking up the cudgels against Huawei would be to risk unpicking the years of work that the UK has spent assiduously wooing China.
The dividends of this courtship are manifold. Between 2016 and 2017, Chinese investment in the UK doubled to $20.8bn, according to a report produced by the TMF Group, a consultancy, on behalf of the China-Britain Business Council. This was all the more astonishing given that, in the same year, overall Chinese outbound investment declined for the first time since records began in 2003.
More is to come. Between 2018 and 2022, Huawei alone has pledged to spend some £3bn in the UK. It is perhaps no coincidence that, as Chinese money has poured into the UK, hundreds of Chinese investors have received golden visas granting them residency. And nowhere is the burgeoning Anglo-Chinese relationship more tangible than London.
Two of the City’s most recognisable buildings, the 224m “Cheesegrater” and the 38-storey Walkie Talkie, are now owned by Hong Kong companies, while the multibillion-pound redevelopment of the Royal Albert Dock in east London is being spearheaded by the Chinese developer ABP.
These projects pale into insignificance compared with the £20bn development of Hinkley Point C. The new nuclear station in Somerset that will generate low-carbon electricity for about 6 million homes is a third-owned by China’s General Nuclear Power Group.
But some experts question where this relationship will end. “My fear is that, just as financial elite influence over government ensured light-touch regulation that led to financial disaster in 2008, so similar interests have steered the UK government towards the ‘golden era’ policy with China,” Thorley said. “This policy has stalled somewhat since David Cameron and George Osborne left Downing Street, but we still may feel its consequences in the UK’s energy strategy and beyond.”
The UK’s assiduous courtship of China was evident in 2010 when Cameron set up his National Security Council, comprising eight committees, six of which he headed. Significantly, though, of the other two, the one relating to cybersecurity was to be overseen not by the prime minister but by the chancellor.
At the time intelligence experts were quick to interpret this shift. One told the Observer that they believed the Treasury wanted to “own” cyber because it believed the opportunities afforded by the development of the technology should not be subsumed beneath national security concerns, a view that at the time alarmed some in the intelligence community.
And for good reason. Under article 7 of China’s 2017 National Intelligence law, companies like Huawei are legally obliged to help the Chinese intelligence agencies upon request. This fact alone might convince many that Huawei should be nowhere near the UK’s critical infrastructure.
But Huawei is subject to unique supervision by the UK’s intelligence services. In 2010 the UK government established the Huawei Cyber Security Evaluation centre, overseen by GCHQ’s national cybersecurity centre, to monitor the company’s operations in the UK.
Staffed by 35 heavily vetted analysts, the centre flags security issues arising from Huawei’s activities to government. A report issued by the centre’s oversight board last July raised serious concerns about the poor quality of Huawei’s security engineering. As a result, the board conceded that it could provide only “limited assurance” that any risks to UK national security from Huawei’s involvement in the UK’s critical networks had been sufficiently mitigated.
Another report from the board, to be published this spring, is expected to raise similar concerns, giving more ammunition to Huawei’s critics, the Observer understands. However, while the intelligence agencies may harbour concerns about the robustness of Huawei’s software, the centre has never found evidence of the fabled “backdoors” that would allow China to penetrate the UK’s telecoms networks. “Critically, it has concluded that Huawei falls short in its approach to cybersecurity, but it has never uncovered hostile state activity by Chinese government agencies,” Hannigan said.
Ren, a former officer in the People’s Liberation Army, insists Huawei would never betray its customers. “When it comes to cybersecurity and privacy protection, we are committed to siding with our customers. We will never harm any nation or any individual.”
The extraordinary level to which the UK has gone to accommodate a company regularly accused of spying for a foreign state says much about where the shifting balance of power now lies in the world. In the era of “techno-nationalism”, countries that innovate dominate.
Last year the broadband comparison website, Cable, published an annual league table revealing that the UK had the 35th fastest broadband in the world, a slip of four places since 2017, one that put it behind almost all other EU member states and Madagascar, one of the least developed nations in the world, according to the UN. Huawei knows it is one of the very few companies that can drag the UK up the table. “Huawei is the only company in the world that can integrate 5G base stations with the most advanced microwave technology,” Ren said.
“With that capability, our 5G base stations don’t even need fibre connections. Instead, they can use superfast microwave to support ultra-wide bandwidth backhauls. This is a compelling solution that makes a lot of economic sense.” For economic, read cheap.
To switch to an alternative supplier, such as Sweden’s Ericsson, would be hugely costly, Whitehall mandarins concede. Inevitably, the significantly higher prices would be passed on to consumers.
Jo Platt, shadow minister for cyber, said UK reliance on a few key tech firms was a concern. “Why are we spending huge amounts of public money on mega-companies like Amazon Digital Services and Huawei; how do we redress that?”
Perhaps Huawei itself will provide the answer. Amid reports that Poland is pushing fellow Nato members to adopt a “unified position” on Huawei, something that could make life difficult for the UK as it scrambles to keep Huawei onside, Ren promised the company would scale back if it was not allowed to sell its products in certain markets. Such a pledge would never be made by a western company beholden to shareholders. But, as Ren acknowledged, Huawei is different. “We are not a public company – we aren’t overly concerned about beautiful numbers.” He was talking about Huawei. But he may as well have been talking about China.
22 August 2018
The US issues a warrant for Meng Wanzhou, chief financial officer of Huawei and daughter of its founder, Ren Zhengfei
1 December Meng Wanzhou is arrested at Vancouver airport after US says Huawei was involved in breaking Iran sanctions
10 December
Two Canadians are detained in China, four days after Justin Trudeau refuses to intervene in Meng’s case
14 January 2019
Canadian Robert Lloyd Schellenberg is sentenced to death by a Chinese court for drug smuggling
24 January
Huawei says it will not use US-made components for its next generation of smartphones
28 January
Meng is charged with misleading US banks about Iran dealings. Huawei is accused of stealing T-Mobile US technology