Tag Archives: Huawei Technologies

Trump Lets Huawei Buy US Tech For Another 90 Days

Huawei logo displayed at the Mobile World Congress 2019. Photo courtesy of Huawei.

THE TRUMP ADMINISTRATION has granted telecoms giant Huawei Technologies a third 90-day waiver from being banned from doing business with US companies. In May, Huawei was added by the US Commerce Department to the Entity List, an economic blacklist that is the backbone of the US regulatory regime intended to stop foreign companies from buying US-made products where Washington has national security concerns. (Huawei denies the US national security concern that the software in its kit might facilitate state spying.) It is from that blacklisting that the waivers apply.

As before the rationale given for the extension is to maintain telecoms service in parts of the rural United States that are dependent on Huawei kit. True, rural America voted overwhelmingly for Trump in the US presidential election in 2016, and he will want every one of those votes and more for his re-election campaign in 2020.  However, more than 200 US companies have asked the US government for the licenses that would allow them to sell components to Huawei regardless of the Entity List listing, suggesting the impact on the US tech sector may also have weighed in the latest waiver decision.

In May, US President Donald Trump directed the Commerce Department to establish a regime to enforce a ban on US companies from using telecoms equipment made by companies that pose a national security threat to the United States (for which read Chinese companies like Huawei and ZTE). This is now a month overdue.

Huawei also remains banned from pre-loading its phones with Google apps. It can use only open-source components of Google’s operating system, Android. Huawei unveiled its operating system, HarmonyOS, in August, which it has reportedly been working on since 2012. This, however, was a developer version and while useable in Internet of Things devices does not seem ready to be used in mobile phones.

Earlier this month, Huawei’s first batch of phones without Google apps or US-made processor chips, the high-end and limited-run Mate X, went on sale in China. The foldable Mate X uses the Emui operating system, which is based on Android 9, not the HarmonyOS.

More significantly, Huawei’s chairman, Liang Hua, told a tech conference earlier this week, the company’s 5G base stations can be built without US parts. In October, Huawei claimed to have signed more than 60 commercial 5G contracts with carriers around the world, despite a US campaign to have carriers disengage from the company both to crimp its lead in the global race for 5G leadership and as part of the Trump administration’s general confrontation with China.

Where all this fits into the current US-China trade negotiations is anyone’s guess. What is certain is that China will continue its drive to be self-reliant for the core technologies its companies need such as advanced semiconductors.

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China-US Trade: Trump’s Two-Step

US President Donald Trump (left) and Chinese President Xi Jinping pose for a handshake at the G20 Summit in Osaka, June 2019. Photo credit: Xinhua

US PRESIDENT DONALD TRUMP cannot strike a trade and technology deal with China unless Beijing is at the negotiating table. He needs a deal, however cosmetic, to fire up his base ahead of the 2020 US presidential elections. He also needs it before the tariffs he has imposed and the slowdown to global growth the prospect of a full-blown US-China trade war has caused start to inflict consequential pain on the US economy.

President Xi Jinping, too, needs a deal to ease the domestic political and economic pressures on himself and the economy, respectively.

Hence President Trump’s announcement following his meeting with Xi on the sidelines of the G20 summit in Osaka that the two countries would resume their high-level trade talks and that US companies would no longer be prevented from selling components to telecoms giant, Huawei, hitherto vilified by the Trump administration as a national security risk to the United States.

In return for returning to the negotiating table, China would have the threat of a blanket 25% tariff on all its exports to the United States suspended.

This is a retreat from the United State’s previous position. The question is whether it is the one step back to take two forward that Trump hopes or just the one step back that it appears to be.

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Huawei’s 5G Coins It In Despite Washington’s Objections

HUAWEI’S FIRST-QUARTER results suggest that the United States’s campaign against the world’s biggest telecoms equipment maker is having limited effect, especially outside the advanced economies.

The company has long denied Washington’s allegation that Beijing ultimately controls it and that its equipment could be used for espionage in the service of Chinese state security, the basis of the Trump administration’s campaign to prevent other governments from using Huawei’s 5G equipment.

Huawei says its income was 179.7 billion yuan ($26.8 billion) in January to March, a 39% increase on the same period a year earlier. It did not disclose its net profit but said it operated at an 8% net profit margin, slightly higher than in the first quarter of 2018.

It reported sales increases in all its three customer groups — carriers, enterprise and consumer customers. On the contentious 5G technology, it said it had signed 40 contracts with leading global carriers, and shipped more than 70,000 5G base stations, a number it expects to reach 100,000 by May. It says 2019 will be ‘a year of large-scale deployment of 5G around the world’.

In practice, only a handful of countries have heeded Washington’s exhortation to follow it in banning Huawei from their 5G telecoms network: Australia, New Zealand and Japan, all close US allies in Asia.

Europe, which will likely lead 5G rollouts — eleven EU countries have 5G auctions scheduled for this year and six for 2020, with 30% of its internet users expected to be on 5G by 2025 — has been more ambiguous in its response.

Denmark, Germany, Italy, Norway, Poland and the United Kingdom all have expressed concerns about the cybersecurity risks of contracting a firm with opaque links to Beijing. However, Belgium has declined to ban Huawei, saying it has found no deliberate technological compromises in its equipment that could be misused by China’s state, but it will keep the equipment under review. Germany has taken a similar line but is drafting quality and cybersafety standards for 5G suppliers and talking about a ‘no-spying agreement with China.

France is debating 5G legislation that would impose extensive security tests. The report of a Dutch government investigation into Huawei is due in May when the United Kingdom is also expected to make a final decision. London has repeatedly raised concerns about Huawei equipment and the firm’s ability to fix cybersecurity problems but also has one eye on a post-Brexit trade deal with China.

For all of Europe, keeping China, a critical trade and investment ally, on side while securing the Internet of Things devices and automated vehicles that 5G will enable, from malicious state and non-state cyber attacks will be a delicate balancing act, made harder still by the current unease of the transAtlantic relationship. Washington may ban US firms from working with any others, including European firms, who use Huawei technologies and equipment.

Brussels and EU member governments will try to keep the decision-making process on the technical level and not get sucked into the political dimensions that saw Meng Wanzhou, Huawei’s chief financial officer and daughter of its founder, Ren Zhengfei, arrested in Canada in December at Washington’s request on charges of bank and wire fraud in violation of US sanctions against Iran. (She denies wrongdoing.)

The European Commission’s recently published recommendations on 5G network cybersecurity rejected bans on specific suppliers (unnamed, but for which read Huawei) and told member states to come up with joint EU-wide security checks for firms building 5G networks in Europe by the end of this year.

While Europe will be an important beachhead for Huawei’s 5G equipment and offers a near-term market, the company is looking beyond Europe. Many parts of Asia, Africa, Latin America and the Middle East will transition from 2G/3G/4G to 5G over the next ten years. That is where Huawei’s future sales lie.

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China-US Relations’ Twin Tracks Run Through Canada

PARAPHRASING OSCAR WILDE, to lose one citizen may be regarded as a misfortune; to lose two looks like political retaliation.

China detained two Canadian citizens following the arrest of Huawei’s chief financial officer, Meng Wanzhou, in Canada at the request of the United States, which has charged her with fraud in connections with alleged violations of US sanctions against Iran (charges the company says are baseless).

The two Canadians will be charged with undermining China’s national security.

One is a think tank researcher, and the other runs a cultural association. The work of both concerns North Korea, which would have meant they would already have been under the observation of Chinese authorities as well as making accusations of their being spies plausible.

Beijing’s fast and furious response to Meng’s arrest will reinforce perceptions in the West that Huawei and the Chinese government work hand in glove, just as in China, Meng’s arrest confirms suspicions that the West is out to kill Huawei.

US President Donald Trump has tweeted that he will intervene in Meng’s case — presumably by ordering the US Department of Justice to drop the case — if he believes it will sabotage the trade deal he is working on with President Xi Jinping. Trump has been bigging up both the scale of the deal —“the largest trade deal ever made” — and its imminence.

China’s resumption of soybean purchases from US farmers and announced the lowering of tariffs on US car imports from 40% to the 15% charged on cars imported from elsewhere suggests a deal of some sorts in the making.

It would be to Beijing’s advantage if the conflict with the United States returned to compartmentalised confrontation, rather than advance towards the so-called ‘whole government’ cold war.

But that would go against the fact that the Trump administration has been stepping up the pace of bringing US legal actions against Chinese entities and individuals for various alleged economic crimes from intellectual property violation to coerced technology transfers.

Those actions are in line with sentiment in the US Congress swinging behind the growing disenchantment in the United States, particularly among businesses, with engagement and a general strategic mistrust of China.

The uncertainties and variabilities of US policy remain; not just the Meng charges but also, for example, this week’s speech by US National Security Advisor John Bolton outlining the Trump administration’s policy towards Africa.

It was a speech remarkable for being as much if not more about China (and Russia) than it was about Africa, and a reminder that the China hawks in the Trump administration believe they are engaged in an existential struggle whereas their president is preoccupied with winning re-election in 2020.

Xi, too, has constraints. He needs to manage internal expectations as China’s economic growth slows while the economy fitfully rebalances. At the same time, the Trump administration’s stance towards China has perturbed the leadership and revived opportunity for critics of Xi’s centralisation of power.

That, more than anything, is why China-US relations will stay on two inconsistent tracks.

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Huawei Performs U-Turn On CFIUS Review

If Huawei Technologies’ decision to contest a U.S. national security review rejecting its acquisition of patents from 3Leaf Systems was perplexing, its U-turn to accept it is a surprise. The company says it has changed its mind because of the controversy around its earlier decision to throw itself on the mercy of an executive ruling by President Barack Obama after the Committee on Foreign Investment in the United State (CFIUS) had recommended the deal be unwound. We had thought that the company might have had some backing from Beijing for its extraordinary initial position, and earlier this week a commerce ministry spokesman called for Washington to make its national-security reviews more transparent. Maybe this was all just testing the waters of Sino-American relations and finding them a bit too choppy.

Update: A bit of backwash from state media, suggesting the U.S. has overreacted in this case.

Further update: Reports from London (here via the FT) say Huawei is offering to give London’s metro system a free mobile wireless system in time for the London Olympic Games in 2012, an ‘Olympic host to Olympic host’ gift that it is estimated would cost the company upwards of $80 million. The inevitable national security concerns about a Chinese company running such a network in London have already been raised, but we do wonder what might be said it they had proposed the gift for the Metro in Washington, D.C. instead.

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Huawei Technologies: Beijing Gets Its Reciprocity In First?

We have been wondering what to say about Huawei Technologies’ decision not to follow last week’s recommendation by the U.S. Committee on Foreign Investment (CFIUS) that it sell patents acquired as part of last year’s acquisition of 3Leaf Systems, a U.S. software company that lets many computers combine as more than the sum of their parts. But now we have a conspiracy theory.

Huawei has instead chosen to throw itself on the mercy of an executive decision by the U.S. president, Barack Obama. This struck us as a hiding to nothing. It is highly unusual for a U.S. president to overrule any CFIUS recommendation. In this particular case, where domestic political pressure brought about a retrospective CFIUS national security review of the deal and there is no apparent argument to be made that the committee made a glaring error, the political cost would be so great that it is hard to imagine any quid pro quo that would make Obama willing to devote even a scintilla of his political capital to pay it, even if that quid pro quo came from Beijing.

By taking the decision it has, Huawei keeps clean its argument that it is a civilian telecoms company and not a front for China’s military, the accusation made against in the U.S. and which it denies. Yet by not doing the expected thing — quietly walking away form the deal in the face of an adverse CFIUS finding —  it is setting itself up for a public rebuff from Obama, assuming that he rules as we believe he will. To paraphrase  Oscar Wilde’s Lady Bracknell, to lose one U.S. deal on national security grounds, as Huawei has already done in 2008, may be regarded as a misfortune. To lose both looks like carelessness.

Yet it is equally difficult to believe that Huawei would put itself through all that without at least the tacit support of Beijing — which will have to do a bit of diplomatic huffing and puffing in the event of the deal being unwound. Obama has only 15 days to decide so the decision is likely briefly to unsettle Sino-American relations so soon after President Hu Jintao’s state visit to Washington last month sought to smooth them. But equally, Beijing, ever one for reciprocity, may be quite happy to have a rejected Chinese takeover deal for an American company in its back pocket along with some ruffled national amour-propre now that it is setting up a committee of its own to review foreign acquisitions on national security grounds.

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