Huawei: The story of a controversial company

With its accompanying skyscraper, it stands out in the Ethiopian capital.

Greetings in Mandarin welcome visitors as they enter the lifts, and the plastic palm trees bear the logos of the China Development Bank.

Everywhere, there are small indications that the building was made possible through Chinese financial aid.

In 2006, Beijing pledged $200m to build the headquarters. Completed in 2012, everything was custom-built by the Chinese – including a state-of-the-art computer system.

For several years, the building stood as a proud testament to ever-closer ties between China and Africa. Trade has rocketed over the past two decades, growing by about 20% a year, according to international consultancy McKinsey. China is Africa’s largest economic partner.

But in January 2018, French newspaper Le Monde Afrique dropped a bombshell.

It reported that the AU’s computer system had been compromised.

The newspaper, citing multiple sources, said that for five years, between the hours of midnight and 0200, data from the AU’s servers was transferred more than 8,000km away – to servers in Shanghai.

This had allegedly continued for 1,825 days in a row.

Le Monde Afrique reported that it had come to light in 2017, when a conscientious scientist working for the AU recorded an unusually high amount of computer activity on its servers during hours when the offices would have been deserted.

It was also reported that microphones and listening devices had been discovered in the walls and desks of the building, following a sweep for bugs.

The reaction was swift.

Both AU and Chinese officials publicly condemned the report as false and sensationalist – an attempt by the Western media to damage relations between a more assertive China and an increasingly independent Africa.

But Le Monde Afrique said that AU officials had privately expressed concerns about just how dependent they were on Chinese aid – and what the consequences of that could be.

In the midst of all of this, one fact remained largely unreported.

The main supplier of information and communication technology systems to the AU headquarters was China’s best-known telecoms equipment company – Huawei.

The company says it had “nothing” to do with any alleged breach.

Huawei “served as the key ICT provider inside the AU’s headquarters”, said Danielle Cave of the Australian Strategic Policy Institute, in a review of the alleged incident.

“This doesn’t mean the company was complicit in any theft of data. But… it’s hard to see how – given Huawei’s role in providing equipment and key ICT services to the AU building and specifically to the AU’s data centre – the company could have remained completely unaware of the apparent theft of large amounts of data, every day, for five years.”

There is no evidence to indicate that Huawei’s telecoms network equipment was ever used by the Chinese government – or anyone else – to gain access to the data of their customers.

Indeed, no-one has ever gone on record to confirm that the AU system was compromised in the first place.

But these reports played into years of suspicions about Huawei – that a large Chinese company might find itself unduly influenced by the Chinese government.

Huawei’s founder and chairman Ren Zhengfei is reminiscing to the BBC about the origins of the world’s second-biggest smartphone firm, while sitting in the Huawei headquarters in Shenzhen – a symbol of the success that he’s worked his whole lifetime for.

A long marbled staircase, covered in plush red carpet, greets you as you first walk in.

At the top of the stairs, a giant painting depicts a traditional Chinese New Year scene.

A few kilometres away in Dongguan, Huawei’s latest campus is even more eye-catching. The site – designed to accommodate the company’s 25,000 R&D staff – comprises 12 “villages”, each of which recreates the architecture of a different European city, among them Paris, Bologna and Granada.

It’s as if Silicon Valley had been re-imagined by Walt Disney. Long corridors of Roman pillars and picturesque French cafes adorn the campus, with a train connecting the different areas, running through manicured gardens and past an artificial lake.

Ren was born in 1944 in Southern China – a tumultuous, chaotic place, one of the poorest regions in an already destitute country.

For a long time, hardship was all he ever knew.

He was from a family of seven children. “They were very poor,” says David De Cremer, who has co-written a book on Ren and Huawei.

“I think hardship is something that you can see throughout his life, and which he keeps emphasising himself.”

To escape that life of poverty and drudgery, Ren did what many young Chinese men of that era did. He joined the army.

“I was a very low-ranking officer in the People’s Liberation Army,” he says. “I served in an ordinary construction project, not a field unit. At the time, I was a technician of a company in the military, and then I became an engineer.”

He left the military in 1983 when China began to downsize its forces, and went into the electronics business.

By his own admission, he wasn’t a great businessman at first.

“I was someone who had been in the military all my life at the time, used to doing what I was told,” he says. “Suddenly, I began to work in a market economy. I was at a total loss. So I too suffered losses, I too was deceived, and I was cheated.”

But he was quick to learn, and was a keen student of Western business practices and European history.

“I did research on what exactly a market economy was all about,” he says. “I read books on laws, including those about European and US laws. At that time, there were very few books on Chinese laws, and I had to read those on European and US laws.”

Five years later, he founded Huawei – the name can be translated as “splendid achievement” or “China is able” – to sell simple telecoms equipment to the rural Chinese market. Within a few years, Huawei was developing and producing the equipment itself.

Sometime in the early 90s, Huawei won a government contract to provide telecoms equipment for the People’s Liberation Army.

By 1995, the company was generating sales of around US$220,000, mainly from selling to the rural market.

The following year Huawei was given the status of a Chinese “national champion”. In practice, this meant the government closed the market to foreign competition.

At a time when China’s economy was growing by an average of 10% per year, this was no small advantage. But it was only when Huawei started to expand overseas in 2000, that it really saw its sales soar.

In 2002, Huawei made US$552m from its international market sales. By 2005 its international market contracts exceeded its domestic business for the first time.

It was 1 December 2018. US President Donald Trump and China’s President Xi Jinping were dining on grilled sirloin followed by caramel rolled pancakes at the G20 summit in Buenos Aires.

They had a lot to discuss. The US and China were in the middle of a trade war – imposing tariffs on each other’s goods – and growth forecasts for both countries had recently been cut as a result. This was adding to the fear of a slowing global economy.

In the event, the two leaders agreed a truce in the trade war, with Donald Trump tweeting that “Relations with China have taken a BIG leap forward!”

But thousands of kilometres north in Canada, an arrest was taking place that would throw doubt on this rapprochement.

Meng Wanzhou, Huawei’s chief financial officer and Ren Zhengfei’s eldest daughter, had been detained by Canadian officials while transferring between flights at Vancouver airport.

The arrest had come at the request of the US, who accused her of breaking sanctions against Iran.

“When she was detained, as her father, my heart broke,” says Ren, visibly emotional. “How could I watch my child suffer like this? But what happened, has happened. We can only depend on the law to solve this problem.”

Huawei’s problems were just beginning. Nearly two months later, the US Department of Justice filed two indictments against Huawei and Ms Meng.

Under the first indictment, Huawei and Ms Meng were charged with misleading banks and the US government about their business in Iran.

The second indictment – against Huawei – involved criminal charges including obstruction of justice and the attempted theft of trade secrets.

Both Huawei and Ms Meng deny the charges.

The charge of stealing trade secrets centres on a robotic tool – developed by T-Mobile – known as Tappy.

According to legal documents, Huawei had tried to buy Tappy, a device which mimicked human fingers by tapping mobile phone screens rapidly to test responsiveness.

T-Mobile was in partnership with Huawei at the time, but it rebuffed the Chinese firm’s offers, fearing it would use the technology to make phones for T-Mobile’s competitors.

It’s alleged that one of Huawei’s US employees then smuggled Tappy’s robotic arm into his satchel so that he could send its details to colleagues in China.

After the alleged theft was discovered, the Huawei employee claimed that the arm had mistakenly fallen into his bag.

Huawei claimed that the employee had been acting alone, and the case was settled out of court in 2014. But the latest case is built on email trails between managers in China and the company’s US employees, linking Huawei management to the alleged theft.

The indictment also details evidence of a bonus scheme from 2013, offering Huawei employees financial rewards for stealing confidential information from competitors.

Huawei has denied any such scheme exists.

This is not the first time that Huawei has been accused of stealing trade secrets. Over the years companies like Cisco, Nortel and Motorola have all pointed the finger at the Chinese firm.

But US fears about Huawei are about much more than industrial espionage. For more than a decade, the US government has seen the company as little more than an arm of the Chinese Communist Party.

He’s been with the company for nearly 25 years, in a number of different positions – chief engineer, director of the hardware department, head of the research centre in Xi’an, according to his biography on the company’s website. He is also understood to combine his high-ranking executive duties with another role – party secretary of Huawei’s Communist Party committee.

All companies in China are required by law to have a Communist Party committee.

The official line is that they exist to ensure that employees uphold the country’s moral and social values. Representatives of the committee are also often tasked with helping workers with financial problems.

But critics of China’s one-party system argue that they allow the state to exert control on corporate China. And they say the level of this control has increased in recent years.

“[President] Xi Jinping is exerting greater control over the business community in China,” says Elliott Zaagman, who regularly advises Chinese companies on their PR strategy. “As these companies gain power and influence overseas, the party doesn’t want to lose control over them.”

Ren, however, argues that the role of Huawei’s Communist Party committee is far less important than many in the West believe.

“[It] serves only to educate its employees,” he says. “It is not involved in any business decisions.”

But the way in which the Chinese Communist Party has robustly defended Huawei has raised questions about how independent the company is of its influence.

For example, Beijing stated that Ms Meng’s detention was a rights abuse .

And while her extradition case to the US was moving forward, China detained two Canadian citizens and accused them of stealing state secrets. Critics say the detentions are linked to Ms Meng’s arrest.

While not commenting on the arrest of the Canadians, Ren says China’s defence of Huawei is understandable.

“It is the Chinese government’s duty to protect its people,” he says. “If the US attempts to gain competitive edge by undermining China’s most outstanding hi-tech talent, then it is understandable if the Chinese government, in turn, protects its hi-tech companies.”

Over the past few years, there have been signs of a bigger push by the government to get private companies, and in particular tech firms, to cooperate with party rules – even when they are firmly resistant.

China’s ride-hailing giant Didi Chuxing’s troubles are an example of the struggles Chinese firms face when they try to uphold their independence in the face of government pressure.

Chinese attitudes to data collection and data privacy are different to those in the West – many people don’t care if businesses have access to their data, arguing that it adds to the convenience of life and work.

So it wasn’t unusual when, after the murders of two of its passengers by Didi drivers, regulators used the scandal to force Didi to share more corporate data with the government. But Didi resisted – citing customer privacy. Under Chinese law, it had no choice but to comply.

When it did, it handed over “three boxes of data printed on paper, including 95 hard copies for authorities to review”.

According to Samm Sacks of the Center for Strategic and International Studies (CSIS), the case demonstrates that “government access to data in China is not the free-for-all that many outside China assume it to be”.

She says this indicates that there appears to be “a kind of tug of war between the government and companies over data”.

How this plays out will determine how Chinese companies are viewed by foreign governments when they do business overseas.

Companies like Huawei have grown up in a system where to survive and thrive they needed strong links to the Chinese government – there was and is no other choice. But these links could harm their reputation abroad.

“It’s two different systems,” says Zaagman. “Think of it like an electrical outlet. China’s plug doesn’t fit in to the outlets we have in the West.”

“Basically you want to connect to everything that can be connected.”

Zhu Peiying, head of Huawei’s 5G wireless labs, is showing off devices that can connect to the new technology. From a smart toothbrush that collects data about how well you brush your teeth, to a smart cup that reminds you when you should drink some water, this is a world where everything you can think of is being measured and analysed.

At its most sophisticated, everything in entire cities would be connected – driverless cars, the temperature of buildings, the speed of public transport – the list is endless.

Huawei is thought to be a year ahead of its competitors in terms of its technological expertise and what it can offer customers, according to industry sources.

It’s also thought that the company can offer prices that are about 10% cheaper than its competitors, although critics claim this is because of state support.

Ren dismisses this, saying that Huawei doesn’t receive government subsidies.

He says the real reason behind the US resistance to Huawei is its superior technology.

“There’s no way the US can crush us,” he says. “The world needs Huawei because we are more advanced. Even if they persuade more countries not to use us temporarily we could just scale things down a bit.”