March 28, 2019
At the intersection of 7th and H Streets, north of the Capitol Hill, seats the grand Friendship Archway of D.C.’s Chinatown. Much of the capital’s monuments is about symbolism. The city dedicated this Chinese traditional gate in the 1980s to mark the enduring Sino-US friendship. But lately, this 40-year-long economic partnership has taken a toxic turn with Washington shutting its doors on Chinese investment.
At the epicenter of contention is the fifth-generation cellular network (5G) that promises enhanced internet speeds. A network about 20 times faster than 4G will pave the way for future smart cities and the “Internet of Things.” A 2018 report commissioned by CTIA, a wireless foundation that represents the US wireless communications industry, claims that the initial deployment of 5G will generate 3 million new jobs, drive technological innovation, and add $500 billion to the American economy.
A secure 5G network will also transform how the military operates and enable the use of data-intensive weapons systems. As the physical system communicates through layers of sophisticated software, whoever controls the networks controls the flow of information. Decisions made today can affect national security and economic performance for much of the century.
“If you are first with 5G, we don’t know if you will win the race, but if you’re not, we know for sure that you won’t win. Whenever a region or a country lost [technological] leadership, a part of its economy died,” explained Roger Entner, founder and telecom analyst of Recon Analytics.
The transition requires an upgrade of current network equipment. This is where China’s supplier Huawei Technologies leads its rivals (Ericsson, Nokia, and Samsung) by a wide margin. Founded in 1987 by former military engineer Zhengfei Ren, the small-time Chinese distributor in Shenzhen started by reselling telephone switches. The firm acquired wireless and internet backbone technology through reverse engineering foreign equipment and simultaneously performed their own R&D, according to a 2013 case study by Nathaniel Ahrens for the Center for Strategic and International Studies.
Following its success in China’s domestic market, Huawei began to look abroad for continual growth. Its equipment has since dominated developing markets in Russia, Thailand, Brazil, and Africa by offering competitive prices. Its 180,000-staff team also provides a more attentive approach to customer services. In 2001, Huawei made its first push in developed markets by setting up an office in the US and winning major contracts with Netherlands and Germany. In the following years, Huawei further expanded its services in Europe, cooperating with operators in 27 countries.
The firm surpassed Ericsson in 2016 as the largest telecom equipment manufacturer and overtook Apple in 2018 as the second largest smartphone maker (behind Samsung). One of the biggest selling points of Huawei’s infrastructure equipment involves microwave technology. The integration of network base stations and microwave offers a cheaper solution for sparsely populated rural areas, without the need to deploy costly fiber connections.
With customers in 170 countries and an estimated $108.5 billion global revenue in 2018, the tech firm is an essential cog of Chinese President Xi Jinping’s initiative of “Made in China 2025”. The Communist Party aims to transform the country into a dominant power in global high-tech manufacturing. A 2018 study by Deloitte Consulting indicates that China is building network site density at an unprecedented rate and is the most 5G ready country. All three Chinese domestic wireless providers completed large-scale testing in more than ten pilot cities last year, intending to launch data terminals and smartphones during the first half of 2019. At the same time, Huawei has also been negotiating contracts in overseas markets.
Despite China’s swift actions, the US government and carriers are determined to win the race. The Federal Communications Commission (FCC) concluded its first auction of 5G spectrum bands in January, totaling more than $702 million with 2,965 licenses. A second round offering 2,909 licenses is currently underway. The amount raised has already passed $1.5 billion by the end of the second week. The commission is also working on updating infrastructure policy and outdated regulations. Ericsson, Nokia, and Samsung will supply the US market with their 5G equipment.
To win a race, it also takes one to tame his/her opponents. Last August, US President Donald Trump signed the John S. McCain National Defense Authorization Act (NDAA), prohibiting government use of telecommunications and surveillance products from Chinese companies like Huawei and ZTE. The FCC has also proposed a plan to block carriers from using government subsidies — the Universal Service Fund — to buy Chinese equipment. The restrictions will hit some small rural carriers the hardest because of the high cost to replace Huawei’s existing kit.
On December 1, at the request of the US government, Canadian authorities arrested Huawei’s chief financial officer Meng Wanzhou, daughter of Ren. In the following month, the US Department of Justice charged the company for violating sanctions on Iran and stealing trade secrets from T-Mobile. Trump Administration has campaigned against Huawei globally by urging its allies to boycott the firm’s network products.
“The United States has also been very clear with our security partners on the threat posed by Huawei and other Chinese telecom companies.” US Vice President Mike Pence warned at the Munich Security Conference in February, “America is calling on all our security partners to be vigilant and to reject any enterprise that would compromise the integrity of our communications technology or our national security systems.”
The US has further threatened to stop sharing intelligence with countries using Huawei equipment. The main opposition comes from growing concerns about Huawei’s possible connection to the Chinese government, which the firm denies. American officials fear Huawei’s kit could contain vulnerabilities that would allow Chinese intelligence to intercept another country’s communications. Given the sheer volume of data exchange, there are ample opportunities to sneak “back doors” into a constantly updated system. China’s National Intelligence Law obliges private Chinese firms to assist the state if required, no matter where they operate.
“That is driven by the US intelligence community, who are very concerned that China’s Ministry of State Security can do the same thing with Huawei equipment as they can do with American Cisco gear, which is not unreasonable to think.” Entner added, “It’s well documented that Chinese state security is very active in cyber hacking against military, political, and economic targets.”
Although researchers have found no evidence of such security breaches in Huawei products, an espionage incident at the Chinese-built African Union headquarters in Ethiopia has made the American argument more convincing. An investigation by French newspaper Le Monde alleged that the organization’s confidential data was sent to servers in Shanghai every night between 2012 to 2017. Huawei, the main supplier of the compound’s network system, again denied its involvement.
Facing mounting pressure from Washington, the company has launched a global publicity campaign to fight back. The firm is running a robust social media presence with some 125 Facebook Pages, 79 Twitter handles, 90 Instagram Accounts, 31 YouTube Channels, and 79 Twitter handles, including one called Huawei Facts. This January, founder Ren hosted a rare media Q&A at the firm’s headquarter in Shenzhen.
“Huawei is an independent business organization. When it comes to cybersecurity and privacy protection, we are committed to siding with our customers.” he said, “We would rather shut Huawei down than do anything that would damage the interests of our customers in order to seek our own gains.”
On the eve of the Mobile World Congress in February, Huawei drew huge crowds with its new 5G-enabled folding-screen phone, along with its new 5G chipsets and routers. Bahrain’s leading telecom provider VIVA Bahrain signed a nationwide 5G service launch with Huawei at the Barcelona event. In Canada, Huawei has given a soft push by advertising on CBC’s Hockey Night.
In a surprising move, the tech giant filed a lawsuit against the US government, accusing a federal ban on its products unconstitutional. At the same time, Meng Wanzhou, Huawei’s CFO under arrest, is suing the Canadian government for detaining and interrogating her without due process.
“They don’t intend to win the lawsuit. For Huawei, it’s a win-win. Either they know why they are being accused, and how the US government know it, so they can take counteractions; or if the US government don’t tell them, it will contradict the rule of law,” according to analyst Roger Entner.
With the US and Chinese markets closing doors on each other, the key battleground for 5G turns to Europe and other major US allies. Australia sided with the US as early as last August, blocking Huawei and ZTE from supplying its 5G network. The Japanese government followed Australia’s move by banning both firms. New Zealand’s top intelligence agency supported the ban in November. But Prime Minister Jacinda Ardern announced last month that Huawei had not been ruled out if carriers could satisfy the intelligence concerns.
The UK and Canada have taken a softer stance. British Telecom (BT) initially decided to pull Huawei’s kit out of the core of its existing network. But in January BT became the first foreign telecom to receive a nationwide license to operate in China’s domestic market. Huawei also pledged $2 billion to address securities issues raised in an annual security assessment report last year. Following the development, BT has changed its tone, saying it hasn’t seen any cause for concern. According to the Financial Times, the UK National Cyber Security Centre has also concluded the risk of using Huawei equipment is manageable.
Caught up in the Huawei case, Canada has yet to make a decision facing pressure from China and the US. Chinese authorities have charged two Canadian residents of stealing state secrets, issued import bans on Canadian canola oil and Australian coal. Officials denied these charges and tariffs had anything to do with Huawei.
There have also been rising concerns over the alternatives to Huawei’s technology. During Ericsson’s analyst and media conference call for their fourth-quarter report, President and CEO Börje Ekholm acknowledged some limitations of the Stockholm-based company.
“So the reason why we were more cautious is we see the limitations in rolling out and the limitations on tower crews. That’s a limitation that still exists. And we are increasing our investments in bringing more tower crews online, but this takes some time,” said Ekholm.
Amid growing skepticism about China’s global influence at such as crucial time, Chinese President Xi Jinping went on a six-day European tour in March to rally support. Italy became the first G-7 countries to join China’s Belt and Road Initiative with deals worth $2.8 billion. China and France signed a dozen business agreements that total $40 billion, including an order of 300 Airbus airliners.
To demonstrate an EU unity, German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker joined Xi’s Paris talks with French President Emmanuel Macron. Merkel wanted to the EU to have a role in China’s Belt and Road Initiative, while Juncker emphasized on reciprocal partnerships. Macron further advocated for multilateralism and EU’s unity.
The day following Xi’s visit, the European Commission defied US calls for a bloc-wide boycott on Huawei and ZTE. The announcement suggests that EU member states are responsible for choosing their own suppliers, but each nation should complete 5G risk assessments by the end of June. A bloc-wide analysis is due for October. The new guidelines correspond to Deutsche Telekom’s proposal of a new security certification process for Chinese 5G suppliers. The French Senate also rejected proposed legislation for stricter telecoms controls.
Many experts see the open resistance from US allies on the Huawei issue as the decline of America’ soft power. The Trump administration unilaterally withdrew from the Paris climate accord and the Iran nuclear deal. The President himself openly criticized NATO members for not paying their fair share for defense, suggesting he would not be bound to defend Europe. He also accused Germany of being overly dependent on Russian oil and gas and repeatedly threatened the EU with tariffs on steel and aluminum imports. President Trump has made habits of alienating allies, leaving America increasingly isolated on the international stage.
As the 5G race continues to pick up momentum, British watchdog has issued a fifth annual assessment on the Chinese supplier’s equipment. The report suggested new securities risks found in Huawei products and pointed out that the firm has not made any material progress on addressing security concerns raised last year. The UK’s National Cyber Security Centre has attributed the defects to basic engineering competence and cybersecurity hygiene. A range of state and non-state actors are capable of exploiting the vulnerabilities.