Like many Chinese entrepreneurs, Huawei Technologies’ founder Ren Zhengfei knew he would have to crack the US market before the company could truly become a global operation.
Ren, who studied the management techniques of US tech giants like IBM, had been trying to make headway in the US since the early 2000s but was getting resistance from lawmakers there who viewed the company as an extension of Chinese government intelligence efforts.
By 2005, just four years after Huawei set up shop in the US and as George W. Bush entered his second term as US president, a RAND report commissioned by the US Air Force said Huawei had “deep ties with the Chinese military” and that it received support from the government.
Huawei has always rejected these claims, stating that it is a private company. In fact, Ren said in 2019 that he would rather close down the company than share sensitive client data with the Chinese government.
However, some sceptics remain unconvinced.
“If China wants its companies to be treated as neutral, international firms judged on their technology and not the location of headquarters, then the government needs to change the laws and regulations to provide confidence that the risks are limited,” said Michael Wessel, a member of the US-China Economic and Security Review Commission.
The RAND report caused many in the US to become wary of the company. Huawei’s subsequent attempts to take a stake in 3Com fell through in 2008 after lawmakers raised concerns over Huawei’s possible ties with the Chinese military.
But the incident that really tipped Washington over the edge with Huawei, according to industry observers, was in 2010 when the Chinese company was vying for a contract with US telecom operator Sprint to upgrade its mobile network.
“Sinophobic politicians, driven by defence and intelligence careerists, and further encouraged by Huawei competitors, launched an all-out and very public assault on the company through the Fall of 2010, drawing on the decades of misinformation that Huawei had, through its historically insular culture, allowed to fester into ‘fact’,” according to a memoir by Bill Plummer, who worked as Huawei's US-based vice-president for external affairs from 2010 until 2018, when his employment was terminated by the company.
To show it was open and transparent, Huawei offered to deliver its equipment via a third party firm that would also conduct an independent audit of the hardware, firmware and software before shipping it to Sprint.
Separately, Huawei also hired The Cohen Group, founded by former US Defence Secretary William Cohen, to negotiate with the US Director of National Intelligence and agree on a framework through which Huawei could provide its equipment.
But when Huawei later independently announced that its third party partner would be Amerilink, a firm headed by former Nortel CEO William Owens, it effectively torpedoed The Cohen Group’s discussions with Washington. As a result, the government deemed Huawei untrustworthy and talks fell apart as Amerilink was viewed as insufficiently independent from Huawei.
“Notwithstanding Huawei’s seemingly sincere intent, Amerilink was the lightning rod around which political and competitor adversaries launched their attempts to tank Huawei’s Sprint bid,” Plummer wrote in his self-published book.
That Huawei would act independently despite having external consultants, was behaviour seen before by some of its foreign employees. Several former staff who worked outside China recounted to the Post their lack of autonomy in decision making, with headquarters in Shenzhen having the final say, even if it went against what experts in local markets recommended.
Huawei’s interactions with Amerilink would have other consequences.
The following year, in 2011, Huawei was asked by the Committee on Foreign Investment in the United States (CFIUS) – which oversees foreign investment transactions to ensure they do not jeopardise national security – to divest its acquisition of a small US start-up called 3 Leaf Systems.
Huawei’s failure to declare the transaction was seen by regulators as a red flag despite the company’s claim that it did not think it was necessary for a small deal involving intellectual property assets and the hiring of several employees from the firm.
Huawei initially disagreed with the CFIUS recommendation to divest, saying to do so could cause “further damage to the Huawei brand and reputation,” which effectively meant a final decision was in the hands of US President Barack Obama. However, the company later backed down and agreed to divest.
In October 2012, the US House intelligence committee released a report – the result of a year-long investigation – on Huawei and its Chinese rival ZTE, stating that the two companies posed a national security threat because their equipment could be used to spy on Americans by tapping into private communications on behalf of the Chinese government. Huawei has repeatedly denied such claims.
The report went on to recommend that the US block any merger and acquisition activity in the US that involved the two companies, and advised the government to avoid using equipment from Huawei and ZTE.
“At this point, Huawei warned staff in the US that the FBI could come in any time to seek our cooperation for investigations,” said one former Huawei employee, who worked in the company’s US office and asked to remain anonymous. “The FBI would regularly speak to our colleagues responsible for M&A.”
Five years later Huawei was cited several times in a Pentagon report on how Chinese investments in emerging technology were giving Beijing access to the “crown jewels” of US innovation. The report caught the attention of lawmakers when it was first circulated in Congress, adding to the perception of some in the US that Huawei was a national security threat.
Republican Senator Marco Rubio, a fierce and persistent critic of Huawei and the Communist Party leadership in Beijing, told the Post in January: “The presence of Huawei and other non-market Chinese actors in the telecoms space undercuts everyone’s ability to prosper. Even Nokia, Ericsson and Samsung, for example, can’t compete when Huawei’s prices don’t have to cover cost.”
“We have to stop pretending that a company like Huawei, which received US$75 billion in subsidies and other financial support from the Chinese government, is just like a private sector company in the United States and that its rise has been fuelled simply by successful business practices,” he said.
For Ren, who openly admires American business culture and who is often seen carrying around rival products from Apple, the current US fight against Huawei is not representative of the nation as a whole.
“The US sanctions were enacted by a relatively small number of people. They don’t represent the American people or US companies,” he told the Post.
Never be afraid to try something new…
An amateur built the Ark that lasted forty days and forty nights; professionals built the Titanic that sank.