A bi-weekly publication in support of informed public discourse. Our inspiration is I.F. Stone’s weekly, a digest published from1953 to 1971 that made sense of the news coming out of Washington. 

Like I F Stone’s weekly, our goal is to tell the story that lies behind the news. It is to put ourselves, ordinary people that we are, in a position to read/watch the news with an informed eye. To do this, we gather and digest information from many sources on topics selected for their importance.

Unlike I F Stone’s weekly, we publish every two weeks from Canada. Bulletins focus on issues that extend beyond the USA.

Muckrakers Bulletin is published by Plainspeak.ca, a non-profit, non-partisan group.  Plainspeak is dedicated to turning complicated public issues into plain language and graphics so that they become intelligible to ever-wider audiences.
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Vol 4, No 1. October 1, 2019

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SYMPATHY FOR THE DEVIL

The Huawei Story

As we see it:

How did Huawei, a private telecommunications company from China, become a major player in a new cold war?

This Bulletin looks at Huawei up close: the way it operates, its front-line technologies, and most importantly, at the geo-political conflicts that now surround it, casting Huawei as the devil in corporate disguise.

Hopefully it skirts the problems of demonizing China (or the opposite!!).  It will not compare China with an idealized version of the USA.  It avoids thinking of corporations, any corporation, as moral beings.

What is so controversial about Huawei?

l. Claims are made that China has a law that required a “backdoor” entrance for government to monitor communications.  There is no such law.

Directly or indirectly however, virtually all of the new telecommunications technologies provide, in effect, an “entry point” for data collection, more or less aimed at identifying individual predilections.

2. Claims are made that Huawei devices have a “backdoor entrance” for government to monitor communications.  A UK-appointed commission found no evidence of such an entrance, even though it recommended that Huawei devices be used only where security concerns did not apply. This is not to say that China refrains from cyber espionage or surveillance activities, simply that no “backdoor” in Huawei technology/telephones has been detected.

Not only does US-NSA have such an entrance, but it is well documented from non-Chinese sources, that NSA used this backdoor entrance to spy on all levels of Huawei operations. Less than a decade ago, it might have been easier to deny the use of such “backdoors” by China, but China’s turn towards surveillance in recent years gives one pause.

3. Claims are made that, because Huawei moves quickly, it relies on shortcuts in its technological infrastructure, which makes hacking (state or private) more readily possible.

This is true of Huawei, but Huawei is not alone in taking shortcuts or in being readily hackable.

4. Claims are made that, like other Chinese corporations, at least initially, Huawei stole intellectual property to build its network and devices.

The more benign versions of “stealing intellectual property” is reverse engineering.  Reverse engineering is common throughout the world.  It is worth noting that today Huawei spends 50% of its budget on R and D, far more than most US companies, and that it has filed thousands of applications for patents in the USA.

5. Claims are made that Huawei is controlled by the Chinese government, see below.

6. Claims are made that Huawei knowingly violated US sanctions against Iran, see Canada below.

All of these claims have resulted in US sanctions against Huawei (among other Chinese companies) to preclude US companies selling components to Huawei or Huawei marketing its products and services in the US.

So what is Huawei actually:

Huawei is the second largest telecommunications company in the world, easily surpassing Apple.  It had, until recently,  about 180k employees worldwide.  It operates in 7 African countries, 9 in Asia, 25 Europe, 8 in Latin America, 8 in the Middle east and in Canada and the USA. It manufactures and sells all kinds of telecommunications networks, equipment, and services,  5 G phones (the controversial one) being only one of them.

Huawei is privately owned by its shareholders.  All but one per cent of these shareholders are held by Huawei workers.  The state is not a shareholder.

We have little information on the degree to which state policy directs the activities of private companies (other than encouraging them), and if so, how this is achieved in the Chinese case.

Huawei provides services that are used for military purposes, but it is not a military contractor per se. Huawei did get its start by providing the telecommunication network for the Chinese Army. Its primary owner previously had a long history with the army.

The same situation applies in many countries; State agencies are central in funding or doing the research for new technological systems; at least until there is a market to sustain private industry.  This is called “industrial policy” elsewhere.  And, of course, military contracting to private companies is commonplace as an indirect way of providing them with state funding.

Initially, Huawei got financing from the Chinese Development Bank, a state bank. Its initial customers included the state. Today Huawei seeks funds from the private capital markets, but much of its financing comes from a private bank in Hong Kong.

China (and its government) uses Hong Kong (and its banks) extensively in its embrace of capitalism.

Huawei management at the senior level (finance, strategic development etc.) is done by its Board.  The Board is appointed, but not by the majority shareholders. Huawei is a closely held company. Its board includes members of the private shareholder/owner’s family.

Management of production/workforce issues is done Chinese-style (see Netflix documentary “American Factory “for an example).  The emphasis is on the company being “a family”. Loyalty of workers to the company is paramount. Although the company’s ethos (the ethos of Chinese companies)  is worldwide, similar conditions do not prevail in all locales where Huawei operates. Working conditions are determined autonomously in each country where Huawei operates.

 In China, notwithstanding laws that preclude unsafe, unfair or unduly onerous working conditions (only some of such laws can also be found in some locations in the USA), it would not be surprising where one to find workers putting in 12 hour days, 6 days a week in some of the countries where Huawei operates.  This is not the case in many other locales where Huawei operates.

Although Chinese Huawei workers belong to a what Chinese call a trade union, the union does not bargain directly with management, nor are the worker shareholders directly involved in senior management, as for example,  they would be in some German cases. 

All trade unions in China belong to a trade union alliance whose management is appointed by the Communist party. To what extent, this alliance affects workers specifically in Huawei is unclear. Strikes in Chinese companies do happen, though none so far in Huawei.

Chinese Huawei worker-shareholders cannot buy and sell their shares. They receive dividends.  Workers receive a payout for their shares when they leave Huawei.  

Huawei company shares are not listed on any stock market. And, in China, its shares confer a contract right not a property right in the company.

Huawei operates with a decentralized management structure insofar as the different Huawei-related companies deal with different aspects of Huawei’s business (e.g. telecommunication devices, research and development).  Each is incorporated in the country in which it operates and is subject to its laws.

For example, Germany has at least three distinct Huawei companies   These companies, although wholly owned by Huawei, are typical in that they have their own corporate identity..

In the USA, Futurewei, a research and development company, has acted in response to US law in, for example, even precluding any employees of Huawei being allowed to enter (or work at) Futurawei.  This is meant to ensure that Futurawei , as a US company, can operates legally in relation to US rules and sanctions.

And how did Canada get involved.

Meng Wanzhou is chief financial officer of Huawei, the company her father founded and for which he is still the primary shareholder/director.

Meng Wanzhou is a Chinese citizen.  Apparently she has several passports but China does not permit dual citizenship.  For five years, 2005-9, Meng had landed immigrants status in Canada (making her eligible for citizenship) but she withdrew from this status.  She makes no claim to being Canadian or American. Like many of the super-rich, she has multiple homes, including residences in Vancouver, Canada.

When she was passing through a Canadian airport on her way from Hong Kong to Mexico, she was arrested by the Canadian RCMP at the request of the USA.   The US demanded her extradition on the basis that she was alleged to have committed crimes.  Her actions would have to be considered criminal in both countries for her to be extradited.

Initially the charges against her in the US had to do her role as chief financial officer of Huawei.  She is charged with knowing about, if not condoning and/or being involved with, financial transactions (through HSBC, a bank), that provided funds to a US company.  The US company is said to have broken US sanctions in dealing with Iran.   Although owned by Huawei, the degree to which this company is controlled by Huawei is one of the questions to be determined, as is the question of whether her actions would be considered criminal in Canada.

Later charges of various types of fraud against Meng were added, as was a charge against Huawei of theft of trade secrets.

Meng Wanzhou has mounted a defence against all the charges, querying issues of due process and, of course, challenging her possible extradition. She has filed a countersuit.  She is currently on bail, and under electronic surveillance in Vancouver.

So far, the Canadian government has not responded.  It has neither stated that it will extradite her nor has it indicated that it will refuse to do so.  The matter is in the hands of the courts and will stay there until the courts have rendered their decision.

By failing to refuse extradition, Canada has fallen afoul of the Chinese government, with the result that two Canadian citizens have been detailed in China.

Final decisions are not expected for at least two years. 

The undertow:  5G

If we are going to have a smarter smart phones, self-driving cars, genuine telemedicine, widespread facial recognition, AI-based services and on and on, we need new capacities The next generation of uses demands more capacity than is available now.

And so, 5 G. 

The story of 5G starts with the radio spectrum – the capacity of the earth’s atmosphere over any location to transmit radio waves. 

The radio spectrum is a limited resource.  Access is excruciatingly valuable.  Until the last three plus decades or so, the radio spectrum was treated as a public resource in most countries.. No longer in most countries. 

Many countries routinely auction the portion they have been allotted by international agreement to private companies.  These companies pay big money, and the biggest of which can only recoup their costs by selling ever new services and equipment.

The usable space for the services delivered by current technologies including 4G for example, is rapidly running out.

5G is a technological way of opening up portions of the radio spectrum previously unused (and not owned) for commercial purposes. 5G does it in a way that makes interaction (sending and receiving all but simultaneously) quicker and easier. 

5G will also be much cheaper and much more capable.  5G doesn’t require large and costly cell towers; It allows for a multiplicity of very small satellite to get signals to less populated areas. Most importantly, it doesn’t require tearing up streets in major urban areas for fiber optic cable.

5 G involves not only the spectrum, but a network capable of delivering the signals, and devices (phones plus...) that can receive and transmit the information.

 

It is a big deal.

Huawei as competitor:

Truth be told, 5 G is about 2 years away in the USA, even though there are some bits and pieces being tested and even sold (5G phones) right now.  Competition among the big US players – Verizon, ATT etc.  - is fierce, and the method of putting 5G into operation is not a given.

Here is where Huawei comes in.  It has 5G in operation.  It can install the transmission systems now; it sells devices that work now with 5G.  It is currently installing 5G system-wide in Russia, for example. It is ahead of the game.

For a long time, Huawei has been integrated into the US economy through its supply chains and sales of products (including 1-4G phones). 

Huawei is currently developing its own operating systems, components and devices.  Once they all are proven to work, Huawei will be able to operate without US company involvement, providing both networks and consumer products world-wide directly in competition with US companies.

That said, if by US law Huawei cannot ever use platforms like Google (a US company), it will need to generate and market its own apps for example.

Huawei’s new US-independent platforms are not yet attractive to developers of apps. Thus Huawei’s appeal to consumers accustomed to Snapchat, Google Maps and gaming, for example, is limited. For China, Russia and at least some countries elsewhere, this matters not.  For the European and North American markets, it IS crucial at least in the short term.

The US has made it all but impossible for Huawei to operate directly in the US (See Fortunewei, above).  Canada has a Huawei operation, but Huawei has determined that its phones are no longer sold in Canada

How the loss of the North American market affects Huawei is not yet clear, although newspapers report layoffs despite Huawei’s many other markets.  Doing business with Huawei anywhere is frowned upon a threat-minded USA..

But why is Huawei a centrepiece of the new cold war?

Despite all the controversy (and possibly a slowdown), Huawei is big and very successful in commercial terms.

Huawei has become a symbol of the expansion of China as a commercial empire with political influence (or the other way around) that rivals and potentially outdoes the USA.   In fact, the Belt and Road initiative (see previous Bulletin) is probably much more important, at least politically, but it has attracted much less attention.

Huawei’s 5G competitors complain they are being undercut by American companies cooperating with Huawei.

For the last four decades, the US has been leading the charge worldwide against direct state involvement in private companies, pushing telecommunications companies worldwide for example, to privatize and get out of the way of expansion by the major companies (mainly US, all private).  Huawei has become a symbol of state involvement, in part because (unlike Huawei) most other Chinese companies are either fully or partly state-owned.

All of this is case in terms of a “security risk”.  Doing so makes it the prerogative of the US President to take action. Keep in mind that the US has just now deemed subway cars manufactured in China by another Chinese company are a “security risk”.

In short, the new cold war.

In this incarnation of the cold war, trade and technology take their place alongside the arms race and threats of war.

In sum:

Whatever one says about Chinese internal or foreign policies, Huawei is a strange choice as the vehicle to say it. 

But in a cold war, rhetoric is everything.  Until recently, billboards everywhere advertised Huawei phones and 5G as the coming thing.

Huawei couldn’t be more suitable as a rhetorical target.

As we have noted here, all claims for and against Huawei have a grain of truth to them, even if often it is a case of the pots calling the kettle….


 


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