China’s hypocrisy on Huawei

Nov 12 2021

Jonathan E. Hillman is the author of The Digital Silk Road: China’s Quest to Wire the World and Win the Future and the director of the Reconnecting Asia Project at the Center for Strategic and International Studies in Washington, D.C.

Fearing that Huawei won’t make the cut for Canada’s 5G networks, China’s Foreign Affairs Ministry has called on Canada to “provide a fair, just, open and non-discriminatory environment.” But on the contrary the Chinese government has failed to live up to those words since Huawei got its start in the late 1980s. Beijing has long recognized the strategic importance of telecommunications, and it’s time for Ottawa to do the same.

China’s “fair” treatment of telecommunications firms was non-existent. During the late 1980s and early 1990s, it opened its doors to foreign companies seeking access to its vast market. In return for that access, companies set up joint ventures that transferred technology and know-how to their Chinese partners. Executives at Nortel and other leading foreign firms believed they could scale these operations and increase their global exports. In reality, they were creating competitors.

Before long, China began raising barriers to foreign firms, often citing national security. In 1994, Huawei’s CEO, Ren Zhengfei, met with China’s top leadership and explained, “A nation that did not have its own switching equipment was like one that lacked its own military.” Huawei, of course, was about to release a major upgrade of its first switch. The following year, China restricted foreign investment in the types of switches that Huawei produced and placed tariffs on imports of foreign telecommunications equipment.

Former employees of Nortel are familiar with the injustices that followed. Beginning in 2000, Chinese hackers penetrated Nortel’s internal network. They gained access to technical papers, product development plans, sales proposals and source code, all of which flowed to China. Around the same time, former employees at Nortel’s Texas office recall a mysterious visitor, allegedly tied to Huawei, returning equipment that had been disassembled and reverse engineered. Huawei has denied these allegations.

To be sure, Nortel executives are hardly without blame for their company’s decline, and some of Huawei’s biggest moves occurred out in the open. As Nortel was collapsing in 2009, Huawei swooped in to hire employees of Nortel’s famed Ottawa research lab. Their work made Huawei a global leader in 5G. “What they have contributed to Huawei is what they had in their minds,” Mr. Ren said in 2019. “It’s definitely not about intellectual property theft.”

As it rose, Huawei avoided openness to tilt the playing field in its favour. It allegedly offers the best financing packages to customers who agree to non-public tenders, minimizing the competition it might face in open bidding. It has been accused of making shadowy payments to secure contracts. Its governance structure and relationship with the Chinese government remain a matter of speculation and debate.

At home, China has given up any illusion of fairness. Last month, China Mobile, one of the country’s three main state-owned carriers, awarded a US$1.2-billion tender to Huawei and ZTE, entirely shutting out foreign vendors. Those contracts are a lifeline for Huawei, which is fighting to survive after losing access to advanced semiconductors. But removing competition will also raise costs and stifle innovation.

Ottawa need not copy Beijing’s protectionist playbook. Canada’s networks can remain open to trusted foreign suppliers and enjoy greater choice. The emergence of Open RAN networks, which allow the mixing and matching of hardware and software, is also expanding options. Industry incumbents such as Ericsson are investing in this approach, including opening a research lab in Ottawa, and smaller firms are playing a bigger role.

Forebodingly, China’s Foreign Affairs Ministry has also said Canada should “draw lessons” from the recent case with Huawei chief financial officer Meng Wanzhou. Beijing has been willing to weaponize the flow of goods to coerce its trading partners. With hostage diplomacy, it proved willing to weaponize the flow of people. Why would Canada want to jeopardize its data flows?

The stakes are high because daily life is increasingly dependent on digital infrastructure. Wireless networks and other telecommunications systems are often out of sight and out of mind. But they power finance, agriculture and everything in between. A fair and open economy must not only be “provided” and promoted. It must also be protected.