Huawei: Rags to riches story, or Chinese Trojan horse?

Shanghai, China | AFP | Chinese army technician Ren Zhengfei founded Huawei with just $5,000 in seed money, according to company lore, but 32 years later it is at the centre of a titanic tug-of-war between the United States and China for world technological supremacy.

Here are answers to key questions on the company’s meteoric rise and the uncertain future it faces after President Donald Trump moved to curb its business in the United States:

– What is Huawei? –

Founded in 1987 in the southern Chinese city of Shenzhen, privately-held Huawei is a global technology leviathan — the world’s largest producer of telecommunications networking equipment and the number-two supplier of smartphones, behind Samsung and ahead of Apple.

Huawei now claims to have nearly 190,000 employees, operates in 170 countries, and reported revenue of more than $100 billion in 2018.

Its equipment is the backbone for telecom networks that carry much of the planet’s data and communications traffic.

But while size matters, so does a far-sighted business strategy.

Its steady geographic expansion and heavy investment in research have positioned Huawei as the most critical single player in the coming advent of hyper-fast 5G networks.

5G will enable revolutionary new technologies like artificial intelligence, driverless cars and automated gadgets and factories, and Huawei has the world’s most advanced and cheapest 5G capacities in the world.

– How has it gotten so big? –

Critics allege Chinese government support has fuelled Huawei’s success, but being in the right place at the time has also been a critical factor.

Ren, now 74, founded Huawei just when two epochal events were gaining pace: China’s manufacturing boom and the telecommunications age.

Shenzhen, once a sleepy fishing village, transformed into the beating heart of China’s industrial miracle and Huawei plugged into its fast-expanding manufacturing sector.

As revenues in China soared, Huawei ventured overseas beginning in 1997, targeting underdeveloped Southeast Asian, African and Eastern European markets ignored by global players.

Avoiding head-to-head competition with more advanced Western rivals, it gobbled up world market share and poured revenues into R&D to develop increasingly sophisticated products.

“Fortunately for Huawei, both manufacturing and the telecommunication equipment market were surging,” Jeffrey Towson, an equity investor and expert on China’s digital scene, writes in “The One Hour China Book”, an analysis of successful Chinese businesses.

“Huawei expanded its product line and became adept at targeting small niche markets.”

– Why is the US worried? –

Ren’s military background, Communist Party membership, and Huawei’s opaque culture have long fuelled suspicions of Chinese state control, as has the widely-held belief that no company in such a strategic industry could achieve such heights without Beijing’s involvement.

As Huawei and its market breadth grew, so did US concerns that China’s one-party security state could use Huawei networks for espionage or cyber-attacks.

Fuelling US fears is President Xi Jinping’s stated desire to use government support to build up Chinese tech companies into dominant players in advanced future technologies.

The trade war has turned into a tech war, with the US effectively barring Huawei from the US market.

Washington has made it personal, prevailing on Canada to arrest Ren’s daughter — Huawei CFO Meng Wanzhou — in Vancouver, and seeking her extradition on charges of evading Iran sanctions.

Two other Huawei affiliates were charged this year with stealing tech secrets from telecom group T-Mobile in a separate case.

– Who owns the company? –

Huawei says company shares are owned by employees and Ren insists it enjoys no favour from Beijing, but analysts dispute that.

Two US academics — China experts Christopher Balding and Donald Clarke — analysed available corporate documents to determine that staff do not own actual shares.

In a paper last month, they said the company is owned by a shadowy trade union, noting that in China such unions are invariably government-controlled.

“Huawei may be deemed effectively state-owned,” they concluded.

“Regardless of who, in a practical sense, owns and controls Huawei, it is clear that the employees do not.”

Balding was more explicit on Twitter on Friday.

“Let us make one thing clear: you can criticise many things about the Trump administration (but) there is effectively zero doubt Huawei is a branch of the PLA and actively engages in espionage for Beijing,” he tweeted.

– The end for Huawei? –

Washington dramatically tightened the screws this week, requiring US companies to obtain approval before selling critical technology to Huawei, a move that could prevent it from buying semiconductors from US suppliers like Qualcomm that are crucial for its business.

Analysts said Huawei can likely pivot to other semiconductor sources, plus its own rapidly advancing chipsets, and that the US campaign could bring pushback from European allies whose carriers rely on Huawei equipment.

If fully implemented, the move would “quickly put at risk both the company itself and the networks of Huawei customers around the world,” said Paul Triolo, a tech analyst at Eurasia Group.

But it was unclear whether Trump would fully implement the policy, he said, and business realities would likely result in approval for most tech sales to Huawei.

“It is still not clear the extent to which the administration is using this as a new weapon in its campaign against Huawei (our preliminary take) or a negotiating tactic in trade talks,” Triolo wrote in an analysis piece.