Posts Tagged ‘5G’

Has China Outsmarted Trump — U.S.-China Trade Talks “Going Nowhere Unless China Makes A Move”

February 15, 2019

Everyone is afraid to say “China is Winning.” — It’s getting harder to tell where the trade war stops and the tech war begins.

President Trump welcomed President Xi at his Mar-a-Lago estate in Florida on Thursday [Carlos Barria/Reuters]
Donald Trump and Xi Jinping at Mar-a-Lago, April 2017

As American negotiators arrived in Beijing this week for the latest round of trade talks, U.S. Secretary of State Mike Pompeo was in Hungary pushing the case against Huawei. The U.S. has already warned allies not to use the Chinese company’s communications gear, alleging it could facilitate spying. Pompeo on this trip hinted countries face a U.S.-or-China choice when it comes to next generation telecom networks.

Huawei has come to embody this growing rivalry. Its role in setting 5G wireless standards makes it a lightning rod. While its chief financial officer, who’s also the daughter of its founder, is out on bail in Vancouver fighting extradition to the U.S., countries from Japan to Canada are mulling bans on Huawei equipment. But in China, its market share is growing.

Huawei Under Fire
Data: Bloomberg reporting, local media

It’s not just Huawei. European Union member states began considering retaliation against China for cyberattacks this week. Those deliberations are linked to U.S. indictments unveiled in December accusing Chinese officials of a decade-long espionage campaign.

And in Washington, President Donald Trump signed an executive order prioritizing artificial intelligence in U.S. government research spending. Guess who America’s biggest competitor in AI is?

Technology is set to be a source of U.S.-China tensions for some time to come. It’ll become even more relentless than trade if Chinese agreements to buy massive amounts of American agriculture and energy are enough to secure a deal that kicks issues of intellectual property and technology transfer down the road.

Looming Deadline

U.S. Trade Representative Robert Lighthizer, U.S. Treasury Secretary Steve Mnuchin and Chinese Vice Premier Liu He continued trade negotiations in Beijing this week. On the horizon is that March 1 deadline, when the trade truce ends and U.S. tariffs on Chinese goods could rise to 25 percent. And while talks in Beijing were ongoing as of this newsletter’s publication, it appeared increasingly likely the deadline would be extended by 60 days, even though the two sides have failed to narrow the gap around structural reforms to China’s economy that the U.S. has requested.

Action Now

Elon Musk isn’t waiting to see if higher tariffs can be avoided. Tesla has loaded at least three cargo ships full of electric cars to be sent to China before the end of February. As part of the trade truce struck in December, China rolled back 25 percent retaliatory tariffs on U.S. cars, which could return without a deal. How Chinese demand for Tesla cars would hold up if the trade war intensified is another question.

relates to Next China: Blurring the Lines
Tesla Model 3 cars sit in a parking lot at the Port Of San Francisco.
Photographer: David Paul Morris/Bloomberg

Picture Unclear

China’s economy is slowing. By how much has been harder to decipher. Corporate earnings, as one indicator, have been mixed. AppleNvidia and Caterpillar are among those that have cautioned of softness in China, along with hundreds of Chinese firms. But companies such as LVMHAlibaba and Toyota have also reported healthy growth. And while overall spending during the Chinese New Year holiday slowed, it still grew 8.5 percent from a year ago to $149 billion. Macau, the only part of China where gambling is legal, also saw a surge in visitors during that period.

Bad Debt

Don’t forget debt when counting up China’s challenges. Much of last year’s slowdown was caused by a campaign to cut leverage, which by the start of 2018 had exceeded 250 percent of gross domestic product. The tighter financial conditions that resulted left many firms in a liquidity crunch. The latest example is China Minsheng Investment Group.

The company, which once dreamed of being China’s JPMorgan Chase, missed a bond payment, had assets frozen and struggled to secure financing. Though by the end of the week it was able to make the overdue payment as Chinese media reported that authorities had stepped in to help.

Feature Film

Image result for Wandering Earth, Fan Bingbing

And finally, there was some good news this week for China’s film industry, which suffered mightily in 2018. The misfortune featured revelations that the country’s highest-paid movie star, the actress Fan Bingbing, had underpaid more than $100 million in taxes. The ensuing clean-up soon embroiled others and depressed productions; sales also slowed.

Image result for Wandering Earth, Fan Bingbing

But now there’s a ray of hope. A new movie, “Wandering Earth,” is capturing imaginations around the country and setting box-office records along the way. The plot? In a post-apocalyptic future, it’s up to Chinese scientists to save the world.

Out of This Solar System
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China and Russia ‘eroding sovereignty and freedom’ in Europe, says top US diplomat Mike Pompeo

February 12, 2019
  • US secretary of state insisted region needs ‘to guard against China’s economic and other efforts to create dependence and manipulate your political system’
PUBLISHED : Tuesday, 12 February, 2019, 9:48pm
UPDATED : Tuesday, 12 February, 2019, 10:31pm
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South China Morning Post
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US Secretary of State Mike Pompeo on Tuesday invoked the 30th anniversary of the demise of communism to implore countries in Central and Eastern Europe to resist Chinese and Russian influence.

Speaking in the Slovak capital of Bratislava, Pompeo said China and Russia pose twin threats to the democratic and free-market gains made since the fall of the Berlin Wall in 1989.

He insisted post-communist countries are particularly vulnerable to Chinese and Russian predatory investment and political meddling. To combat the threat, he said, the US is committed to boosting its engagement in the region, through defence cooperation agreements and exchange programmes.

He said because of its history and geography, Slovakia has “a special appreciation for the aggressive role Russia continues to play in the region”, particularly in Ukraine.

But, he said, “Russia is not the only nation that seeks to erode sovereignty and freedom in Europe.”

Pompeo said he had raised with Slovak officials the “need to guard against China’s economic and other efforts to create dependence and manipulate your political system”.

Pompeo and Slovakia’s foreign minister Miroslav Lajcak look at a bust of Woodrow Wilson before a meeting on Tuesday at the foreign ministry in Bratislava. Photo: AFP

Pompeo is in Slovakia on the second leg of a five-nation European tour that began in Hungary and will take him to Poland, Belgium and Iceland.

He renewed a warning he delivered on Monday in Budapest that the United States may be forced to scale back certain operations in Europe and elsewhere if countries continue to do business with Chinese telecommunications company Huawei.

He said the US had strong concerns about Huawei’s motives in Europe, especially in Nato and European Union member states, as well as its business practices.

“We’re fine with companies competing, but they have got to do so in a way that’s fair and open and transparent, and they can’t do so with anything other than an economic motive,” he said.

Pompeo said nations would have to consider choosing between Huawei and the US. The warning was broad but pointedly delivered first in Hungary, a Nato ally and European Union member, where Huawei is a major player.

The US has been warning countries about the risks of Chinese telecoms technology as governments choose providers for the roll-out of 5G wireless internet, which will enable faster download speeds but also greater connectivity among devices.

China has said the US is just trying to suppress a rising competitor.

Pompeo said he hoped to reverse what he called a decade of US disengagement in Central and Eastern Europe that created a vacuum Russia and China have exploited. Over the course of the past 10 years, he said, Russian President Vladimir Putin and Chinese leaders have become much more aggressive in the region and made inroads.

“I want to make sure that the Slovakian people understand that America is engaged, we’re back,” he said.

In Hungary, Foreign Minister Peter Szijjarto welcomed Pompeo’s calls for closer ties and promised more defence cooperation but brushed off the criticism on relations with Russia and China.

He said Western concerns about Hungary’s ties with Moscow amounted to “enormous hypocrisy” as Western European nations were doing the energy deals with Russia.

Additional reporting by Agence France-Presse

Associated Press

https://www.scmp.com/news/world/europe/article/2185889/china-and-russia-eroding-sovereignty-and-freedom-europe-says-top

China calls US concerns over Huawei ‘groundless’

February 12, 2019

Beijing called the latest US warning against using Huawei equipment “groundless” on Tuesday, as the Chinese telecom giant faces espionage fears in a growing number of countries.

The world’s second-largest smartphone maker and biggest producer of telecommunications gear has been under fire in recent months after the arrest of a top executive in Canada and a global campaign by Washington to blacklist its equipment.

“The US has spared no effort in unscrupulously fabricating all kinds of groundless charges,” said Chinese foreign ministry spokeswoman Hua Chunying at a regular press briefing in Beijing Tuesday.

She also accused the US of “sowing discord” between China and other countries, and called the actions of Washington “neither fair nor moral.”

Huawei, the world's biggest producer of telecommunications gear, has been under fire in recent months after the arrest of a top executive in Canada

Huawei, the world’s biggest producer of telecommunications gear, has been under fire in recent months after the arrest of a top executive in Canada.  AFP/File

On Monday, US Secretary of State Mike Pompeo said on a visit to Hungary that it would be difficult for the United States to partner with countries that co-locate Huawei equipment near “important American systems”.

“We want to make sure we identify (to) them the opportunities and the risks with using that equipment,” he said.

His comments came less than week after a team of US officials toured EU capitals — including Brussels — urging European governments to scrap Huawei 5G technology from their telecom infrastructure plans.

Several Western nations have voiced fears that using Huawei base stations and other gear could give Chinese authorities access to critical network infrastructure worldwide, possibly allowing it to spy on foreign governments.

In December, Britain’s largest mobile provider said it was removing Huawei equipment from its 4G cellular network after the foreign intelligence service singled out the company as a security risk.

Australia, New Zealand, and the United States also enacted similar bans last year.

Huawei has remained dismissive of these concerns, with the company’s vice president and representative to the EU Abraham Liu calling them “ungrounded and senseless allegations” in a speech last week.

AFP

One World, Two Internets: The Internet, Divided Between the U.S. and China, Has Become a Battleground

February 12, 2019
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The global internet is splitting in two.

One side, championed in China, is a digital landscape where mobile payments have replaced cash. Smartphones are the devices that matter, and users can shop, chat, bank and surf the web with one app. The downsides: The government reigns absolute, and it is watching—you may have to communicate with friends in code. And don’t expect to access Google or Facebook.

On the other side, in much of the world, the internet is open to all. Users can say what they want, mostly, and web developers can roll out pretty much anything. People accustomed to China’s version complain this other internet can seem clunky. You must toggle among apps to chat, shop, bank and surf the web. Some websites still don’t seem to be designed with smartphones in mind.

The two zones are beginning to clash with the advent of the superfast new generation of mobile technology called 5G. China aims to be the biggest provider of gear underlying the networks, and along with that it is pushing client countries to adopt its approach to the web—essentially urging some to use versions of the “Great Firewall” that Beijing uses to control its internet and contain the West’s influence.

Battles are popping up around the world as Chinese tech giants try to use their market power at home to expand abroad, something they’ve largely failed to do so far.

New 5G networks may advance technologies such as driverless vehicles. Here, a video game aboard an autonomous 5G-connected bus at a South Korea media event.
New 5G networks may advance technologies such as driverless vehicles. Here, a video game aboard an autonomous 5G-connected bus at a South Korea media event. PHOTO: SEONGJOON CHO/BLOOMBERG NEWS
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Some Silicon Valley executives worry the divergence risks giving Chinese companies an advantage in new technologies such as artificial intelligence, partly because they face fewer restrictions over privacy and data protection.

“The Chinese approach could well lead to some large-scale improvements like better health outcomes—benefits derived from the mass capture and analysis of data,” said Nick Clegg, the former British deputy prime minister whom Facebook Inc. hired to run its global policy and communications, in a Brussels speech last week. “But it could equally be put to more sinister surveillance ends.”

“The real choice,” he said, “is between an appropriately regulated tech sector, balancing the priorities of privacy, free speech, innovation and scale—and an alternative in which ingenuity runs roughshod over some basic guarantees of privacy and individual rights.” He and Facebook declined to comment further.

The divide is clear to people like Tom Pellman who straddle it. Mr. Pellman, a director in Washington, D.C., for an international risk advisory firm, spent a decade in Beijing from the mid-2000s. His company doesn’t use Slack, the messaging app, because China has blocked it. He circumvented the Great Firewall by cycling through virtual private networks, or VPNs, which can disguise activity from monitors until getting discovered and then blocked, he said. “It’s Whac-A-Mole.”

Beijing’s censorship is like its polluted air, he said: “You’re in it and it seems OK, then you leave and you realize how bad it was.”

Yet he loved WeChat, the app that can do multiple tasks, and missed it when he left China. “When I came back to the U.S. it was like coming back to the Stone Age,” he said. “Not being able to use WeChat , everything felt just old fashioned.”

Paying the metro fare using Tencent's WeChat in Shenzhen, China.
Paying the metro fare using Tencent’s WeChat in Shenzhen, China. PHOTO: ZHAO YANXIONG/VCG/GETTY IMAGES
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These parallel universes have coexisted. In one, people buy goods on Amazon; in the other, it’s Alibaba. In the West, Alphabet Inc.’s Google is so popular it’s a verb, but you can’t Google in China—there’s Baidu for that. In London, Apple Pay can get you on the Tube; in Beijing, it’s Alipay. To do all this in one app in China, there’s WeChat, which lets a billion people also send texts, hail cabs and do many other tasks.

Beijing has blocked GoogleFacebook and other services, promoting domestic champions such as Alibaba Group Holding Ltd. and WeChat owner Tencent Holdings Ltd. Outside China, though, these giants haven’t had much success.

The 5G collision

The collision of these universes as 5G arrives is exacerbating conflict between the U.S. and China and could broaden the rift and drive more of the world into China’s cyberspace model.

Networks using 5G technology are expected to download movies on phones in seconds, help enable self-driving cars, and connect components ranging from pacemakers to factory machines to the internet. Military futurists say 5G may alter battlefields, connecting tanks and drones with artificial intelligence.

China is aiming to expand its zone with 5G. It is aggressively promoting 5G networks, establishing a body in 2013 composed of regulators, companies and scientists to design and control every aspect of the process. It built a state facility where anyone selling 5G equipment in China must test it.

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A vehicle using 5G technology, displayed at a show in South Korea last year.
A vehicle using 5G technology, displayed at a show in South Korea last year. PHOTO: SEONGJOON CHO/BLOOMBERG NEWS
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China’s 5G goal is to “win primacy,” said China’s leading proponent of the effort, Wu Hequan of the Chinese Academy of Engineering, last month, according to a transcript conference organizers posted. The government’s information office and the Cyberspace Administration, an internet regulator, didn’t respond to requests for comment.

That Chinese challenge has suddenly come to the fore because one giant has leapt the divide between the parallel universes. Huawei Technologies Co. is now the world’s biggest supplier of the equipment that goes into mobile-computing networks.

The 5G equipment itself won’t tilt the playing field—the gear is the plumbing of the internet, based on global standards that are agnostic as to what web developers and users run on it.

But many in Washington, from Congress to members of the national-security and intelligence communities, warn that Huawei’s Chinese ownership means Beijing could use the gear to spy on the world and more broadly be a camel’s nose under the tent to expand its influence.

Huawei has publicly rejected the accusations. Founder Ren Zhengfei in a media appearance last month said “I personally would never harm the interest of my customers…And my company would not answer to such requests.”

‘I personally would never harm the interest of my customers,’ says Huawei founder Ren Zhengfei, here at company headquarters last month.
‘I personally would never harm the interest of my customers,’ says Huawei founder Ren Zhengfei, here at company headquarters last month. PHOTO: QILAI SHEN/BLOOMBERG NEWS
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Chinese officials and cybersecurity experts point to former National Security Agency contractor Edward Snowden’s allegations the agency installed surveillance backdoors in U.S.-made routers designated for export. The NSA didn’t respond to requests for comment. In the past, it has said in response that it takes care to ensure that innocent users of such technologies aren’t affected by U.S. intelligence gathering.

The U.S. has also accused Huawei of stealing trade secrets and violating sanctions, raising the possibility the Trump administration could cut its access to critical U.S.-made components. Huawei denies wrongdoing.

If that happens, said Paul Triolo, a former federal government analyst who heads up global technology research at risk consulting firm Eurasia Group, China could build a version of 5G that isn’t compatible with the U.S. network. “If the global supply chain for 5G really falls apart,” he said, “we would be in totally new territory.”

Huawei Deputy Chairman Ken Hu said it has amassed 13,000 suppliers and that: “If any link in this global industry chain is obstructed in an unusual way, that would have major impact on the development of the industry chain and even the economic development of countries involved.” Huawei declined to comment further for this article.

Deploying 5G widely at home before the West does could benefit Chinese tech companies, said David Chao, general partner at DCM Ventures, a Silicon Valley venture-capital firm that invests in China. Chinese companies could have a leg up by using their huge domestic market to develop new apps and hardware that flourish with the faster speeds. “It could sprout a whole generation of mobile services that take advantage of that,” he said, “and they may be exported to the western world.”

At the heart of the divide are differing views on how to manage the internet. The U.S. pushes the open model on which the internet was built. Beijing and like-minded countries such as Russia say states should be able to censor, spy on or otherwise control internet traffic within their borders.

A Huawei executive in Beijing at a launch of new 5G Huawei products.
A Huawei executive in Beijing at a launch of new 5G Huawei products. PHOTO: FRED DUFOUR/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Beijing has sold its internet model alongside Chinese-made telecom equipment in countries as distant as Vietnam and Tanzania as part of an effort to build what it calls a “Digital Silk Road.” Last year, Tanzanian officials followed up public praise for Chinese internet censorship by approving rules that threaten online content providers with fines and jail if they don’t take down “prohibited content” at government request.

Tanzanian information minister Harrison Mwakyembe said the government backs China’s vision of strict internet policing to protect national security and to prevent “moral degeneration.”

Government officials in India have been considering ways to shelter domestic tech firms from American companies such as Amazon.com Inc. and Facebook, much as China has protected its own startups. India’s telecom secretary, Aruna Sundararajan, said the idea is to promote Indian companies “to become global champions.”

Wang Huning, the Communist Party’s top official in charge of ideology and propaganda, at China’s annual conference for promoting ‘cyber sovereignty’ in 2017.
Wang Huning, the Communist Party’s top official in charge of ideology and propaganda, at China’s annual conference for promoting ‘cyber sovereignty’ in 2017. PHOTO: ALY SONG/REUTERS
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To promote its notion of “cyber sovereignty,”China has lobbied at the United Nations for discussion of internet regulation to be limited to states, with industry and civil society relegated to the sidelines. In 2017 at a conference in China attended by Apple CEO Tim Cook and Google chief Sundar Pichai, the Communist Party’s top official in charge of ideology and propaganda, Wang Huning, praised Chinese President Xi Jinping for advancing China’s vision of the internet, saying it had “gained broad approval and positive responses from international society.”

Firewall rising

At first, with the internet’s spread, foreign companies were welcome in China and technology evolved faster than the government’s censorship capabilities. Google rolled out a censored Chinese-language version of its search engine. Amazon entered the market, and Chinese users flooded onto Facebook, YouTube and Twitter.

Chinese leaders took more control after the 2008 Beijing Olympics, reflecting fear of political dissent and concern Chinese businesses were struggling to compete online. Facebook, Twitter and YouTube were blocked in 2009. The next year, Google said it was no longer willing to censor search results, and it was blocked. The websites of several foreign news organizations, including The Wall Street Journal’s, are also blocked.

That left China’s search market to Baidu Inc. Alibaba vanquished eBay Inc., and its Alipay payment system gave it a lock on online payments, with foreign firms from PayPal Holdings Inc. to Visa Inc. blocked from providing payment services.

Outside China, Alibaba was an afterthought in many markets. Baidu shut down search engines in Japan and Egypt after investing in local-language products. An Alibaba spokeswoman said the company remains “fully committed to realizing our mission of making it easy to do business anywhere in this digital era.” A Baidu spokeswoman said the company still provides advertising and other services in Japan.

China's Huawei Indicted: Breaking Down the Charges

China’s Huawei Indicted: Breaking Down the Charges
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The U.S. unveiled sweeping charges against Chinese tech firm Huawei in late January. WSJ’s Shelby Holliday breaks down the indictments.

Despite an aggressive marketing push featuring celebrities such as soccer star Lionel Messi, Tencent has struggled to expand WeChat overseas. Since January 2012, WeChat has been downloaded about 350 million times from Apple’s App store world-wide, according to research firm Sensor Tower Inc. About 83% of those downloads come from users in China and 17% from outside, according to Sensor Tower. Tencent didn’t respond to requests for comment.

Some Chinese tech champions have struggled overseas because they came late to markets where competitors such as Google and Facebook have a foothold.

Another factor is suspicion the companies may have links to the Communist Party. Ant Financial Services Group, owned by Alibaba founder Jack Ma, made a 2017 bid to enter North American financial services by acquiring Texas-based MoneyGram International Inc.The Committee on Foreign Investment in the U.S. rejected the deal last year. It also blockedBroadcom Inc.’s planned purchase of Qualcomm Inc., citing concerns it would weaken Qualcomm, a major competitor to Huawei in 5G patents.

In September, Mr. Ma recanted a pledge to create a million U.S. jobs, citing trade hostilities. He didn’t respond to a request for comment sent through Alibaba, which pointed to an interview Mr. Ma did in which he said “trade should be a propeller of peace.”

Washington’s effort to push back on the equipment side started years ago. It blacklisted Huawei and China’s rival ZTE Corp. in 2012, when the House intelligence committee concluded they weren’t free of Beijing’s influence. ZTE and Huawei have repeatedly said they aren’t a threat. The U.S. pushback escalated last month with a U.S. indictment against Huawei’s chief financial officer for allegedly playing a role in breaking Iran sanctions. Separately, prosecutors accused Huawei of stealing trade secrets. Huawei has denied wrongdoing in both cases and said it was unaware of any wrongdoing by the CFO, who has denied the allegations.

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Czech Prime Minister Andrej Babis last month.
Czech Prime Minister Andrej Babis last month.PHOTO: MICHAL KAMARYT/CTK/ZUMA PRESS
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Europe’s eastern flank is a particular battleground. In December, the Czech Republic’s top cybersecurity agency warned that sensitive data probably shouldn’t be carried over Huawei gear. But the country’s president, Milos Zeman, has criticized those findings. Last month, he took two senior Huawei executives on a tour of Prague’s castle and in a televised interview called Huawei spying allegations hysteria. His prime minister, Andrej Babis, has taken a differing view, saying Czech agencies and European Union leaders should take such allegations seriously. A spokesman for Mr. Babis confirmed his views. Mr. Zeman’s office declined to comment.

For now, motivated consumers in China can span the two internet worlds using workarounds such as smartphones with foreign SIM cards that connect to the outside internet, said Li Zhen, a Hong Kong market-research analyst who travels to China for business.

She senses the rift in the paranoia her Chinese contacts exhibit while talking on WeChat about potentially sensitive topics. “My friends in the government and media will talk in code, and it can take a long time to figure out what they’re saying,” she said. “Sometimes the topic is probably not so sensitive, but you never know.”

Write to Josh Chin at josh.chin@wsj.com

Appeared in the February 9, 2019, print edition as ‘One World, Two Internets.’

https://www.wsj.com/articles/the-internet-divided-between-the-u-s-and-china-has-become-a-battleground-11549688420

5G Accelerates Clash Between Internet Models of China, the U.S.

February 11, 2019

By Accusing China’s Huawei of Espionage, the U.S. May Be Pushing China Closer to Its own Unique Internet.

A 5G-equipped bus in Gangneung, South Korea.

A 5G-equipped bus in Gangneung, South Korea.  PHOTOGRAPHER: SEONGJOON CHO/BLOOMBERG

Good day, CIOs. The emergence of 5G, the next generation of mobile technology, is accelerating a collision between two distinct ideas of how the internet should operate, The Wall Street Journal’s Josh Chin reports. Both the U.S., advocate of the open model, and China, which supports a controlled environment, recognize in the super-fast technology a means for their respective philosophy to win the internet.

China is in it to win it. “It is aggressively promoting 5G networks, establishing a body in 2013 composed of regulators, companies and scientists to design and control every aspect of the process. It built a state facility where anyone selling 5G equipment in China must test it.”

Is this about Huawei? Huawei Technologies Co. is the world’s biggest supplier of the equipment that goes into mobile-computing networks. But alongside the gear, China is selling an internet model—”essentially urging some to use versions of the ‘Great Firewall’ that Beijing uses to control its internet.”

The Great Firewall goes on the road. Last year, Tanzanian officials followed up public praise for Chinese internet censorship by approving rules that threaten online content providers with fines and jail if they don’t take down “prohibited content” at government request.

The current state of AI adoption. To understand AI marketplace adoption, consider the S-curve, suggests CIO Journal Columnist Irving Wladawsky-Berger. AI currently experiencing a relatively slow start, but there will be steep acceleration as the technology matures and firms learn how to best leverage AI for business value.

LATEST FROM CIO JOURNAL

The current state of AI adoption. To understand AI marketplace adoption, consider the S-curve, suggests CIO Journal Columnist Irving Wladawsky-Berger. AI currently experiencing a relatively slow start, but there will be steep acceleration as the technology matures and firms learn how to best leverage AI for business value.

CHINA VS. U.S.

Trump seeks to boost AI as Chinese competition grows. President Trump is expected to sign an executive order Monday directing federal agencies to prioritize artificial intelligence in their research and development, the WSJ reports. The president also will direct agencies to expand researchers’ access to government data that could sharpen AI applications.

Chinese investment in Israel raises security fears. U.S. and Israeli officials said they are especially concerned about stepped-up Chinese investments in companies whose products have both military and commercial applications, such as drones and AI, the WSJ reports. They also worry about China using Israeli companies as a way to uncover U.S. secrets and about Beijing transferring Israeli technological know-how to its ally, Iran.

Activity. Chinese investors participated in 12% of deals with Israeli tech companies in the first three quarters of 2018, reflecting an increase over the past three years, according to a report by the IVC Research Center, which tracks the Israeli tech industry

Says China. “The U.S. has been abusing the idea of ‘national security,’ slandering and striking down the normal commercial activities of Chinese enterprises,” a Chinese foreign ministry spokeswoman said in January.

U.S. campaign against Huawei faces challenge in Eastern Europe. America’s global campaign to blacklist China’s Huawei is facing a major challenge in a region that has seen relatively few high-profile U.S. visits in recent years, the WSJ reports. Chinese premiers, by contrast, have met yearly with virtually every Central and Eastern European head of government since 2012.

China's Huawei Indicted: Breaking Down the Charges
The U.S. unveiled sweeping charges against Chinese tech firm Huawei in late January. WSJ’s Shelby Holliday breaks down the indictments.

TECHNOLOGY NEWS

Start spreading the news. Amazon.com Inc. executives are re-evaluating its proposed $2.5 billion investment in New York City, as local officials question everything from the project’s impact on transportation to neighborhood gentrification and Amazon’s opposition to unionization. The WSJ has more.

Tesla Is Cranking Out Model 3’s. But it has encountered new logistical problems, from delivery and servicing of a growing fleet to balancing supply and demand. The WSJ reports that some customers are venting about trouble getting repair appointments, long waits for those fixes and flaws in newly delivered vehicles.

More valuable than gold. Soaring palladium prices are inspiring an unusual band of criminals: catalytic converter thieves, the WSJ reports. The exhaust-control devices common in most cars contain the silvery white precious metal, whose prices have climbed more than 50% since mid-August.

EVERYTHING ELSE YOU NEED TO KNOW

Negotiations over a bipartisan deal for border-security funding have broken down, increasing the likelihood of another government shutdown at the end of the week.

Makers of household staples started raising prices last year on diapers, toilet paper and trash bags to offset higher commodity costs and boost profits. Executives are promising to raise even more prices this year.

The U.K. economy slowed in 2018 as businesses slashed investment in the face of growing uncertainty about the way in which the country will leave the European Union.

A number of technical signals used by analysts to gauge the health of the stock market have flipped to positive from negative, a shift that is buttressing some investors’ faith in the 2019 rebound despite last week’s volatility.

https://blogs.wsj.com/cio/2019/02/11/the-morning-download-5g-accelerates-clash-between-internet-models-of-china-the-u-s/

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The Internet, Divided Between the U.S. and China, Has Become a Battleground

https://www.wsj.com/articles/the-internet-divided-between-the-u-s-and-china-has-become-a-battleground-11549688420

Apple’s iPhone Shipments Plunge in China as Huawei Tightens Grip

February 11, 2019
IPhone’s high price tag is a major reason for the contraction
Huawei cements No. 1 position with strongest growth, IDC says

Apple Inc.’s Chinese smartphone shipments plummeted an estimated 20 percent in 2018’s final quarter, underscoring the scale of the iPhone maker’s retreat in the world’s largest mobile device arena against local rivals like Huawei Technologies Co.

Image result for china, apple store, pictures

The overall Chinese market contracted by 9.7 percent in the quarter, but Apple declined at about twice that pace, research firm IDC said in a Monday report. A slowing economy, lengthening replacement times and the iPhone’s hefty price tag contributed to the U.S. giant’s decline in China, IDC said. Xiaomi Corp. fared even worse in the final months of last year, when unit shipments plunged almost 35 percent, the consultancy estimates.

Smartphone labels from Apple to Samsung Electronics Co. are contending with a plateauing global market after years of breakneck growth, as a lack of industry innovation discourages consumers from replacing devices as often as they used to. Apple also has to cope with the rise of Chinese rivals such as Huawei, which is eroding its share of a market once pivotal to driving its growth. China’s top electronics retailers slashed prices on the latest iPhones by as much as 20 percent in past months — an unusual move that illustrated waning enthusiasm for Apple’s gadgets.

Huawei shored up its lead after unit shipments soared 23.3 percent, leading all major brands, according to IDC. That’s despite grappling with an unusually turbulent few months during which its finance chief was arrested on allegations of bank fraud, and the U.S. marshalled its allies to try and block the company from selling next-generation networking equipment.

Apple was ranked fourth by shipments in the country during the period, following Oppo and Vivo, IDC said. Fifth-ranked Xiaomi, a Chinese name that experienced rapid growth just before its 2018 initial public offering, incurred a 34.9 percent plunge in shipments thanks to inventory corrections and an internal restructuring, IDC said.

“The domestic smartphone market environment in 2019 doesn’t look very optimistic,” IDC senior analyst Wang Xi said in the report. And “5G phones will still only comprise a very small portion of the overall market. We’ve a long way to go before they become mainstream,” IDC said.

https://www.bloomberg.com/news/articles/2019-02-11/apple-s-iphone-shipments-plunge-in-china-as-huawei-tightens-grip

China-EU 5G research project to continue despite growing concerns about Huawei

February 10, 2019
  • The joint project will go ahead as planned despite the Chinese tech giant’s involvement
  • Huawei has faced a growing backlash across the West due to security fears
PUBLISHED : Sunday, 10 February, 2019, 11:30am
UPDATED : Sunday, 10 February, 2019, 11:30am
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South China Morning Post
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A woman browses her smartphone as she walks by a Huawei store

A 5G collaboration project between the European Union and China is going ahead as planned, despite calls to ban Chinese telecoms companies from the EU network, according to the head of the European side of the project.

Uwe Herzog, coordinator of the 5G-Drive project, said: “The basis for our collaboration is the research collaboration framework agreed between the EU and China, which continues to be valid and honoured by both sides.

“Thus, we are not concerned that the 5G-Drive project and its research collaboration with its Chinese twin project will be affected by current political discussions on 5G deployment.”

The 20-month project, part of the EU’s 80 billion (US$91 billion) research programme Horizon 2020, is designed to test and validate the interoperability of the European and Chinese 5G networks.

The Chinese side of the project is coordinated by China Mobile, with project partners including Huawei. The project will focus on sites in Italy, Finland and Britain, and five in China – Hangzhou, Shanghai, Wuhan, Suzhou and Guangzhou.

The European side is being led by the German-based telecommunications research and development firm Eurescom and involves 17 partners from 11 countries, including industry, mobile operators, BMW, SMEs, research institutes, academia and consulting partners.

China and the EU signed an agreement in 2015 to cooperate on 5G technology, conduct joint research and promote standardisation, as part of a public-private partnership launched by the EU.

Brussels promised to provide 700 million in government funding by 2020, with a further 3 billion to be raised by industry.

But Chinese telecoms firms, especially Huawei, have come under intense pressure amid growing concerns about security.

A number of European countries have banned or are considering banning Huawei and ZTE from involvement in their 5G networks, with Italy becoming the latest to consider such a step.

Chinese diplomatic observers said trade, investment and scientific cooperation between China and the EU would be affected if the ban was imposed.

But Herzog said the 5G-Drive project should not be drawn into the controversy as it was not involved in commercial 5G deployments, instead aiming to enable Europe and China to identify implementation problems during pre-commercial deployment.

“The conversations with our Chinese partners on the joint work are pleasant, constructive and productive. The discussions currently focus on preparing the joint trialling activities and the required coordination and synchronisation,” he said.

“The only pressure the 5G-Drive project is experiencing is caused by the heavy workload and organisational challenges associated with preparing the joint 5G trials,” Herzog said.

“Eurescom has not experienced any other type of pressure in this research cooperation with China,” he added.

https://www.scmp.com/news/china/diplomacy/article/2185524/china-eu-5g-research-project-continue-despite-growing-concerns

Norway intelligence service issues Huawei warning

February 4, 2019

Norway’s intelligence service PST on Monday issued a warning about Chinese telecoms giant Huawei, whose ties to Beijing have sparked security concerns.

“One has to be attentive about Huawei as an actor and about the close connections between a commercial actor like Huawei and the Chinese regime,” the head of Norway’s domestic intelligence unit PST, Benedicte Bjornland, said as she presented a national risk assessment report for 2019.

Several countries like the United States have banned Huawei 5G telecoms equipment for security reasons

Several countries like the United States have banned Huawei 5G telecoms equipment for security reasons AFP/File

“An actor like Huawei could be subject to influence from its home country as long as China has an intelligence law that requires private individuals, entities and companies to cooperate with China,” she said.

In Norway, the main telecoms operators Telenor and Telia — which chose Huawei to supply their 4G networks — are gearing up for the roll-out of 5G.

Several countries like the United States have banned Huawei 5G telecoms equipment for security reasons. The Scandinavian country is considering ways of limiting its exposure.

“As far as we’re concerned, it’s about setting up a regulatory framework to protect what could be considered critical infrastructure,” Justice Minister Tor Mikkel Wara said at the same press conference.

“What this regulatory framework would look like, and what it would cover, is what we’re working on right now,” he said.

Norway is treading cautiously on the issue, after China’s angry reaction to the 2010 Nobel Peace Prize being awarded to Chinese dissident Liu Xiaobo, triggering lengthy diplomatic and trade repercussions from Beijing’s side.

AFP

Huawei Sting Offers Rare Glimpse of the U.S. Targeting a Chinese Giant

February 4, 2019

The sample looked like an ordinary piece of glass, 4 inches square and transparent on both sides. It’d been packed like the precious specimen its inventor, Adam Khan, believed it to be—placed on wax paper, nestled in a tray lined with silicon gel, enclosed in a plastic case, surrounded by air bags, sealed in a cardboard box—and then sent for testing to a laboratory in San Diego owned by Huawei Technologies Co. But when the sample came back last August, months late and badly damaged, Khan knew something was terribly wrong. Was the Chinese company trying to steal his technology?

By Erik Schatzker

The glass was a prototype for what Khan’s company, Akhan Semiconductor Inc., describes as a nearly indestructible smartphone screen. Khan’s innovation was figuring out how to coat one side of the glass with a microthin layer of artificial diamond. He hoped to license this technology to phone manufacturers, which could use it to develop an entirely new, superdurable generation of electronics. Akhan says Miraj Diamond Glass, as the product is known, is 6 times stronger and 10 times more scratch-resistant than Gorilla Glass, the industry standard that generates about $3 billion in annual sales for Corning Inc. “Lighter, thinner, faster, stronger,” says Khan, in full sales mode. Miraj, he promises, will lead to a “fundamental next level in design.”

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Miraj Diamond Glass at Akhan’s headquarters in Gurnee
PHOTOGRAPHER: LYNDON FRENCH FOR BLOOMBERG BUSINESSWEEK

Like all inventors, Khan was paranoid about knockoffs. Even so, he was caught by surprise when Huawei, a potential customer, began to behave suspiciously after receiving the meticulously packed sample. Khan was more surprised when the U.S. Federal Bureau of Investigation drafted him and Akhan’s chief operations officer, Carl Shurboff, as participants in its investigation of Huawei. The FBI asked them to travel to Las Vegas and conduct a meeting with Huawei representatives at last month’s Consumer Electronics Show. Shurboff was outfitted with surveillance devices and recorded the conversation while a Bloomberg Businessweek reporter watched from safe distance.

This investigation, which hasn’t previously been made public, is separate from the recently announced grand jury indictments against Huawei. On Jan. 28, federal prosecutors in Brooklyn charged the company and its chief financial officer, Meng Wanzhou, with multiple counts of fraud and conspiracy. In a separate case, prosecutors in Seattle charged Huawei with theft of trade secrets, conspiracy, and obstruction of justice, claiming that one of its employees stole a part from a robot, known as Tappy, at a T-Mobile US Inc. facility in Bellevue, Wash. “These charges lay bare Huawei’s alleged blatant disregard for the laws of our country and standard global business practices,” Christopher Wray, the FBI director, said in a press release accompanying the Jan. 28 indictments. “Today should serve as a warning that we will not tolerate businesses that violate our laws, obstruct justice, or jeopardize national and economic well-being.” Huawei has denied the charges.

If the new investigation bears fruit, it could, along with the indictments, bolster the Trump administration’s effort to block Huawei from selling equipment for fifth-generation, or 5G, wireless networks in the U.S. and allied nations. The U.S. believes Huawei poses a national security threat, in part, because it could build undetectable backdoors into 5G hardware and software, allowing the Chinese government to spy on American communications and wage cyberwarfare. Huawei has said this is political posturing aimed at harming a Chinese company, and skeptics have pointed out that the T-Mobile allegation has since been settled in civil court and concerns events that played out more than a half-decade ago. “If Tappy is as far as they’ve gotten on [intellectual property] theft, that seems to be pretty thin gruel,” Adam Segal, a cybersecurity expert at the Council on Foreign Relations told the Washington Post recently.

On the same day Wray’s statement was released, the government searched the Huawei lab in San Diego where Akhan’s glass had been sent. The FBI raid was a secret, but not to Khan and Shurboff, who’d been receiving regular briefings of the investigation’s progress through Akhan’s lawyer, Renato Mariotti, a well-known former prosecutor who’s now a partner at Thompson Coburn LLP. By then, they’d succeeded in getting Huawei representatives to admit, on tape, to breaking the contract with Akhan and, evidently, to violating U.S. export-control laws. Huawei did not respond to repeated requests for comment. This story is based on documents—including emails and text messages exchanged among Huawei, Akhan, and the FBI—as well as reporting from the sting operation in Las Vegas and interviews with Khan and Shurboff. Businessweek shared a detailed account of the investigation with the U.S. Attorney’s Office for the Eastern District of New York, which declined to comment. The FBI also declined to comment.

Khan’s work on diamond glass goes back to his college days, when he began learning about so-called nanodiamonds as a 19-year-old electrical engineering and physics student at the University of Illinois at Chicago. After graduation, he ran experiments at the Stanford Nanofabrication Facility and teamed up with researchers at the U.S. Department of Energy’s Argonne National Laboratory, eventually developing and patenting a way to deposit a thin coating of tiny diamonds on materials such as glass. He also licensed diamond-related patents for Akhan from the Argonne lab in 2014. By the following year, Khan was confident enough to start promoting his new technology. He joined the conference circuit, began giving interviews to trade publications, and hired Shurboff, who’d spent 25 years in various roles at Motorola Inc. It was time, Khan believed, to go to market.

relates to Huawei Sting Offers Rare Glimpse of the U.S. Targeting a Chinese Giant
Akhan founder and CEO Khan.
PHOTOGRAPHER: ULYSSES ORTEGA FOR BLOOMBERG BUSINESSWEEK

In the smartphone world, extra-strong display glass is a competitive advantage, like a fast processor or a really good camera. It’s been that way ever since Steve Jobs picked Corning to supply a screen for the first iPhone more than a decade ago. Reviewers marveled that the device could be shoved into a pocket full of keys and coins and its then-giant display would come out unscathed. To take on Corning, Akhan needed to convince the world’s big smartphone manufacturers—including Apple, Samsung, and Huawei—that its diamond-coated glass was even tougher than Gorilla Glass. In 2016, Shurboff began sending out samples from Akhan’s production facility in Gurnee, Ill., a Chicago suburb. He shipped the first one to Samsung; another early sample went to Huawei.

Even then, before Trump’s trade war and the indictments, the Huawei name carried plenty of baggage. In 2002, Cisco Systems Inc. accused the company of stealing source code for its routers. Motorola said in a 2010 lawsuit that Huawei had successfully turned some of its Chinese-born employees into informants. And in 2012 the U.S. House Intelligence Committee labeled Huawei a national security threat and urged the government and American businesses not to buy its products. Huawei denied all the claims. The Cisco and Motorola lawsuits ended with settlements.

Since 2012, under pressure from the government, the major U.S. telecommunications companies have essentially blacklisted Huawei, refusing to carry its smartphones or use its equipment in their networks. But most of the world kept on buying from Huawei, choosing not to believe (or to ignore) the allegations that the company has consistently denied. At the same time, U.S. tech companies have remained free to sell parts to Huawei. Qualcomm Inc. is one of Huawei’s big suppliers. So are Micron Technology Inc. and Intel Corp.

So there was nothing out of the ordinary when an email from Huawei came to Akhan on Aug. 8, 2016. The sender was Angel Han, a Huawei engineer in San Diego. In email exchanges and calls that followed, Han conveyed a sense of urgency. In one email on Nov. 7, 2016, Han said Huawei was “actively looking for new technologies for our innovative product in this fast pace [sic] consumer electronics industry,” according to a copy reviewed by Businessweek. “Vendor’s capability to move fast and deliver is also crucial for us.” Reached on a mobile phone number that appeared on text messages exchanged with Akhan, a woman who identified herself as Angel Han denied knowing anyone at Akhan; then, when she was presented with specific details about interactions with Akhan, she said, “I can’t recall.” Then she hung up.

“I can’t recall.” Then she hung up.

relates to Huawei Sting Offers Rare Glimpse of the U.S. Targeting a Chinese Giant
Akhan COO Shurboff.
PHOTOGRAPHER: LYNDON FRENCH FOR BLOOMBERG BUSINESSWEEK

By February 2017, the two companies had a deal. Akhan would ship two samples of Miraj to Huawei in San Diego. According to a letter of intent, signed by both parties, Huawei promised to return any samples within 60 days and also to limit any tests it might perform to methods that wouldn’t cause damage. (The latter provision is standard in the industry and is designed to make it hard to reverse-engineer any intellectual property.) Shurboff noted in documents he sent to Han that Huawei had to comply with U.S. export laws, including provisions of the International Traffic in Arms Regulations, or ITAR, which govern the export of materials with defense applications. Diamond coatings are on the list because of their potential for use in laser weapons.

Khan and Shurboff decided early on that Akhan would license the first generation of its Miraj glass to a single handset maker, hoping the promise of exclusivity would give their startup some leverage. Huawei, Khan says, indicated it was eager to stay in the race, and on March 26, 2018, Akhan shipped an improved sample to Han. “We were very optimistic,” Khan says. “Having one of the top three smartphone manufacturers back you, at least on paper, is very attractive.”

The first sign of trouble came two months later, in May, when Huawei missed the deadline to return the sample. Shurboff says his emails to Han requesting its immediate return were ignored. The following month, Han wrote that Huawei had been performing “standard” tests on the sample and included a photo showing a big scratch on its surface. Finally, a package from Huawei showed up at Gurnee on Aug. 2.

Shurboff remembers opening it. It looked just like the package Akhan had sent months earlier. Inside the cardboard box was the usual protective packaging—air bags, plastic case, gel insert, and wax paper. But he could tell something was wrong when he picked up the case. It rattled. The unscratchable Miraj sample wasn’t just scratched; it was broken in two, and three shards of diamond glass were missing.

Shurboff says he knew there was no way the sample could have been damaged in shipping—all the pieces would still be there in the case. Instead, he believed that Huawei had tried to cut through the sample to gauge the thickness of its diamond film and to figure out how Akhan had engineered it. “My heart sank,” he says. “I thought, ‘Great, this multibillion-dollar company is coming after our technology. What are we going to do now?’”

relates to Huawei Sting Offers Rare Glimpse of the U.S. Targeting a Chinese Giant
The packaging for Akhan’s Miraj Diamond Glass.
PHOTOGRAPHER: LYNDON FRENCH FOR BLOOMBERG BUSINESSWEEK

Shurboff’s first call was to Khan. Then he went to the FBI, which had been cultivating relationships with even the smallest American tech companies as part of a crackdown on Chinese theft of intellectual property. Eight months earlier, in January 2018, a male FBI special agent in Chicago had paid a visit to Akhan in Gurnee. According to Shurboff, the agent told him that the bureau was hoping to educate local startups on cybercrime and security vulnerabilities and to encourage them to come forward with suspicious activity. The FBI specifically was trying to gather intelligence on Chinese efforts to obtain U.S. technology, the agent told Shurboff.

The conversation stuck in Shurboff’s mind. That August, two weeks after receiving the broken glass from Huawei, he drove down to the FBI’s Chicago field office, which was holding a seminar for area executives on corporate espionage. Shurboff watched as a female special agent discussed the case in which Huawei allegedly stole trade secrets from T-Mobile  in 2012. During a break, Shurboff approached the agent and told her what had happened to Akhan. He mentioned that diamond coating was an ITAR-regulated material with defense applications and raised the possibility that the sample had been in the wrong hands. In addition to its work on smartphone glass, Akhan had been adapting its diamond technology for semiconductors and the military.

relates to Huawei Sting Offers Rare Glimpse of the U.S. Targeting a Chinese Giant
Shurboff
PHOTOGRAPHER: LYNDON FRENCH FOR BLOOMBERG BUSINESSWEEK

To many, Shurboff’s story might have sounded far-fetched. Not to the FBI. “They took a very keen interest immediately and wanted to know more,” he says. Things moved quickly. The Akhan executives found themselves on regular conference calls with officials from the FBI and the U.S. Department of Justice. Taking the lead on several of these calls was David Kessler, the assistant U.S. attorney in Brooklyn who, it turned out later, would prosecute Huawei’s CFO.

The two FBI agents picked up the broken sample in Gurnee and delivered it to the FBI’s research center in Quantico, Va. When Khan and Shurboff joined the group on a subsequent call, an FBI expert in forensic gemology briefed them on his findings. They recall the gemologist saying he’d analyzed the diamond glass sample and concluded that Huawei had blasted it with a 100-kilowatt laser, powerful enough to be used as a weapon.

Throughout the fall of 2018, the FBI agents asked Khan and Shurboff for emails, copies of non-disclosure agreements, letters of intent, shipping records, even the box Huawei used to return the sample that summer. The FBI had another request, too: Would they re-establish contact with Angel Han, the Huawei engineer?

On Dec. 10, while the FBI listened in, Shurboff and Khan say they spoke to Han by phone, quizzing her about the broken sample of diamond glass. What happened during the tests? Why were shards missing? Han told them she didn’t know, because the sample had been in China and was shipped directly to Akhan from there. This was potentially a criminal violation of ITAR rules, but Han didn’t seem to realize or care. And instead of backing off, Han said Huawei wanted to continue talks about becoming Akhan’s first customer and proposed a face-to-face meeting a few weeks later at the Consumer Electronics Show in Las Vegas. She even offered to bring along a senior Huawei official from Shenzhen. Khan and Shurboff were flabbergasted. It was hard to tell who was playing whom.

The Akhan executives arrived in Las Vegas on Tuesday, Jan. 8, and checked in at the Mandalay Bay Resort & Casino. They’d arranged to meet Han and her colleague the following afternoon at 3 p.m. If all went according to plan, that would be the sting. The female FBI agent from Chicago, who’d flown in to oversee the operation, explained to Khan and Shurboff in text messages how it would work: The bureau was securing a room at the Las Vegas Convention Center, where the CES conference was taking place. It would be bugged, so the FBI could listen in from another location in the building. Shurboff brought signage to make it look like Akhan had rented the space.

At about noon on Jan. 9, the agent met with the Akhan executives and gave Shurboff three different covert recording devices to wear and carry as a backup plan. Shurboff texted Han: “We have a nice quiet conference room right off the Grand Hall if you like to meet there.” He noted it wasn’t far from the Huawei booth at CES. But at 2 p.m., Han responded by text, saying that she was at the Venetian Casino and couldn’t leave for at least another hour. That was a problem, because the FBI had the room for a limited time. Shurboff told Han to stay at the Venetian. He and Khan would meet her there.

They arrived just before 3 p.m. and texted Han a picture of their location, on the second floor of the Venetian by the escalator, right in front of Sin City Brewing. Khan was casually dressed in a dark peacoat, black button-up shirt, gray pants, and sneakers. Shurboff’s attire was more businesslike: a light blue dress shirt, gray sports jacket, black trousers, and brand-new leather shoes. Han showed up at 3:20 p.m. with a woman who introduced herself as Jennifer Lo, a senior supply manager with Huawei in Santa Clara, Calif. (The Shenzhen-based Huawei executive hadn’t come, they explained, because the company wasn’t allowing its senior Chinese executives to travel to the U.S.) The four of them chatted briefly, walked toward the food court at the Venetian, and took seats around a table at a Prime Burger. The Businessweek reporter watched from about 100 feet away, in front of a gelato stand. Khan and Shurboff had expected to conduct the sting in the safety and quiet of the FBI’s room at CES. Now, total rookies in the intelligence game, they had to remain calm while recording the conversation with Huawei in a noisy, crowded restaurant.

The hope had been that Lo, whom Khan guessed was in her early 40s, would have more to say about the destruction of Akhan’s sample and why Huawei was so interested in diamond film technology. Khan recalls her asking questions about the manufacturing capacity at Akhan’s pilot facility in Gurnee. She acknowledged that the sample glass had been to China but disputed that this had been an ITAR violation. Huawei had checked, and it was OK, she said. There was some tension, and at one point, Lo startled Khan and Shurboff by wondering aloud if the U.S. government was monitoring their meeting. As for the damaged sample, Lo, like Han, claimed ignorance. She was there to make sure Huawei still had a shot at being the first company to put diamond glass on a smartphone. If Akhan walked away, she said she might lose her job. (Reached on the mobile phone number on her Huawei business card, Lo confirmed her identity and said she was at CES to “meet with some suppliers.” When asked about the destruction of the sample and the alleged shipment to China she said, “I’m not involved and cannot comment on this.”)

Over the next few days, Khan received an unsettling piece of news. During the Prime Burger meeting, Shurboff had coincidentally run into representatives from another big potential customer for Miraj glass. Feeling uneasy in his role as an FBI asset, he’d curtly brushed them off to return to the discussion with Huawei. Now the other customer seemed concerned that Akhan was trying to start a bidding war. Khan was determined not to lose a promising lead. Previously, he’d asked Businessweek to withhold the details of the sting operation until the government moved to indict Huawei or arrest someone. But, eager to explain the encounter at the Prime Burger and clear up any confusion, he’d changed his mind and decided to go public with Akhan’s story, as well as issue a statement about its cooperation with the FBI. “Akhan takes seriously any unlawful use of its technology,” an embargoed copy of the statement reads. The company, “will continue to cooperate with law enforcement and work towards an expedient resolution to this matter.”

The FBI raided Huawei’s San Diego facility on the morning of Jan. 28. That evening, the two special agents and Assistant U.S. Attorney Kessler briefed Khan and Shurboff by phone. The agents described the scope of the search warrant in vague terms and instructed Khan and Shurboff to have no further contact with Huawei.

Khan and Shurboff don’t know how the story will end. It’s possible that the government will conclude there aren’t grounds for an indictment against Huawei. Prosecutors also could decide that what happened to Akhan isn’t serious enough to seek charges. If that’s so, it raises a question about the broader U.S. crackdown on Huawei: Is it based on hard evidence of wrongdoing or driven by a desperation to catch the Chinese company doing something—anything—bad?

On the other hand, if the government does conclude that Akhan was attacked, that a Chinese multinational really did target a tiny Chicago company with no revenue and no customers (as of yet), it would show just how far and wide Huawei is willing to go to steal American trade secrets. “I think they’re identifying technologies that are key to their road map and going after them no matter what the size or scale or status of the business,” Khan says. “I wouldn’t say they’re discriminating.”

Huawei’s Clout Is So Strong It’s Helping Shape Global 5G Rules

February 1, 2019
  • Edge in standards-setting boards can lead to edge in markets
  • Huawei says it works with other companies as standards are set
Huawei 5G
Photographer: Visual China Group/Getty Images

The future of the 5G technology that promises to revolutionize telecommunications runs through international bodies with esoteric names such as the 3rd Generation Partnership Project and the International Telecommunication Union.

The organizations set standards for the emerging technology. But security officials are concerned China’s government and Huawei Technologies Co.are taking a bigger role in the technical groups, lending a competitive edge to a company under indictment in the U.S.

As of September, Chinese firms and government research institutes accounted for the largest number of chairs or vice chairs in the International Telecommunication Union’s 5G-related standards-setting bodies, holding eight of the 39 available leadership positions, according to the U.S.-China Economic and Security Review Commission that advises Congress. By comparison, mobile provider Verizon Communications Inc. is now the only U.S. leadership representative, according to the commission.

“Having a socialist government basically in charge right now is incredibly problematic for U.S. goals, and 5G specifically,” Michael O’Rielly, a member of the U.S. Federal Communications Commission, said in an interview. “They have loaded up the voting to try to get their particular candidates on board, and their particular standards.”

How Huawei Became a Target for the U.S. Government: QuickTake

Huawei, China’s largest technology company, has been the target of a broad crackdown by U.S. officials, who say the company’s telecommunications equipment could be used by China’s Communist Party for spying. U.S. prosecutors filed criminal charges Jan. 28 alleging Huawei stole trade secrets from an American rival and committed bank fraud by violating sanctions against doing business with Iran.

Huawei denies the charges and rejects suggestions it poses a security risk or is beholden to Beijing. It also asserts the innocence of Chief Financial Officer Meng Wanzhou, who was arrested on sanctions charges in Vancouver and faces extradition to the U.S.

On standards-setting, Huawei has worked with other companies, Andy Purdy, USA chief security officer for the company, said in an interview.

“Industry has been working hard with a lot of visibility as they’ve evolved from 4G to 5G to make sure there’s a very strong consensus standards-based approach,” Purdy said.

Read more: U.S. Ramps Up Huawei Fight With Iran, Trade-Secret Charges

There’s no clear way for a nation to influence standards-setting in a way that would harm U.S. security, Doug Brake, director of broadband and spectrum policy at the Information Technology & Innovation Foundation, said in an interview.

“There’s been a lot of consternation over the past few years over Chinese participation in the standard-setting bodies,” Brake said. “You can’t really sneak something into the standard developed through 3GPP since it’s an open process. We should be encouraging China to participate in global standards.”

U.S. officials up to the White House level make no bones about the stakes as communications jumps from the current 4G, or fourth generation, technology to fifth-generation 5G that will feature always-on, ubiquitous connections with billions of sensors and controls. It will connect everything from banks and cars to factories and phones.

The U.S. gained from being a 4G leader, and “and we are working hard to maintain our advantage as we shift to and expand towards 5G,” Michael Kratsios, deputy assistant to President Donald Trump for technology policy, said at a conference Jan. 29 in Washington. “The risk of losing American market leadership cannot be overstated.”

Standards are set by bodies such as the 3GPP — the 3rd Generation Partnership Project, which unites seven telecommunications standards development organizations — and the International Telecommunication Union, or ITU, a United Nations agency.

The ITU is headed by Houlin Zhao, the first Chinese official to be elected secretary-general of the group. Richard Li of Huawei is chairman of a group examining emerging technologies and 5G.

Patents, Too

“Huawei has been aggressive in standards-setting bodies” and in securing patents that other companies need to honor, Michael Wessel, a commissioner on the U.S.-China commission, said in an interview. “That creates vulnerabilities that have law enforcement as well as the intelligence community on guard.”

U.S.-based chipmakers Qualcomm Inc. and Intel Corp. are among companies competing to develop 5G technology, as are Huawei and fellow Chinese manufacturer ZTE Corp. Trouble for Huawei could benefit rivals in the 5G network gear market, including Sweden’s Ericsson AB and Finland’s Nokia OYJ, according to a Dec. 7 note note by Bloomberg Intelligence analysts Woo Jin Ho and John Butler.

“I’m really concerned about standard-setting,” the FCC’s O’Rielly said. “Skewed standards that lean toward Chinese companies should be incredibly problematic, because it’s at the expense of domestic and international partners that U.S. companies are involved with.”

Qualcomm Leads

The ITU assembles government representatives and companies. The 3GPP gathers company executives, and China has been active there, too. The number of Chinese representatives serving in chair or vice chair leadership positions rose from 9 of 53 available positions in 2012, to 11 of 58 available positions in 2017, according to the U.S.-China commission.

In these roles, Chinese companies can set the agenda and guide standards discussions, the commission said in a report. Still, Qualcomm leads the most important 5G standards-setting group after beating Huawei for the position in a 2017 vote.

“The Chinese go more with the goal of driving a standard that will advantage what they’re doing,” Wessel, of the U.S.-China commission, said.

U.S. officials cited fear of losing ground in the standards race last year as they squelched a hostile bid for Qualcomm from Broadcom Inc.

Qualcomm’s expertise and research spending drives U.S. leadership in standard-setting bodies, and weakening its position “would leave an opening for China to expand its influence on the 5G standard-setting process,” the U.S. Treasury Department said in a letter that signaled Trump administration hostility to the deal.

Skeptical of Threat

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” Deputy Assistant Secretary Aimen Mir said in the letter. “Given the well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States.”

Qualcomm has about 15 percent of patents essential for 5G networks, and Chinese companies have about 10 percent, said Michael Murphree, an assistant professor of international business at the University of South Carolina.

“There’s a lot of money at stake” since manufacturers pay fees to patent-holders, Murphree said. If 5G “incorporates a large amount of Huawei patents — then it doesn’t matter if you buy Huawei equipment or not, you still have to pay to use Huawei patents.”

Murphree was skeptical of the idea Huawei could pose a threat via standards accretion.

“Huawei is not at all going to control the standards as such,” Murphree said. “No single company or single country ever controls all the standards” that are forged by a mix of advanced-economy participants.

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