10 Short Answers To Why Huawei is so Scary To Western Countries

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The United States Federal Bureau of Investigation said:

huawei-finance-shadowWe’re deeply concerned about the risks of allowing any company (like Huawei) that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks. That provides the capacity to exert pressure or control over our telecommunications infrastructure. It provides the capacity to maliciously modify or steal information. And it provides the capacity to conduct undetected espionage.

but no-one has provided specifics.

What has Huawei done that makes us so afraid of them?  We we spent more than a few hours reading press reports, government disclosures, FBI comments, competitors statements and more.  Here is what we found.

1 – Did Huawei give information to the Chinese government in the past?

Although there is A LOT of innuendo pointed at Huawei on this topic, we could only find one damning report that they handed over information to the Chinese intelligence.  In 2013 then Director of the CIA, Micheal Hayden, said there was “hard evidence” that Hauwei had given up information about messages and calls to the Chinese Government and:

“My conclusion was that, ‘No, it is simply not acceptable for Huawei to be creating the backbone of the domestic telecommunications network in the United States, period,’”
SOURCE

In November 2018 New Zealand said they would ban the use of Huawei 5G networking gear because of security concerns that were not made public:

“I have informed Spark (New Zealand’s primary cellular provider) that a significant security risk was identified,” said Government Communications Security Bureau intelligence Director-General Andrew Hampton.

In 2017 China passed their “National Intelligence Law” stating “organizations and citizens shall, in accordance with the law, support, cooperate with, and collaborate in national intelligence work” which is not shockingly different from other countries laws but makes it abundantly clear that Huawei should hand over information to their government on demand.

2 – How big is Huawei and should that scare us?

Although they are new to many Western nations like Canada and US, Huawei is well established in UK and is now the second largest smartphone manufacturer on the globe.  Their 40% growth rate in 2018 is going to attract attention and concern from many.

Vendor 2018 Q2 Shipments in Millions 2018 Q2 Market Share Year-Over-Year Change
1. Samsung 71.5 0.209 -10%
2. Huawei 54.2 0.158 +41%
3. Apple 41.3 0.121 + 7%
4. Xiaomi 31.9 0.093 +49%
5. OPPO 29.4 0.086 +5%
All Others 113.7 0.332 -18%

SOURCE

Huawei is massive:

Microsoft, Apple and Samsung are bigger than Huawei and we are not afraid of them… hold on.  We do seem to be justifiably afraid of these large companies.  There is a history of general nasty, anti-competitive, unethical behavior in all of these companies when they were new to the world stage.  As those companies matured and were punished under the rule of law resulting in most issues being straightened out.  Huawei is new to this scale, still very opaque, and answerable almost exclusively to Chinese regulators.

3 – Does Huawei equipment have known ‘back doors’ that give the Chinese government special access?

Although there is A LOT of innuendo pointed at Huawei on this topic, we could not find any evidence or even serious claims that Huawei gave up any information to the Chinese Government or any of their business partners.  The suggestion from most is that the security holes are more likely to be in the software that drives the hardware.

4 – Does Huawei have any hard links to the Chinese government or military?

In a word, yes. There are several serious links to the Chinese military and government.

According to the notable and reliable RAND Corporation, the Chinese military currently has Huawei contracted to produce so called “Dual Use” communications involving critical 5G networks.

The founder and CEO was a Major in China’s People’s Liberation Army and became “Director of the PLA’s Information Engineering Academy”.  That group is the Chinese military’s telecom research branch.  He was also:

…rewarded for his performance by being invited to the Communist Party’s National Congress in 1982 – theoretically the highest body within the Communist Party and a pivotal part of Communist Party pageantry.
SOURCE

Like a highly controlled military agent, that founder and CEO has kept the lowest profile possible.  He has never once given a press interview and the longest official biography of this astonishingly powerful man is a 200 word backgrounder sent to the US Government.

Notable publications not prone to hyperbole like The Economist say:

Despite much investment and lobbying in America, the idea that Huawei is a PLA front and that Chinese spooks use its gear to listen in and even remotely control things continues to dog the company.
SOURCE

Beyond all that, the very word Hauwei translates to English as “China Can”.

5 – Is Huawei a cult?

No, but they can sure act like a cult with their staff:

New employees at the company’s headquarters in Shenzhen must undergo a two-week boot camp at Huawei University, the company’s training institute, complete with sessions that are literally called “brainwashing,” according to former employees.

They sleep in a dormitory and wake up every day at 5 a.m. for running and exercises in red-and-white Huawei uniforms. Then come classes about history, company products and its corporate culture — which, they learn, is “bloodthirsty” like a wolf, according to former employees.
SOURCE

6 – Are Huawei’s business practices unethical?

In short, no, but Huawei does heavily discount it networking gear, often coming in 30% cheaper than the competition (Alcatel-Lucent, Ericsson…).  This discount is so steep that it raises questions about how they can operate so far below market prices.  Huawei says they are just more efficient than everyone else but there is a suspicion that the Chinese Government is funding them in an effort to get their hardware installed globally.  This would naturally lead to concerns over control.  Could the Chinese Government demand Huawei put a back door in their hardware?

7 – How could Huawei cell phones be a big security risk?

5G-blue-pixelsWhile many companies and government agencies around the world have blacklisted Huawei cell phones, cells are not the primary source of security concerns.  What concerns most is the back-end networking and switching technology.  Huawei has some of the best and cheapest next generation (5G) telco hardware available today.  5G will roll over the world in the next 18 months so whoever runs that back-end has an enormous amount of access.  If there was a hack or a back door in the equipment your cell phone, regardless of brand, connects to it would be hard to find and provide a vast amount of access.

8 – Is China steeling our intellectual property and then selling it back to us through Huawei?

This is one of the biggest concerns which seems to have more than just innuendo behind it:

Consider intellectual property. Every year, the U.S. Trade Representative publishes reports on international compliance with intellectual property laws. The most egregious violators of intellectual property are placed on a “Priority Watch List.” In most years in recent decades, China is on that list.

…In each of the areas discussed above—intellectual property, antitrust laws, and foreign investment—Huawei has benefited…
SOURCE

9 – Is Huawei so far ahead in the next generation cellular hardware that US companies want to slow them down with false claims?

This is what Huawei and its defenders intimate.  They claim Huawei is so far ahead of Western competitors that governments want to them slow down with baseless claims in order to:

  1. distract Huawei
  2. give Western companies like Ericsson, Cisco and Nokia time to catch up

Given how modern business relies on these types of tactics, there is little doubt that there is at least some merit to this claim.

huawei-scary10 – Who owes Huawei?

This is the big question and the short answer is, we don’t know who really owns or controls Huawei.

How can the 72 largest company on the planet not have a clear ownership and control structure?  This is baffling… unless you think it Huawei is really owned by the Chinese government and controlled by the Chinese military.  That statement should be easily refuted but it just isn’t.

Technically Huawei is an employee owned but no-one can buy or sell shares.  Staff are issued shares based on perceived merit and most are required to sell their shares back to Huawei when they exit the company.  It’s hard to run a company on no-money.

Conveniently, Huawei has tremendous access to the China Development Bank (CDB) which IS the Chinese central government.  For example, in 2009 Huawei was given a $30 BILLION (yes, that is alot of money) line of credit for the CBD.   Given this relationship, Huawei’s ownership and control is murky at best.  We have a full article explaining more of Huawei’s “unusual” ownership HERE.

SUMMARY

If I had to make the call, I would er on the side of caution and block Huawei from core networking.  Our world is going to run on 5G by 2021 and I don’t want my corporate or even personal data flowing through systems I am anything less than 100% certain of.

There are enough malicious actors in the world trying to break into our networks that I just can’t risk having one intentionally let in just to save a a few dollars that will spread out over millions of users over 5+ years.

For better or worse, we can say definitively that Huawei produces high quality low cost equipment with a lot of help from the Chinese government but we just don’t know what we don’t know.  Western intelligence agencies and telecommunications companies have lots of questions about Huawei’s ownership and if they could get solid answers, they will have many more questions.


This is our third report in our series on the largest telecom company in the world.  Our other two are:

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