On Google's Huawei Ban

On Google's Huawei Ban

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On the 18th May 2019, Mr. Ren Zhengfei, the founder of Huawei, said that U.S. sanctions has had no effect on Huawei (Nakayama, 2019).. He may be about to regret this statement.

Google is the most famous example (under Alphabet Inc.) to have suspended all hardware, software, and technical service transfers to Huawei except those that are open-source (Moon, 2019). Holders of current Huawei users will be able to continue using Google software and such; however, apps that rely on updates (such as Google Mail) may end up unusable as well. We focus on Google, but according to Hao (2019), Huawei relies on 40% of it’s suppliers from America. It is worth noting that 190 companies or persons have been added to this list. As Mr. Ren himself says, Huawei is only a seed between the great powers of the U.S. and China (Yang and Lucas, 2019).

Please note: Google is not at fault. This is a government decision; Google itself can do nothing but follow the laws set out for it.

President Trump added Huawei to a trade blacklist; without a license from the administration, an American firm cannot trade with these companies (BBC, 2019). Google’s comment is that it is complying with these regulations.

This decision was made by the Department of Commerce on the 15th May 2019. The Department of Commerce (2019) explains this decision as based on the fact that Huawei is: 

“engaged in actions contrary to U.S. national security or foreign policy interest”

Part of this decision is the alleged actions of Ms. Meng Wanzhou, daughter of Huawei founder Mr. Ren, who allegedly acted through a fraudulent company Skycom against U.S. and E.U. sanctions on Iran between 2009 to 2014 (Young, 2018). She maintains her innocence in all of this, and Mr. Ren regards the arrest as politically motivated.

A Threat to National Security?

The U.S. regards Huawei as a threat to U.S. national security; U.S. senator Marco Rubio of Florida (2019) is a famous China hawk who praises this action, saying:

“Huawei is a state-directed instrument of national power used by the Chinese government…to spy on foreign countries…to undermine and endanger critical U.S. systems and infrastructure…threatening U.S. economic and national security”.
— Rubio, 2019

On the other side of the aisle, Democrat Senator Mark Warner (VA) notes that even if the technology is safe now, they are only a patch away from becoming compromised (Lecher and Brandom, 2019).

Does Huawei spy? Professor Wang of University of Warwick points out that there is no hard evidence of spying by Huawei (Lecher and Brandom, 2019). According to Wikileaks (2017), the CIA is able to use both iPhone and Android (among others) to spy, so the capability is there (amusingly, if Huawei moves away from Android, it will become safer from CIA spying). We already know that the Americans spy through their companies; I see no reason why we cannot expect the Chinese (or any government) to not do the same with domestic companies.

Can Huawei say no? Mr. Ren says Huawei will never agree to give data to any government (Yang and Lucas, 2019). He also states that Huawei is employee, not state owned. A paper by Balding and Clarke (2019) finds that the company cannot be deemed state-owned, and may as well be deemed state-owned, as Huawei is owned by Huawei Holding, who is in turn controlled by the All-China Federation of Trade Unions, which is in turn owned by the Chinese Communist Party. Not only that, but the Chinese National Intelligence Law passed by the Chinese government requires all firms to actively participate in intelligence gathering (Tanner, 2017). To humorously quote Chris Chappell (2019):

“It’s the party’s way, or the Huawei [Hua -way]. Wait, it’s both. It’s the same way”
— Chappell, 2019

Who can put pressure on Huawei? Well, according to the U.S. military (Singh, 2019), Huawei receives funding from the PLA (People’s Liberation Army), the Chinese National Security Division, and a third branch of the Chinese intelligence network. However, proof has not been provided of this.

It can, and it may have no choice to if asked. Many people are asking if Huawei posses a threat? Current evidence says no. But does Huawei pose a potential threat that it would be able to act maliciously if the right pressure is applied? Absolutely. But then, so does every tech company working in tandem with their security apparatus. Consider the Vault 7 leaks (Wikileaks, 2017). The only difference Huawei poses is that the government it would be spying for is the Chinese government, rather than one of the Five Eyes.


Long Term Effects to Huawei

A blow to Huawei’s technology expansion. Inside China, this won’t likely be much of a problem, but outside China, Huawei would be unable to allow new users to use any of Google’s existing infrastructure, Google Play, etc. The loss of Youtube and Google apps may be punishing, and bring more business towards Google Pixel, Samsung, and the iPhone. Without this infrastructure, Huawei’s expansion into Europe may become impossible (Moon, 2019). Huawei may be forced to rebuild it’s entire OS from the ground up; this will take time and practise to ensure there are no problems, and will cut down usability with other apps and companies (Hao, 2019).

Some chip experts suggest that Huawei will be unable to function outside China without U.S. help (Moon, 2019). According to Mr. Ren, Huawei has prepared for this event, and is quite able to continue producing its own chips (Nakayama, 2019). Huawei has developed its own operating system and apps, and these are in use in China, according to Huawei (Moon, 2019). However, the companies relies on U.S. parts makers for telecommunications equipment and smartphone parts (Nakayama, 2019).

Most Google apps are banned in China; the effect in China is unlikely to become massive (Moon, 2019). Also, due to the massive support by the Chinese government, Huawei’s functioning in China can be considered all but secure. Nonetheless, loss of Spotify, Instagram, Youtube, Google, GMail, Google Play, Photos, and all other Google related apps may make the phone almost unusable outside of China.

A possible issue is that while Huawei reels from this blow, Samsung (another 5G provider; Bloomberg, 2018) may be able to build the 5G networks for multiple countries. Samsung has the advantage of not being under suspicion by the United States, and so may be able to expand its reach considerably in this time while its rival is sorting out chip issues.


One Belt, One Road

Huawei is a major part of One Belt, One Road. For more information on One Belt, One Road, please click here. Its 5G development is the lynchpin of Huawei, and allows China a massive central position in this new technology. This technology is vital to future economies; 100 times faster than 4G, and would lead to the Internet of Things economy. Through One Belt, One Road, Huawei has become a ‘key participant’ in the projects across over 60 countries (Fang, 2019). One famous project was, with the British, to lay enough undersea cables to ‘circle the world twice’. This project was hindered by Australian concerns of Huawei’s security.

Huawei plays a central part; they are used to synchronise the quality of communications and technology in all the countries (such as the Middle East and Africa) to allow organisation and communication in further OBOR projects, as well as improve the infrastructure of the countries themselves. Of course, with China building this infrastructure, this places Huawei in the centre of that infrastructure with all the benefits it entails (Fang, 2019). This would lead to future payments from use of this infrastructure for Huawei.

Huawei is also using the OBOR and Made in China 2025 as a way to export ‘smart cities’, which would use a majority of Chinese technologies that are being developed; such as AI, robotics, 5G, and other massively capital intense infrastructures across the world (Fang, 2019). The practise of doing so would greatly improve China’s ability to produce these goods, as well as provide a living and useful example of Chinese technology, removing the stench of cheap goods from the Chinese name. The countries that this has been deployed to includes Russia, Pakistan, Venuzuela, Laos, and Angola. It is reaching out to Germany and France as well (Schrader, 2018).

If this is slowed down, this could provide troublesome to the Chinese future as well as that of partner countries. I can imagine that China will be eager to put these cities into practise; this project shall be supported by the government almost definitely; Huawei has received loans from the Asian Infrastructure Investment Bank (AIIB) and the state-owned Silk Road Bank (Fang, 2019). Critics of smart cities believe that the cities could be used to spy on citizens; possible, but Huawei still hasn’t been proven guilty of actual spying.


Made in China 2025

Huawei is a national champion for the Chinese government in expanding Chinese technological legitimacy. It aims to be the number one smartphone brand in 2020 (BBC, 2019). Huawei’s main appeal is its cheap price level (Bloomberg, 2018). This will not change initially, although a restriction in supply from chip restrictions may drive that price up.

Part of the demands of the trade war were to be fairer to foreign companies, prevent theft of U.S. IP and technology, and reduce subsidies, as well as remove tariffs. The prevention of Google as well as other U.S. companies providing chips to China will have the advantage of placing a squeeze on China to accept U.S. demands. This can have two long-term effects:


One: This may force China to adapt and either produce their own chips, or find another party that can do so. This will end up reducing U.S. influence in the Chinese economy (and vice versa) as the economies separate in this regard, and will allow yet further development in the Chinese economy with equivalent chips. This, however, assumes they are able to produce chips of equal quality. Hao (2019) states that Huawei has yet to prove it can actually make these chips. One quote was “spare tires” would become “tires in use” overnight. We shall see.


Two: The starvation of chips and development to Huawei’s phones, as well as the removal of the vast Google infrastructure outside of the Chinese borders means a retraction in Huawei’s potential growth, as the company will be forced to choose between the domestic consumption where it will be protected, or to risk expanding out into the foreign market where consumers will want Google and Google apps and risk being rejected by those consumers.

Should Huawei begin to withdraw from foreign markets due to this restriction, Samsung may be able to make up its losses in 2018 and regain the market share taken by Huawei previously (Bloomberg, 2018).


Three: Assuming that Huawei produces its own chips, but those chips are of lesser quality, we can see a retraction in the quality of goods by Huawei. With China trying to create the China 2025 model of luxury and technology production, a weakening in the brand of Huawei may prove critical to the company form a country trying to rid itself of the “trash products” image that China has.


I personally doubt the long-term effect of this cut; China has forever been the ‘copier’ of technology, and it has no shortage of existing chips to study and learn from. Countries such as Isreal, South Korea, or Europe could easily provide a third party to buy chips from in the meantime while China learns to produce their own chips, doubtless with cheap-loans and investment from the Chinese government to compensate for the losses caused by this issue.


Sino-Google Relationship

Google was planning to re-enter the Chinese market. Currently, both Google and Youtube are banned in China after they refused to bow to censorship. Google is now stuck between a rock (U.S. government) and a hard place (Chinese government). They also intend to release a censored search engine, able to handle 99% of Chinese search queries according to the CEO, to be allowed into the Chinese market (D’Onfro, 2018). It will be interesting whether or not Google will be blamed for its part in this; I suspect there will be some frantic phone calls trying to placate the Chinese government and Huawei over the next few days.

If one of the three scenarios above were to occur, Google would be able to react accordingly. A retraction from foreign markets would leave the Google Pixel able to fill that market gap. A retraction from the domestic market may lead to Google trying to fill the void there. A lessening quality will also allow Google’s Pixel phone to take their place. One could even argue that Huawei being unable to host Google’s many apps and convenience as placing the quality of their phone above Huawei’s.


Conclusion

Google has no choice but to follow the laws of its government. Neither does Huawei. This is part of the political fighting between the U.S. and China. There is some merit to the argument that Huawei may pose a threat to the U.S. national security, but there is only circumstantial evidence, not hard. The effects of this depends on two factors:

  1. How well, and how quickly, can Huawei produce chips?

  2. How well, and how quickly, can Huawei move from Android?

Doubtless, the Chinese government will be working hard and providing near limitless support for Huawei to adapt. American producers will likely suffer losses from the loss of sales; their reaction will come down to how well President Trump can convince them it is a matter of security rather than a personal vendetta. The damage done to Huawei will be variable depending on the above two factors; in turn, the damage done to OBOR and Made in China 2025 depends on how much they are relying on Huawei, and how much Huawei and other companies can adapt to these changes. We are still awaiting an official Chinese government response at time of writing.


Bibliography:


In all articles, I provide as much information for sources as possible, including links. I encourage everyone reading this article to read deeper, and make their own conclusions. For students, links are here so they can read the original source themselves.

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BBC, (2019), “Google restricts Huawei’s use of Android”, published by BBC Business News, BBC, London, U.K., retrieved from https://www.bbc.com/news/business-48330310 on 20th May 2019.

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