Huawei’s amazing rise has only been matched by the global controversy swirling around China’s heavyweight high-tech group.
In the past 18 months, the company built by Ren Zhengfei, the former People’s Liberation Army officer, has been dragged into Washington’s trade war with Beijing and branded a national security risk with close links to the ruling Communist Party and the PLA.
Responding to those allegations, Ren and other senior Huawei directors have categorically denied the charges and called the firm’s ban in the US a witch hunt. Recognized as a leader in super-fast 5G infrastructure after signing more than 60 overseas commercial contracts, the privately-owned business is also the second-largest seller of smartphones worldwide.
Yet for the US Department of State, the group “cannot be trusted to tell the truth or protect the interests of others.” In its defense, Huawei has accused “the US government” of “spreading misinformation for more than a year.”
Below are the nine points, or “myths,” raised by Washington and the company’s rebuttal released this week in an official statement. The links to the full text of the reports are included at the bottom of this article.
Myth No 1: Huawei is the cheapest
US Department of State: “Huawei is subsidized by the PRC [the People’s Republic of China] – for a reason – but others are priced competitively. Beijing’s state-backed banks provide tens of billions of dollars in subsidized financing to Huawei so the PRC can gain access to foreign markets and achieve strategic global dominance.
“Huawei’s efforts to monopolize the 5G market have worrisome implications in terms of eliminating competition, controlling supply chains, and manipulating pricing. Samsung, Ericsson and Nokia all provide high-quality 5G infrastructure at comparable prices, without the threat of authoritarian overreach.”
Huawei’s response: “We never said our equipment was the cheapest. We just said it was affordable, actually, in many cases, our price was actually higher than other vendors. Our equipment provides value to our customers, who are demanding, knowledgeable veterans of the telecommunications industry.
“As for our funding, it comes mainly from re-invested corporate revenue. We also get loans from international banks. Like many other companies in the telecom industry, we take advantage of government funding when it’s available, but the sums involved are comparatively small. In 2018, the amount of government subsidies [was] equivalent to just two-tenths of 1% of our total revenue. We don’t get special support from the Chinese government.”
Myth No 2: Huawei is the most advanced
US Department of State: “Huawei lags in patent relevance and value. Huawei has applied for the largest number of patents, but this fact is misleading. When assessed for essentiality – the degree to which each patent application is actually essential to 5G – Huawei falls behind Ericsson, Samsung, Nokia and Qualcomm.
“When assessed by jurisdiction, or the number of patents filed in Europe and the United States, Huawei falls even further behind additional competitors like Sharp, Intel and LG. When assessed by the number of granted patents, Huawei trails Nokia, Samsung and LG.
“Ericsson, Nokia and Samsung each have similar abilities to build out 5G networks end-to-end, without use of Huawei’s technology.
Huawei’s response: “According to CPA Global, an intellectual property consultancy, we have the highest volume of 5G patents and the largest number of granted patent families that are core to 5G. In an illogical attempt to prove that Huawei’s 5G gear isn’t the most advanced, the US State Department compares Huawei’s patents with those of Sharp, Intel and LG – companies that are not 5G equipment suppliers.
“[US] President [Donald] Trump announced America’s 5G plan in April 2019, but Huawei’s research began a decade ago, giving us a considerable head start. Today, we’re the only company in the world that makes 5G handsets, 5G base stations, 5G optical fiber and 5G core network hardware and software. We hold 20% of all 5G patents – more than any other network equipment vendor in the world.”
Myth No 3: Huawei shares our values
US Department of State: “Huawei’s actions are incompatible with democratic values. Huawei says that it shares our values of individual rights, privacy, rule of law and sovereignty. But Huawei’s actions suggest otherwise – it actively supports authoritarian regimes, intellectual property theft and surveillance used to control China’s population and repress minorities.
“As Huawei’s top executive said in 2018: ‘We have our own value system.’ He also publicly admitted that Huawei is not in compliance with the EU’s General Data Protection Regulation (GDPR) and would not be for at least another five years.”
Huawei’s response: “In the digital domain, the relevant values are the right to security and privacy. Huawei values these things just as much as American citizens do – and perhaps more than the US Federal Government does. As Huawei has stated publicly, we comply with all applicable privacy laws globally, including the EU’s General Data Protection Regulation.
“As for security, no Huawei customer has ever experienced a major cybersecurity breach, and no evidence exists that Huawei has ever been compromised by the Chinese government or any other actors. The United States, on the other hand, has a long track record of modifying digital products to collect intelligence.”
Myth No 4: Huawei always protects the interests of its customers and business partners
US Department of State: Huawei has a track record of spying, stealing and supporting authoritarian regimes. Legal cases against Huawei for intellectual property theft have been filed by Motorola, Nortel, Cisco and many others. Huawei settled some cases by paying restitution and admitting guilt.
“Huawei was found guilty by a jury of stealing trade secrets from T-Mobile in 2017. Huawei allegedly pays bonuses to staff for stealing trade secrets from competitors. Huawei has reportedly sold technologically advanced equipment, in violation of sanctions, to the repressive regimes of Iran, North Korea and Syria.
“Huawei technicians have reportedly helped African governments spy on political opponents.”
Huawei’s response: “It is impossible to attain this level of commercial success by theft. Had we tried to do so, customers would have shunned us years ago. Huawei does not need to steal anyone else’s intellectual property because we have plenty of our own. Last year, we filed more than 5,000 patents with the World Intellectual Property Organization.
“We pay royalties for the intellectual property we license from others. Since 2001, Huawei has paid more than US$6 billion to license IP from third parties, 80% of which was paid to US companies. In an attempt to vilify Huawei, our detractors point out that we have been sued by some of our competitors over alleged violations of IP rights. They may not realize that the tech sector is marked by frequent IP litigation.”
Myth No 5: Networks using Huawei’s 4G must use its 5G or face prohibitive costs and delays
US Department of State: “Huawei equipment can easily be replaced over time. Huawei has spread the false notion that those using Huawei 4G infrastructure must buy Huawei’s 5G, or face extraordinary expenses and delays to “rip and replace” with another vendor.
“Existing Huawei 4G can be replaced easily overtime. The true cost of replacing existing Huawei radio access equipment across Europe is estimated to be only US$3.5 billion – that’s $7 per mobile subscriber – and will not meaningfully delay 5G rollouts or impact the price of new 5G deployments.”
Huawei’s response: “The State Department says the cost of replacing Huawei equipment in Europe is estimated to be ‘only US$3.5 billion.’ Although replacing network equipment is relatively common, removing Huawei gear will certainly cost more than US government’s estimation.
“According to a report from [the] Daily Mail [a London-based newspaper], a ban stopping Huawei from supplying kit for Britain’s 5G mobile networks would cost firms more than £1 billion ($1.3 billion). That’s in the UK alone. A study by Oxford Economics* estimates that the impact of banning the company from 5G networks could be as high as $11.8 billion in the UK, $13.8 billion in Germany, and $15.6 billion in France. These estimates do not take into account the costs incurred by other European countries.
* Restricting Competition in the 5G Network Equipment – An Economic Impact Study by Oxford Economics was commissioned by Huawei
Myth No 6: Huawei is a victim of the US-China “trade war”
US Department of State: “None of the alternatives to Huawei are US companies. No American company currently offers 5G end-to-end network solutions. Security concerns expressed by the United States are truly about ensuring our shared security. Alternative suppliers of end-to-end solutions are headquartered in democracies that offer rule of law and judicial protections to prevent government overreach: Ericsson (Sweden), Nokia (Finland) and Samsung (South Korea).”
Huawei’s response: “While the main impetus behind Washington’s campaign against Huawei is geopolitical, the campaign is also linked to the trade war. President Trump has admitted this. Commenting on the possibility of a trade deal with China, President Trump said in May 2019: “If we made a deal, I could imagine Huawei being possibly included in some form or some part of it.”
Myth No 7: Shared code and “no-spy” agreements would make it safe
US Department of State: “Huawei’s promises are pure theater. Even countries that currently work with Huawei say they cannot replicate its source code and would have no way of knowing whether Huawei tells the truth about its 5G products. Huawei can change its 5G source code at any time to add ‘backdoors’ or ‘kill switches’ with rapidly deployed updates that cannot realistically be monitored by humans or machines.
“No matter what promises Huawei makes, the PRC’s National Intelligence Law and Cybersecurity Law require its secret cooperation with PRC requests – to include [the] release of sensitive client data. Also, as required of every company in China, a branch of the CCP [Communist Party of China] is nested within Huawei’s corporate structure.”
Huawei’s response: “No Chinese law requires private Chinese companies to engage in cyber-espionage, and the Chinese government does not control private companies headquartered within its borders. Independent organizations in the UK, Germany and Belgium continually test our products. Since our founding in 1987, not one of Huawei’s customers has ever experienced a major cybersecurity breach.
“Owing to the level of scrutiny to which Huawei and our equipment are subjected, and to the sophistication of network security technology, any attempt to install a backdoor into our hardware or software would be detected by the customer. Any deviation from the normal pattern would sooner or later throw up a red flag. Once that happened, no company or government in the world would ever buy our equipment again. We would collapse.”
Myth No 8: It is an independent company, free from government interference
US Department of State: “Huawei has deep ties to the Chinese Communist Party and military. Huawei does not permit external audits, so the true health of the company – including sales and profits – cannot be objectively verified. The true identity of 99% of Huawei’s ownership and its actual operating procedures are a closely-held secret, known only to a handful of people inside of China.
“Huawei claims it is owned by its employees via a trade union, but all trade unions in China are effectively state-owned. Huawei and its employees often collaborate with the PRC’s People’s Liberation Army.”
Huawei’s response: “Let’s take the second false allegation first. Far from being ‘a closely guarded secret,’ the identity of our shareholders is available to anyone who wants that information. We regularly invite reporters and other visitors to our company headquarters, where they are free to peruse a shareholder registry.
“Huawei is a private company that is 100% owned by our employees. Our largest individual shareholder, CEO and company founder Ren Zhengfei, owns just over 1% of the firm. The other 99% of our shares are held by Huawei’s union. They are not appointed by the Chinese government or any government-affiliated organization. The union does not report on Huawei’s business operations to other Chinese trade unions at any level.
“Although we are privately held, we still publish an annual report containing detailed financial statements. The report is audited by KPMG. As for government ties: We have no special relationship with any government, including the government of China.”
Myth No 9: Blocking Huawei will harm competition and slow 5G rollout
US Department of State: “Countries should not rush to failure when alternatives to Huawei are readily available. Huawei has promoted the false narrative that banning it would lead countries to ‘fall behind.’ Other companies currently possess the capacity and scale to fill market demands by providing comparable or better-quality 5G equipment.
“5G technology is in its infancy – network hardware and software will rapidly evolve and improve as use cases (such as autonomous vehicles and smart manufacturing) are developed. Continuing to allow Huawei to leverage anti-competitive practices to undercut competition will harm fair markets far more than banning it.”
Huawei’s response: “Telecom operators are the ones who will roll out 5G networks. They, not the US State Department, know whether blocking Huawei will delay the rollout of 5G.
“In fact, operators in the UK, Germany and other countries have said conclusively that blocking Huawei will delay the rollout of 5G networks. Basic economics tells you that excluding a significant competitor can be particularly problematic when there are only a handful of competitors to begin with.”
Editor’s note: France will not ban Huawei from its next-generation 5G network but will vet all equipment makers for any potential security threats, Reuters reported last month. The UK has still yet to make a concrete decision on Huawei’s involvement in the country’s 5G rollout. Germany will base its decision on whether to include Huawei in 5G infrastructure on security issues.