Thursday, 13 Dec 2018
Business

How the arrest of Huawei prolongs the troubled history with the United States

The arrest in Canada of Wanzhou Meng, chief financial officer of Huawei Technologies Co., is linked to potential violations of US sanctions against Iran by Chinese society. This is not an isolated incident, but rather the last chapter of a long history of tension between the Chinese giant of smartphones and telecommunications, the US government and business.

1. Who is Meng?

In addition to the financial director, she is vice president of Huawei and daughter of the founder of the company. Meng was arrested in Vancouver, but risks being extradited to the United States, which had already opened an investigation to determine whether Huawei was selling equipment to Iran despite the sanctions imposed. The company said it was unaware of any wrongdoing on the part of the CFO and that the authorities of both countries "would finally reach a fair conclusion".

2. What will it do for US-China relations?

It is almost certain that this arrest will exacerbate tensions between President Donald Trump and President Xi Jinping at an extremely sensitive time. The two countries met only last weekend to try to win a truce in their growing trade dispute. Chinese technology has particularly drawn the attention of the US president, who has justified the imposition of tariffs on imports from China with allegations of theft of intellectual property by Chinese companies. Huawei is by far the most comprehensive technology company in China, with operations in Africa, Europe and Asia. The news of Meng's arrest provoked an immediate protest from the Chinese Embassy in Canada, calling on the United States and its neighbor to "rectify wrongdoing" and release Meng. The arrest of the CFO could be considered an attack against one of the biggest champions of the business world in China.

3. What is the problem of the United States with Huawei?

Founded in 1987 by Ren Zhengfei, a former People's Liberation Army engineer, Huawei has always enjoyed favorable treatment from a government that, like the United States, remains cautious about using too much foreign technology for vital communications. US government officials and industry leaders have long suspected that Huawei is working mainly for the interests of the Chinese government. In a report released by the US Special Committee on Intelligence in 2012, Huawei and ZTE Corp. have been identified as potential threats to the security interests of the United States. The report questioned Huawei's ties with the Communist Party and, after multiple interviews, including a discussion with Ren, concluded that Huawei had not explained the relationship well.

4. What does Huawei say?

Huawei has repeatedly denied this insinuation and claims to be owned by Ren and his own employees. Yet the Chinese government's policies adopted over the last year and seen as favoring local suppliers have only heightened suspicions. We still do not know what support – financial or political – Huawei receives from Beijing, if any. In recent years, the company has begun publishing results, investing more in marketing, and engaging foreign media to increase transparency.

5. What did Huawei do to draw American mistrust?

The first major problem occurred in 2003, when Cisco Systems Inc. sued Huawei, accusing the Chinese company of infringing its patents and illegally copying the source code used in its routers and switches. The following year, Huawei deleted the contested code, manuals and command line interfaces and the case was dropped. Other charges that Huawei stole intellectual property from US companies have surfaced. Motorola cited it as co-accused in a lawsuit, while T-Mobile US Inc. claimed that Huawei had stolen technology at its US headquarters in Washington State. Earlier this year, Trump blocked the takeover bid for Qualcomm Inc. by Broadcom Ltd., following a recommendation by a US agency authorizing national security risk controls. The concern with this deal comes from Broadcom's relationship with Huawei.

6. How big is Huawei?

As a reseller of electronic products, the Chinese company has become in three decades one of the largest communication companies in the world, with leadership positions in the fields of telecommunications, smartphones, cloud computing and cybersecurity. With sales of about 600 billion yuan in 2017 ($ 87 billion), Huawei generates more revenue than Home Depot or Boeing. Its rise coincided with the decline of competitors such as Ericsson and Nokia, which are often under-exploited by Huawei and ZTE even as telecom deployment around the world slowed down. Huawei is now not only the largest supplier of the world's largest telecommunications equipment, but also a dominant player on the planet.

7. In which areas does Huawei appear as a global force?

It has invested billions of dollars in 5G and is now among China's leading patent applicants, both internationally and nationally, covering everything from data transmission to network security. Huawei, which holds perhaps one-tenth of the core 5G patents, is considering large-scale commercialization of 5G networks by 2020. In addition, directly threatening the American company Qualcomm Inc., Huawei is now designing its own semiconductors . The Chinese company's Kirin series mobile processors, manufactured through its HiSilicon subsidiary, compete with the Qualcomm Snapdragon chip, widely used by Samsung Electronics Co. and other smartphone names around the world.

To contact Bloomberg News staff about this story: Reed Stevenson in Tokyo at rstevenson15@bloomberg.net

To contact the editors in charge of this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Grant Clark

© 2018 Bloomberg L.P.

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