The UK is letting China build its 5G network

The Aussies, Kiwis and Americans are so worried about a Chinese technology company called Huawei that they’ve banned their telecoms companies from using its kit.

They’re worried about spying. Or even, if push came to shove, they’re worried the Chinese could shut down their telecoms network.

Here in the UK, we learned this weekend that security chiefs are waving Huawei through. Network operators like Vodafone and O2 will be permitted to use Huawei equipment to built the next generation 5G network.

Should we be worried?

What is Huawei?

Huawei would describe itself as one of the world’s most innovative technology companies. Based in Shenzhen, China, it employs more than 180,000 people, most of them engineers. It makes telecommunications kit. It makes phones. It does lots of R&D. It’s at the cutting edge of 5G technology.

Where did Huawei come from? The official story is inspiring: its founder, Ren Zhengfei, was laid off by the army engineering corps in 1983. He was living in a fishing village called Shenzhen. Not long after, Shenzhen was designated as a special economic zone by the Chinese government (basically, a place where the normal rules of communism are suspended and companies are free to buy, sell, profit and export).

So, the story goes, Zhengfei scraped together £2500 from friends and family and started an electronics company. 35 years later Huawei is the biggest phone maker in China, the world’s biggest maker of telecoms equipment, and one of the world’s biggest manufacturers of microchips.

The problem with this story is the fact that we know Zhengfei attended the National Congress of the Communist Party of China in 1982. The National Congress is the once-in-a-decade forum through which the next leaders of the Chinese state are chosen. It’s a big deal. Only the most powerful officials in China are invited to attend.

So why would a lowly army engineer be invited to along? And why would he be laid off a year later?

The US House of Representatives has its own ideas about Huawei. It published a report on the company earlier this year. According to Congress, Huawei is basically an arm of the Chinese military. From Congress’s report:

“Many industry analysts, however, have suggested otherwise; many believe, for example, that the founder of Huawei, Ren Zhengfei, was a director of the People’s Liberation Army (PLA) Information Engineering Academy, an organization that they believe is associated with 3PLA, China’s signals intelligence division, and that his connections to the military continue.”

Then there’s Sun Yafeng, Huawei’s former Chairperson. Her official corporate biography previously claimed she was linked to the ministry of state security. After Congress raised the issue her biography was deleted and she left Huawei.

Finally there’s Huawei’s weird management structure. It calls itself an employee-owned company. This is highly unusual, especially for a company that did £70bn in revenue last year.

The US Congress sees things differently. It says the weird ownership structure is a front; that the company is “actually controlled by an elite subset of its management”.

None of this would particularly matter if Huawei was a shoemaker. But Huawei’s business is telecoms. It makes the backend technology for phone and computer networks.

Not the type of industry you want controlled by the Chinese military, in other words.

So you can see why the Americans are worked up about it. Congress already fined ZTE, another Chinese telecoms company. And it blocked the mega-merger between Qualcomm and Broadcom on the grounds that the merger would likely cause Qualcomm to lose ground to Huawei in 5G.

The American Senator Chuck Grassley summed up America’s attitude to Huawei, and Chinese technology in general: “I can’t pronounce their name, but it starts with an H and ends with a W-E-I. Whenever they’re involved, it scares the devil out of me.”

Standard superpower behaviour

The US Government is shocked, shocked, to discover there may be spying going on at Chinese technology companies.

But of course, hawks like Chuck Grassley are worked up about this because America has been doing it for years. Grassley is “read in”. He knows how much dirt a superpower can gather with the help of a friendly telecoms company.

Edward Snowden’s leak made it perfectly clear, if it wasn’t already, that American technology companies are in the pocket of America’s NSA (National Security Agency). A document, leaked by Snowden and produced by the NSA, praised AT&T’s “extreme willingness to help” when it came to spying.

Last month Huawei launched their new flagship phone the Mate 10, which was meant to establish the company with Western consumers. But at the last second, AT&T pulled out of a deal to distribute it in the US.

This comes a month after US lawmakers wrote to the telecoms regulator to warn about Huawei’s influence. Quoted in Bloomberg, a senior US telecoms executive said “this is the new battleground, not F-35 fighters.
So the Americans are paranoid about the Chinese. What about Britain?

Britain isn’t so worked up about Chinese spying. Theresa May approved the use of Chinese technology in the nuclear reactor at Hinkley point last year. And Britain agreed to buy telecoms kit from Huawei — but only after intelligence experts were allowed to pore over the source code to hunt for bugs and backdoors.

The problem with the this approach is that it’s really hard to find a security hole unless you know exactly where to look for it. Huawei’s kit have literally millions of lines of code. A few sneaky lines of code could easily sneak through. Then there are what’s called hardware vulnerabilities: secret access points can be designed into the physical hardware of computer chips, then activated remotely.

It sure seems like grounds for concern. But Cameron and then May’s Governments decided it wasn’t worth annoying the Chinese over.

Seems like a dumb move, to me.

5G is the battlefield

5G has brought all of this to a head. Before 5G the Americans and the Chinese could pretend they weren’t really spying on each other and that it wasn’t such a big deal.

But the standards around which 5G will work are about to be decided. A lot is at stake. If Chinese companies take control they’ll be able to extract billions of dollars from western companies for the use of their patents. And of course, as we’ve seen, Chinese hardware could be used to spy on us.

Right now Huawei has about 10% of the 5G patents so far, and it according to Bloomberg it has “300 of its best engineers working full time to develop more, with help from thousands of others.”

And Huawei is massively outspending Western companies when it comes to R&D. It’s spent $600m on 5G research already, and it plans to spend $800m this year. Overall, according to Bloomberg, it spent about £9bn on R&D in 2016, compared to £3.8bn for Qualcomm and £3.6bn for Nokia.

The way to profit

Everyone from New Zealand to Washington and Beijing are in a tizzy over 5G.

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