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2012-08-07 11:39:38
The rise of a Chinese world-beater is stoking fears of cyber-espionage.
Techno-nationalism is not the answer
Aug 4th 2012 | from the print edition
CHINESE companies have started to win first place in global markets. Huawei has
just overtaken Sweden s Ericsson to become the world s largest
telecoms-equipment-maker. Even though many foreigners still cannot pronounce
its name (some call it Hawaii , and the firm has even produced a video
teaching people to say hwah-way), Huawei is becoming an increasingly powerful
global player, capable of going head-to-head with the best in intensely
competitive markets. It follows Haier, which is already the leading
white-goods-maker; now Lenovo is challenging Hewlett-Packard as the world s
biggest PC-maker. Plenty more will follow (see article).
Huawei, a private firm, is a standard-bearer in China s long march into Western
markets. Its founder, Ren Zhengfei, who served as an engineer in the People s
Liberation Army (PLA), at first struggled to win customers even in China. But
his company followed Mao s strategy of using the countryside to encircle and
capture the cities, and it has moved on to win foreign markets too: in Europe
it is involved in over half of the superfast 4G telecoms networks that have
been announced, and it has become a strong competitor in mobile phones (see
article). The company is now a $32-billion business empire with 140,000
employees, and customers in 140 countries. It commands respect by delivering
high-quality telecoms equipment at low prices.
They did it Huawei
But Huawei inspires fear too and not just among its competitors. The company is
said to be too close for comfort to the PLA. Westerners fret that the networks
the firm is building are used by Chinese spooks to eavesdrop during peacetime
and could be shut down suddenly during wartime. They see the firm as a potent
weapon in China s burgeoning cyber-arsenal.
It is a view that some governments are taking seriously. Earlier this year
Australia blocked Huawei s participation in a scheme to build a national
broadband network in the country. The company has also faced opposition to its
commercial expansion in India. And in America, where Huawei s attempts to grow
have often been stymied, a congressional committee that focuses on intelligence
matters is putting the firm under a microscope; suspicions have been aggravated
by a recent spate of cyber-attacks attributed to Chinese hackers.
Western governments are also suspicious of the subsidies, low-interest loans
and generous export credits lavished on favoured champions, including Huawei.
The European Commission is considering opening an investigation. Some people
suppose that the Chinese government is helping Huawei win overseas contracts so
that spies can exploit its networks to snoop on ever more of the world s
electronic traffic.
Arguments against imports always need to be viewed with caution, since they
will be used by protectionists to keep emerging rivals out. Still, it is
reasonable to worry about security in telecoms: recent reports have pointed to
the efforts of Chinese state-sponsored hackers to vacuum up valuable Western
commercial secrets on a massive scale. Western intelligence agencies are also
alert to the risks of eavesdropping and cyber-attacks because they themselves
are practitioners (a prime example being the Stuxnet virus, aimed at Iran s
nuclear programme). As for Huawei, a firm that controls a network s creation
and management is ideally placed to sneak in malware and sneak out sensitive
data. Even though it is a private company with an awful lot to lose if it were
caught spying, the power of the state in China s version of capitalism means
the West is right to be vigilant.
But banning Huawei from bidding for commercial contracts is wrongheaded, for
two reasons. One is that the economic benefit of competition from China in
general and Huawei in particular is huge. It boosts growth and thus wellbeing.
Huawei s cheap but effective equipment helped make Africa s mobile-telecoms
revolution possible.
Distrust and verify
The other reason for not banning Huawei is the dirty little secret that its
foreign rivals strangely neglect to mention: just about everybody makes
telecoms equipment in China these days. Chinese manufacturers and designers
have become an integral part of the global telecoms supply chain. Blocking
Huawei (or its rival Chinese telecoms giant, ZTE) while allowing gear from,
say, Alcatel-Lucent or Ericsson on a network may make politicians feel good.
But it is no guarantee of security. Huawei s competitors have a vested interest
in hyping concerns about it, while disguising their own reliance on Chinese
subcontractors and on subsidies.
The answer is to insist on greater scrutiny all round, not just of Chinese
firms. Governments should be crystal-clear about what conditions telecoms firms
need to meet to win business something America s secretive security-review
process does not do today. They should also do more to ensure that equipment is
secure, no matter who makes it. That means demanding to know where hardware
components and software come from, and requiring intrusive random inspections
of code and equipment. America has no effective system of supply-chain checks.
In Britain, by contrast, where BT is a big customer, Huawei has established a
unit (run in close co-operation with GCHQ, Britain s signals-intelligence
agency) with security-cleared personnel, including former employees of GCHQ,
who vet gear from China before it is installed. Such scrutiny will drive up
costs, but these pale in comparison with those imposed by bans on Chinese
firms, which diminish competition and push up prices.
Huawei can also help allay foreigners fears. The company s opaque ownership
structure and secretive culture have damaged its reputation. It needs to be far
more open. One way to achieve this would be for the closely held firm to seek a
listing on a global stockmarket if not in America, then at least in Hong Kong.
Greater openness would also help clarify the real threat that Chinese firms
such as Huawei pose to America and other countries: that they are starting to
out-innovate the home-grown competition.
from the print edition | Leaders