Posts Tagged ‘ZTE’

Huawei: Why the Chinese telecoms giant is in the cross hairs

December 12, 2018

Sabrina Meng Wanzhou, the 46-year old CFO of Chinese telecoms giant Huawei and daughter of its founder Ren Zhengfei, has been granted bail by a Canadian court, setting up a protracted legal fight over extradition to the United States.

Logo von Huawei (Reuters/H. Hanschke)

Meng was arrested in Vancouver earlier this month at the request of US authorities, who have accused her of fraudulently representing Huawei to get around US sanctions on Iran.

Her case has now become embroiled in the wider trade war between China and the US after US President Donald Trump suggested he may intervene if it would help secure a broad deal with Beijing. The arrest came the same day Trump and Chinese President Xi Jinping declared a 90-day truce in their trade war during summit talks in Buenos Aires.

By Meng Jing
South China Morning Post

Although Meng’s arrest prompted outrage in China, Beijing is walking a fine line between defending one of the crown jewels of the country’s tech industry and preventing a nationalist backlash that could derail a potential trade deal with Washington.

But what is Huawei and why is it so important to the future of relations between China and the US? Here is what you need to know.

 What is Huawei?

Established in 1987, Huawei is a Chinese tech champion that sells smartphones and telecoms equipment across the world. Headquartered in China’s southern coastal city of Shenzhen, Huawei is China’s top smartphone maker, and overtook Apple as the second-largest smartphone vendor globally in the second quarter this year – a feat it also maintained in the third quarter, according to IDC data.

Perhaps more importantly, Huawei is now the world’s largest telecom equipment supplier and has a key role to play in China’s ambition to lead the way in next-generation mobile telecoms infrastructure – known as 5G. Competing with the likes of Ericsson and Nokia Oyi, Huawei was the only major equipment-maker to achieve an increase in market share in 2017.

Who created Huawei?

Huawei’s founder Ren Zhengfei is a noted figure in China’s business world and moves in the highest government circles. The 74-year-old self-made billionaire is the son of schoolteachers and grew up in a mountainous town in China’s poorest province, Guizhou. A survivor of China’s great famine between 1958 and 1961, Ren graduated from the Chongqing Institute of Civil Engineering and Architecture.

He worked in the civil engineering industry until 1974 when he joined the People’s Liberation Army as an engineer – a connection that still provokes questions in the West about Huawei’s ties to the Chinese army and government. Ren was an elected member of the 12th National Congress of the Communist Party of China.

Today Huawei does business in more than 170 countries and regions globally, has around 180,000 employees and a sales volume of over US$39 billion. The low profile Ren is ranked 83rd in Forbes’ China Rich list with a net worth of US$3.2 billion.

Who owns Huawei?

Unlike its Chinese rival ZTE Corp, which is a state-backed enterprise, Huawei is a private company collectively owned by its employees. Not being familiar with Western stock option systems, Huawei’s founder Ren Zhengfei says he designed an employee stock ownership plan at the inception of the company.

At a time when China was still struggling with the aftermath of the Cultural Revolution, being a private owner and hence open to being perceived as a capitalist – Ren felt that not owning the company was the least dangerous thing for a founder to do, according to a Harvard Business Review story which studied Huawei’s profit sharing model. Ren himself holds a 1.4 per cent stake in Huawei, according to the company’s 2017 annual report.

How did Huawei become successful?

The vast domestic market, the timing of overseas expansion and heavy investment in research and development have all been important positive factors for Huawei. But many analysts attribute the secret of its success to a unique company culture, sometimes dubbed “wolf-culture” for being fearless and aggressive. Workers have also been known to pass out on office mattresses from exhaustion. It has strong discipline and nobody – not even Ren – has their own driver or flies first class on the company dime.

Why and how was Meng arrested?

Meng was detained in Vancouver on December 1 at the request of US authorities. Meng was accused by the US of helping Huawei cover up violations of US sanctions on Iran, according to Canadian prosecutors. She is said to have told financial institutions that affiliate Skycom was a separate company in order to conduct business in the country, when in fact it was a Huawei subsidiary.

“Meng and other Huawei employees repeatedly lied about the nature of the relationship between Huawei and Skycom and the fact that Skycom operated as Huawei’s Iran-based affiliate in order to continue to obtain banking services,” the US authorities said in the arrest request delivered to Canadian authorities.

Meng has denied any wrongdoing and said in her personal affidavit for bail that she will contest the allegations if surrendered to the US.

Why is Huawei banned in the US and in some other markets?

The US government has for years seen Huawei as a national security threat due to fears about its association with China’s government, the Chinese Communist Party and its military. This has been of particular concern when it comes to networking gear and the possibility for breaches of data privacy.

In February, US intelligence officials warned Americans not to buy Huawei devices because they could be used to spy on users. The Chinese smartphone maker was supposed to enter the US via mobile network AT&T, but the deal fell through at the last minute.

The US in August enacted the National Defence Authorisation Act to ban the government’s use of Huawei and ZTE technology products and services on concerns over their connections with Chinese intelligence. US security experts have warned of a range of potential security risks, including but not limited to the capacity to control telecommunications infrastructure and even conduct undetected espionage.

Japan, a US ally, this week excluded Huawei and ZTE from public procurement, adding to the list of countries that have pushed back against the Chinese technology company on security issues. Australia and New Zealand have also effectively blocked Huawei from their roll-out of 5G network infrastructure, with the UK and Canada also weighing up the possible security risks posed by Huawei.

What has Huawei said in its defence?

Huawei has consistently denied any connections with the military, saying that it is a private company that is part-owned by its employees.

When Australia took the decision to block Huawei from its 5G infrastructure in August on national security grounds, Huawei said the decision was not aligned with the long-term interests of the Australian people, and denied Australian businesses and consumers the right to choose from the best communications technology available.

It has said all countries need to recognise the importance of setting better common standards, adopting ­industry best practice and implementing risk-mitigation procedures to ensure that there is an objective basis for choosing technology vendors.

https://www.scmp.com/tech/big-tech/article/2177648/huawei-why-chinese-telecoms-giant-and-its-cfo-are-caught-middle-china

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Huawei, Skycom and the Offshore Puzzle That Leads To Mauritius

December 11, 2018

Meng Wanzhou is accused of trying to hide links between the two companies but that ploy will fail

South China Morning Post

Image result for Huawei, Skycom pictures

Skycom Tech, the Hong Kong company at the centre of Huawei Technologies’ alleged violation of US sanctions on Iran, shared the same email domain as the Chinese telecoms equipment giant, public records show.

The contact email address listed for Skycom’s website, Skycom.com.hk, is domain@huawei.com, the same domain as Huawei’s official website, according to records available online at the Hong Kong Domain Name Registration Company.

The digital link between the two firms could prove important in the case against Huawei’s chief financial officer, Sabrina Meng Wanzhou.

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She is being held in Vancouver awaiting extradition to the US where prosecutors believe she deliberately misrepresented Skycom as a completely separate entity in an attempt to sidestep sanctions preventing Huawei doing business in Iran.

The case has rocked already strained relations between China and the US.

Canadian prosecutors alleged in court filings that Huawei used Skycom to circumvent the US sanctions. They claim the latter was in fact “an unofficial subsidiary” of Huawei, even though Meng had denied to US bankers any direct connection between the two companies.

The domain registration records give the name Shen Fen as the contact person for Skycom. The telephone and facsimile numbers listed for the website are located in a Huawei building in Shenzhen, according to the phone number website 114Best.com.

An attempt by the Post to contact Shen Fen found that the phone number was invalid.

Ming Pao, a Chinese newspaper, reported on Monday that Shen was Huawei’s corporate lawyer, and indeed a court ruling from May shows a Huawei employee named Shen Fen represented the company in a trademark dispute case.

The employee worked in Huawei’s intellectual property department, according to Ming Pao, but the Post was unable to reach Shen by phone at the company’s head office in Shenzhen.

Skycom’s website domain was registered in 2013, long after a Huawei subsidiary sold it in 2007 to Canicula Holdings, an offshore company registered in Mauritius, according to the company registration records.

The fact Skycom registered a Huawei domain six years after the two firms supposedly severed their links may add weight to the claims of US prosecutors that the latter used its “unofficial subsidiary” to carry out business in Iran.

Several Huawei spokespeople were approached for comment but did not immediately respond.

Former employees of Skycom have stated that its employees had Huawei email addresses and badges, according to a Bloomberg report citing a Canadian court filing.

Huawei, the world’s largest maker of telecommunications equipment, stands accused of violating the US government’s sanctions against Iran, and Meng could face trial in the US for misleading financial institutions into breaching those sanctions.

Meng, who is also the daughter of Huawei founder Ren Zhengfei, was arrested in Vancouver while she was en route to Mexico from Hong Kong, at the request of the US Justice Department.

The case against Meng came at a high-stakes moment for the relationship between the world’s two largest economies, as they try to reach a resolution to their trade war.

Chinese President Xi Jinping and US President Donald Trump struck an agreement on a 90-day truce on December 1, almost nine months after the Trump administration made the first move to hit China with import tariffs on US$50 billion worth of its goods.

Technology is increasingly seen as the crux of the rivalry between the two nations, as China’s grand strategy to boost its hi-tech sectors, named “Made in China 2025”, has drawn the ire of the Trump administration.

Many are wondering if Huawei might suffer the same fate as ZTE, the Chinese telecommunications equipment company on which the US imposed a ban from April to July, a move which brought the firm to the brink of collapse. The ban prevented ZTE from buying parts and software from the US after it violated the country’s sanctions against North Korea and Iran.

Reuters first reported in 2013 that Huawei and Meng had close ties to Skycom which, according to Canadian prosecutors, tried to sell US equipment to Iran despite the sanctions.

https://www.scmp.com/business/companies/article/2177512/huawei-and-skycom-firm-accused-breaching-us-sanctions-shared-web

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Wall Street Journal:

Huawei CFO Case Hinges on an Offshore Puzzle

https://www.wsj.com/articles/arrest-of-huawei-cfo-hinges-on-an-offshore-puzzle-1544466378

As part of his visit to China, Mauritian Prime Minister Pravind Kumar Jugnauth visited Huawei’s Executive Briefing Center and held talks with Peng Zhongyang, Senior Vice President at Huawei. He said that Huawei is a trusted partner of the country for digital transformation.

More in Whe Wall Street Journal article

https://www.wsj.com/articles/arrest-of-huawei-cfo-hinges-on-an-offshore-puzzle-1544466378

Dow Jones, Apple Recover; Why Huawei Is U.S. Trump Card In China Trade War

December 11, 2018

The Chinese patent ruling against Apple (AAPL) that helped sink the Dow Jones early Monday was just a paper cut — Apple stock rallied to close higher. But it sent a message to President Trump. As China’s ‘national champion’ Huawei hangs in the balance, Trump has the leverage to extract major trade concessions or unleash a long-term China trade war that rips up worldwide supply chains and roils the global economy.

Image result for Huawei, pictures, corporate, logo

The Dow Jones dived 505 points as Wall Street fretted over detained Huawei CFO Meng Wanzhou, who faced another bail hearing in Canada. But the Dow Jones and Apple stock, the Dow’s biggest loser in early trading, both rallied to close slightly higher on the stock market today.

Huawei, China Still Reliant On U.S. Technology

Trump tariffs, though potentially damaging for both economies, have become a sideshow in the U.S.-China trade war. The real fight is over global leadership in advanced technology industries. For now, the dependence of Huawei and the Chinese high-tech sector on American technology has left China highly vulnerable and in desperate need of trade deal.

Jefferies analysts Edison Lee and Timothy Chau wrote that Huawei is dependent on chip technology from Qualcomm (QCOM) and the Android operating system from Google parent Alphabet (GOOGL). “If Huawei cannot license Android from Google, or Qualcomm’s patents in 4G and 5G radio access technology, it will not be able to build smartphones or 4G/5G base stations,” they wrote.

The U.S. briefly banned doing business with sanctioned Chinese communications equipment giant ZTE, a de facto death sentence before Trump intervened. Now that Huawei CFO Meng Wanzhou is in custody and the company faces U.S. penalties for violating sanctions on doing business with Iran, one of the brightest corporate jewels could face an existential crisis.

China also depends on chip-equipment technology dominated by Applied Materials (AMAT), Lam Research (LCRX) and KLA-Tencor (KLAC).

“Outside of Applied, Lam and KLA, we believe alternative suppliers of the array of leading-edge semiconductor equipment that Chinese companies need to produce chips do not exist,” Moody’s wrote in a June report.

Xi Wants U.S. China Trade Deal

Despite anger over the arrest of Huawei CFO Meng Wanzhou, Chinese President Xi Jinping appears intent on meeting commitments made in his Argentina dinner with Trump. China may be able to weather Trump tariffs, but its vulnerability to a freeze-out of U.S. technology provides every reason to expect that a deal will happen. Trump wants to score a victory and almost settled for a quite modest one in May.

Still, the U.S. could overplay its hand by keeping Huawei CFO Meng in custody or demanding that Xi figuratively bow down to Trump.

The timing of the Chinese court ruling vs. older Apple iPhones was likely more than coincidence, with Huawei essentially on trial. It’s a reminder that Beijing can seriously hurt U.S. companies using China as a manufacturing base and dependent on the country as a source of revenue.

In other words, both the stakes involved and the likelihood of a deal in the China trade war just went up.

https://www.investors.com/news/economy/dow-jones-apple-rally-huawei-is-china-trade-war-trump-card/

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Huawei mistrust imperils China tech ambitions

December 11, 2018

China’s ambitious drive to dominate next-generation 5G technology faces a sudden reality check as fears spread that telecom companies like Huawei could be proxies for Beijing’s intrusive security apparatus.

Fifth-generation mobile communications are the next milestone in the digital revolution, bringing near-instantaneous connectivity and vast data capacity.

They will enable the widespread adoption of futuristic technologies such as artificial intelligence and automated cars and factories — advances China is desperate to lead.

Analysts say mounting concern over Huawei imperils its lead over the market

Analysts say mounting concern over Huawei imperils its lead over the market Analysts say mounting concern over Huawei imperils its lead over the market AFP/File

With 5G’s rollout expected to gain pace in coming years, the race to dominate standards and control security and data traffic underpins much of the current high-tech rivalry between the United States and China, technology experts said.

Huawei’s status as a leading world supplier of the backbone equipment for telecoms systems — mostly in developing markets — gives China an inside track.

But analysts said mounting concern over Huawei imperils that lead.

“This is a big threat because if Huawei loses access to lucrative Western markets, this will impact its ability to grow and finance R&D,” said Paul Triolo, a global technology policy expert with risk consultancy Eurasia Group.

It also could hinder the deployment of 5G networks in China, which are “a key piece of China’s overall effort to upgrade its industrial base”, he added.

The US defence establishment fears China’s dominance of critical 5G infrastructure could enable it to disrupt American military communications or otherwise wage asymmetrical warfare in a confrontation.

Triolo warned of potentially disastrous fallout for China if US law-enforcement efforts — in the spotlight after the arrest of Huawei executive Meng Wanzhou in Canada — result in a ban on sales of US chips and other vital technology to Huawei.

“This could be catastrophic for China’s tech ambitions, threatening (Huawei) itself, supporting industries, and future development,” he said.

– Burglar with a key –

New Zealand recently joined Australia and the US in essentially barring use of Huawei equipment in domestic networks. Following Meng’s arrest on December 1, similar sentiments have arisen from Tokyo to Brussels.

On Monday, Kyodo news agency reported Japan’s top three telecom companies would forego equipment from Huawei and another big Chinese player, ZTE.

US officials and lawmakers have long expressed concern that China could use its tech firms to steal trade secrets — accusations Chinese foreign ministry spokesman Lu Kang dismissed on Monday as “ridiculous.”

“These people do not provide a single (piece of) evidence to show how Huawei affects their national security,” Lu said.

Distrust of Huawei stems in part from the background of founder Ren Zhengfei, a 74-year-old former People’s Liberation Army engineer.

The US has already put the squeeze on ZTE, which faced insolvency earlier this year after the Trump administration temporarily banned American companies from selling it vital components.

Huawei has secured many leading 5G patents and supplied networking equipment for telecom systems around the world that will inevitably carry huge amounts of US data, putting that information at potential risk.

“One way to envision (the threat) is to imagine the person who built your house decides to burgle it,” James Lewis, a technology policy expert at the Center for Strategic and International Studies, wrote in an analysis last week.

“They know the layout, power system, access points, (and) may have kept a key.”

– ‘We don’t like it’ –

But US firms like Intel and Qualcomm produce the advanced chips critical for 5G, giving Washington huge sway over Huawei, which depends heavily on those technologies.

If the US cuts off Huawei’s chip supply and further isolates the company, the blow “will be huge, bigger than ZTE”, said Shi Yinhong, an expert on China-US relations at Beijing’s Renmin University.

“If Huawei is hit hard, China will lose its 5G lead.”

China observers say President Xi Jinping’s more assertive global stance bears much of the blame for Huawei’s troubles.

Late leader Deng Xiaoping famously observed that China’s strategy should be to “hide your strength, bide your time”, to avoid triggering a crippling foreign backlash.

But Xi has dumped that, accumulating one-man power, scrapping term limits and openly declaring China’s ambition to become a high-tech power.

Beijing also passed a law in 2015 obliging its corporations to aid the government on matters of national security.

These moves have sparked alarm in the West, and the US has accused Chinese entities of massive cyber-attacks.

“One of the biggest criticisms of Xi in China is: ‘did he take the stage too fast, did he try to push Chinese power too soon?'” said Christopher Balding, a China expert at Fulbright University in Saigon.

“He has behaved as near-totalitarian and is acting similarly internationally and people are saying ‘we don’t like it.'”

AFP

Germany Is Soft on Chinese Spying

December 10, 2018

Huawei has deep ties to the Chinese government. Berlin might let it build the country’s next generation of communications infrastructure anyway.

The logo of Chinese electronics company Huawei on Sept. 2, 2015 in Berlin. (John Macdougal/AFP/Getty Images)

The logo of Chinese electronics company Huawei on Sept. 2, 2015 in Berlin. (John Macdougal/AFP/Getty Images)

Last week, New Zealand decided to exclude the Chinese technology company Huawei from providing equipment to operate its 5G high-speed mobile network due to “significant national security risks.” The country follows Australia and the United States, which have also excluded Chinese companies from supplying 5G infrastructure.

In Germany, meanwhile, security has so far hardly played any role in the debate over the fifth generation of cellular technology. In the terms of reference published last week by the German Federal Network Agency for its 5G auction, security was not even included in the conditions for awarding the contract. In October, the government announced: “A concrete legal basis for the complete or partial exclusion of particular suppliers of 5G infrastructure in Germany does not exist and is not planned.”

That is dangerously misguided. As Australia’s intelligence chief has pointed out: “5G is not just fast data, it is also high-density connection of devices—human to human, human to machine and machine to machine.” 5G will carry communications we “rely on every day, from our health systems … to self-driving cars and through to the operation of our power and water supply.” 5G will be the backbone of our industries and societies. “Critical infrastructure” hardly gets more critical. And the security risks are accordingly high. Wherever Chinese technology companies supply 5G infrastructure, they will have access to huge volumes of sensitive data and industrial secrets—and there’s reason to think they would eventually be forced to spy on behalf of Beijing. The Chinese government could also use these companies to disrupt other countries’ infrastructure in a future conflict.

Given the massive cybersecurity and national security risks, the only responsible decision is for Berlin to follow the Australian, New Zealand, and U.S. lead and ban Chinese providers from the German 5G network. In doing so, Europe’s strongest economy would send a crucial signal to the rest of the European Union members that are grappling with the same decision.

Contrary to Huawei’s claims, the decisions by Australia, New Zealand, and the United States were not motivated by crude protectionism. In none of these three countries will domestic suppliers be the primary beneficiaries. The anomaly of the 5G market is that there is no leading U.S.-based supplier covering the full technological spectrum. The companies profiting from a ban on Huawei and ZTE are mainly two European companies: Nokia and Ericsson.

Still, those calling for banning Huawei face an uphill battle across Europe. Huawei has strong supporters (not least due to its very professional lobbying operation and deep ties within the political scene). It markets itself as a private company, which is organized as a cooperative and is in no way under the control of the Chinese state. Network operators such as Deutsche Telekom are among Huawei’s cheerleaders. Deutsche Telekom warns against excluding “high-performance suppliers” such as Huawei if the country wanted to build its 5G network quickly and at cost. Huawei already supplies much of the existing German 3G and 4G infrastructure.

For Deutsche Telekom and other network operators, the situation is clear: Huawei offers innovative and reliable products at highly competitive prices. Legally, Deutsche Telekom does not bear any liability for the security risks associated with Huawei technology. And the company does not care about the fact that Huawei’s price advantage is the result of a highly skewed playing field in China. In the world’s largest market, domestic providers control 75 percent of the market, giving them unbeatable economies of scale.

Remarkably, Huawei’s defenders also include the Federal Office for Information Security (BSI), Germany’s cybersecurity agency. Its president, Arne Schönbohm, believes the agency has the capabilities to check on whether suppliers meet security requirements, providing “technically substantiated statements of trust.” Huawei, for its part, describes itself as “the most audited company in the world.” The company offers to put its equipment through any inspection in testing centers jointly run with governments. Last month, they put one such center into operation in Bonn in cooperation with the BSI. Schönbohm was enthusiastic: “We welcome the opening of this laboratory, which enables a further and deeper technical exchange between Huawei and the BSI.”

His ebullience is misguided. The Bonn center follows the British model, where the Huawei Cyber Security Evaluation Centre has existed since 2010 controlled by the British intelligence service GCHQ, among others. Yet just this year, the British inspection report could give “only limited assurance” that Huawei products do not pose any risks to national security. This prompted the government to warn network operators that current rules could be changed and that certain suppliers (i.e., Huawei) could be excluded. Speaking about building Britain’s 5G network, just this week MI6 chief Alex Younger said the UK needs to take decision on “the extent to which we are going to be comfortable with Chinese ownership of these technologies.”

The final British decision is still pending, but the conclusion for Germany should be clear. If the British GCHQ, which is technically far superior to the German BSI, cannot issue a clean bill of health for Huawei, we don’t have to wait for the BSI’s own efforts. In the future, the testing centers will be in an even worse position. Checking for possible hardware backdoors will only be a small part of the job. Virtualization (and related software) will play a central role for 5G. And with weekly software updates, infrastructure operators will have a front door to compromise systems. No testing center would be able to check weekly software updates in advance.

For good reasons, the German intelligence services, unlike the BSI, take a far more critical view of the Huawei risk. They share the Australian intelligence community’s negative assessment, which, according to anonymously sourced reports in November, is based on at least one case of Chinese intelligence agents using Huawei employees to obtain access codes for a foreign network.

Source:https://foreignpolicy.com/2018/12/09/germany-is-soft-on-chinese-spying/

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Japan’s top three telcos to shun Huawei, ZTE network equipment: Kyodo

December 10, 2018

Japan’s big three telecom operators plan not to use current equipment and upcoming fifth-generation (5G) gear from China’s Huawei Technologies Co Ltd [HWT.UL] and ZTE Corp (0763.HK) (000063.SZ), Kyodo News reported on Monday.

The news, for which Kyodo did not cite sources, comes at a time of heightened scrutiny of Chinese tech firms by Washington and some prominent allies over ties to the Chinese government, driven by concerns they could be used by Beijing for spying.

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Last week sources told Reuters that Japan planned to ban government purchases of equipment from Huawei and ZTE to ensure strength in its defenses against intelligence leaks and cyber attacks.

A SoftBank Group Corp (9984.T) spokesman said Japan’s third-largest telco was closely watching government policy and is continuing to consider its options. The amount of equipment in use from Chinese makers “is relatively small”, he said.

The country’s top two telecommunications operators, NTT Docomo Inc (9437.T) and KDDI Corp (9433.T), said the firms had not made any decision yet.

Docomo does not use Huawei or ZTE network equipment, but it has partnered with Huawei on 5G trials. KDDI also does not use Huawei equipment in its “core” network, a spokeswoman said, adding it does not use any ZTE network equipment.

Huawei did not respond to Reuters request for comment, while ZTE declined to comment.

Huawei has already been locked out of the U.S. market, and Australia and New Zealand have blocked it from building 5G networks amid concerns of its possible links with China’s government. Huawei has said Beijing has no influence over it.

Japan’s decision to keep it out would be another setback for Huawei, whose chief financial officer was recently arrested by Canadian officials for extradition to the United States.

World financial markets have been roiled since news of the arrest, on worries it could reignite a Sino-U.S. trade row that was only just showing signs of easing.

Shares of SoftBank, which has the deepest relationship with Huawei among the big Japanese telcos, fell the most among the three top Japanese telcos on Monday, ending down 3.5 percent.

Industry sources said SoftBank would find it difficult to replace pre-existing Huawei network equipment that is designed for the company and not easily interchangable.

Docomo and KDDI shares fell around 1 percent, in a wider market .N225 that closed down 2 percent.

Earlier, SoftBank’s Japanese telecoms unit priced its IPO at an indicated 1,500 yen ($13.31) per share and said it will sell an extra 160 million shares to meet solid demand, raising about $23.5 billion in Japan’s biggest-ever IPO.

Reporting by Sam Nussey, Makiko Yamazaki and Yoshiyasu Shida; Editing by Christopher Cushing and Himani Sarkar

Reuters

Silicon Valley Helped Build Huawei. Washington Could Dismantle It.

December 9, 2018

The arrest of Meng Wanzhou has raised the stakes for Huawei and its overseas partners

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Huawei consumer business group’s chief executive Richard Yu presents the new phone Huawei P10 Plus at the Mobile World Congress in Barcelona, Spain. (AP Photo/Manu Fernandez)

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American companies have been crucial in helping Huawei Technologies Co. become the world’s dominant telecommunications player.

Silicon Valley giants from Intel Corp. INTC -4.40% to Broadcom Inc. and Qualcomm Inc.QCOM -1.96% are top suppliers of Huawei, which buys their components to make equipment such as base stations and routers and Huawei mobile phones. By one estimate, Huawei will buy up to $10 billion of components from American companies this year—roughly the value of China’s automobile imports from the U.S.

Qualcomm and Intel are also working with Huawei on its development of next-generation 5G technologies, a field in which the Chinese company’s aim to be a global leader has alarmed some in Washington.

These interdependencies show how any U.S. actions against Huawei for alleged sanctions violations, which could go as far as a ban on it buying from American suppliers, could devastate Huawei’s operations, and curtail business for U.S. tech companies. Huawei’s chief financial officer, Meng Wanzhou, was arrested in Vancouver on Dec. 1 at the behest of U.S. authorities investigating fraud related to sales to Iran.

Market LeaderHuawei has steadily gained market sharefrom rivals.Telecom-equipment market shareSource: Dell’Oro GroupNote: 2018 through the third quarter; figures includebusinesses of defunct companies acquired by Nokia(Siemens and Alcatel-Lucent) and Ericsson (Nortel)
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The arrest raised the stakes for Huawei and its overseas partners and has cast a pall over trade negotiations between the world’s two largest economies. Shares of tech companies in China and the U.S. have already slumped this year as fears rise that trade tensions will disrupt business across the Pacific.

In the wake of Ms. Meng’s arrest, Huawei has sought to reassure its suppliers. In a memo dated Dec. 6 and viewed by The Wall Street Journal, Huawei said it knew of no wrongdoing by Ms. Meng and it is “unreasonable of the U.S. government to use these sorts of approaches to exert pressure on a business entity.” Huawei’s partnerships with global suppliers wouldn’t change, it said.

China Huawei Filiale in Beijing (picture-alliance/AP Photo/Ng Han Guan)

If the U.S. concludes Huawei evaded U.S. sanctions, further actions could follow. Huawei’s chief Chinese rival, ZTE Corp. , was originally slapped with a fine after it admitted to evading U.S. sanctions, but subsequent violations of its settlement agreement led the U.S. government to temporarily ban American companies from selling it products—sending ZTE to the brink of collapse. Authorities imposed a similar ban on Chinese chip maker Fujian Jinhua Integrated Circuit Co. in October, citing national-security and economic concerns.

U.S. companies stand to lose too, with China being the second-biggest buyer of its $58.4 billion of semiconductor exports last year, according to the U.S. International Trade Administration. Huawei alone is on track to buy about $10 billion of components from U.S. companies this year, up from $8 billion in 2017, estimates Handel Jones, chief executive of technology consulting firm International Business Strategies Inc., which tracks China’s high-tech sector.

“It’s a pretty extensive list of companies that would be heavily impacted” if Huawei were to lose access to its American suppliers, Mr. Jones said. ”It would be a very serious situation.”

Huawei is by far the biggest-spending Chinese tech company when it comes to research and development. It has an in-house chip-design unit that is the seventh largest in the world. It is working on high-end chips for artificial intelligence, and its chips are increasingly displacing foreign suppliers in its smartphones: Only 7% of the semiconductors inside Huawei’s top-of-the-line P20 Pro are from American suppliers, according to ABI Research, compared with 60% in ZTE’s high-end Axon M device.

Yet Huawei still relies on imports from U.S. chip companies such as Broadcom, Xilinx Inc. and Analog Devices Inc. for components used in its telecom equipment, according to a breakdown of its suppliers by investment bank Jefferies. Huawei buys equipment from data-storage equipment maker Seagate Technology PLC for use in its enterprise business, and uses memory chips made by Micron Technology Inc. in its smartphones, the bank said.

Related image

A Xilinx spokeswoman said the company “is aware of the situation and is monitoring it closely.” The other suppliers either declined to comment or didn’t respond to requests for comment.

It’s a pretty extensive list of companies that would be heavily impacted.

Image result for Xilinx, photos

Intel and Qualcomm, which draw huge revenue from China, are seen by Huawei as more than suppliers. In Huawei’s annual report, Intel is described as a “strategic partner,” and the companies work together in a range of areas, including next-generation 5G technology.

On Dec. 5, Huawei announced it had completed a test of key 5G technology using Intel processors and a Huawei base station. In September, Huawei credited help from Intel as it made its first phone call on a type of 5G network.

Intel declined to comment.

Image result for qualcomm, chips, photos

Qualcomm has also been a collaborator in 5G. Earlier this year, the San Diego chip maker said it supplied prototype equipment used in a 5G test by Huawei. In 2015, Qualcomm, Huawei and China’s largest chip maker, Semiconductor Manufacturing International Corp. , launched a joint venture in Shanghai to work on next-generation chip technology.

Fears about Huawei’s dominance in 5G technology were behind the U.S.’s decision to scuttle the takeover of Qualcomm by Broadcom earlier this year. Both companies declined to comment.

Write to Dan Strumpf at daniel.strumpf@wsj.com

https://www.wsj.com/articles/silicon-valley-helped-build-huawei-washington-could-dismantle-it-1544358603

Will Arrest Of Huawei Exec Meng Wanzhou Derail U.S.-China Trade Talks — Trump Says “No”

December 9, 2018

China has ratcheted up the pressure on Canada to release the detained executive of Huawei Technologies over the weekend by threatening “grave consequences”

China critical of US side’s unilateral hegemonic behaviour — “This is a dilemma, and it is difficult to predict what will happen.”

Donald Trump Upbeat On China Talks; Aides Downplay Huawei Arrest Friction

Donald Trump Upbeat On China Talks; Aides Downplay Huawei Arrest Friction

“China talks are going very well,” Donald Trump said on Twitter, without providing any details (File)

WASHINGTON: U.S. President Donald Trump sounded an optimistic note about trade negotiations with China as two of his top economic advisers downplayed friction from the arrest of a senior executive of Chinese telecom equipment maker Huawei Technologies.

“China talks are going very well,” Trump said on Twitter, without providing any details.

Major companies have expressed concerns about how the arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada at the request of U.S. authorities would affect U.S.-China relations or that it would cause a potential backlash against American firms operating in China.

Photographer: Lluis Gene/AFP/Getty Images

Meng, 46, the daughter of Huawei’s founder, appeared in a Vancouver court for a bail hearing as she awaits possible extradition to the United States in the investigation of whether Huawei violated U.S. sanctions against Iran.

Image result for Xi Jinping and Huawei founder Ren Zhengfei, photos

Photo: Xi Jinping and Huawei founder Ren Zhengfei

Larry Kudlow, director of the White House’s National Economic Council, told CNBC he did not believe Meng’s arrest would “spill over” into the talks with China aimed at increasing Beijing’s purchases of U.S. farm and energy commodities, lowering Chinese tariffs and making sweeping changes to China’s policies on intellectual property and technology transfers.

Kudlow said the investigation of whether Huawei violated U.S. sanctions against Iran was on a “separate track” from the trade talks and was a matter of national security and U.S. law.

“You can’t break the law. You break the American law, you break the Canadian law, you’ve got to pay the consequences of that,” Kudlow said of the Huawei case. “That was the case with other companies, and will continue to be the case. These are issues of national security.”

Continued concerns over U.S.-China trade relations caused stocks to sell off on Friday, with technology shares leading the decline. The Nasdaq Composite fell 2.4 percent, with the Dow Jones Industrial Average falling 2.1 percent and the S&P 500 index down 1.9 percent in afternoon trade.

White House trade adviser Peter Navarro told CNN that the U.S.-China trade talks and the Huawei arrest “are two separate events,” calling the timing of Meng’s arrest a coincidence.

Navarro said the arrest was the result of “the bad actions of Huawei,” adding there was a “frightening” risk that the Chinese government could use the company’s products for spying.

“The timing was unusual, but the actions were legitimate.”

Asked if the United States would walk away from trade talks if U.S.-China differences were not resolved in 90 days, Navaro said: “It’s not a question of walking away. It’s a question of moving forward on the strategy, which is to simply raise the tariffs” on Chinese goods.

Kudlow expressed optimism that the United States and China will make substantial progress during the 90-day period allocated for talks, ending around March 1.

“I think there will be a lot of success in the next 90 days; President has indicated, that if there’s good solid movement and there’s good action, he might – he might – be willing to extend the 90 days,” Kudlow told CNBC.

He reiterated that the Trump administration was expecting immediate movement from China on purchases of agricultural commodities and energy and added that he expected Chinese autos tariffs to be reduced. He said it was a positive sign that China was willing to discuss core issues related to intellectual property theft, forced technology transfers and computer hacking of U.S. companies.

However, Kudlow said U.S. Trade Representative Robert Lighthizer, who will lead the American side in the talks, will be looking to ensure that any agreements can be fully enforced and monitored to ensure follow-through by Beijing.

Huawei CFO Meng Wanzhou (picture-alliance/dpa/M. Shipenkov)

The chief financial officer Meng Wanzhou of China’s Huawei Technologies

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Beijing escalates dispute over arrest of Sabrina Meng Wanzhou by lodging diplomatic protest

  • China official Xinhua news agency attacks Canadian PM Justin Trudeau for not telling Beijing in advance and ‘letting this nasty thing happen’
PUBLISHED : Sunday, 09 December, 2018, 12:01pm
UPDATED : Sunday, 09 December, 2018, 1:12pm
China has ratcheted up the pressure on Canada to release the detained executive of Huawei Technologies over the weekend by threatening “grave consequences” and accusing Canada of “hurting the feelings of the Chinese people”, escalating the case into one of the worst diplomatic rows between Beijing and Ottawa.

Chinese foreign vice-minister Le Yucheng on Saturday summoned Canadian ambassador John McCallum to lodge a “strong protest” against the arrest of Sabrina Meng Wanzhou in Vancouver and urged Ottawa to release Meng immediately, according to a brief foreign ministry statement.

Meng, the chief financial officer at Huawei and a daughter of the Chinese telecom giant’s founder, was arrested in Vancouver on December 1 and faces extradition to the United States, which alleges that she covered up her company’s links to a firm that tried to sell equipment to Iran in defiance of sanctions.

The arrest of Meng in Canada, which took place on the same night that Chinese President Xi Jinping and US President Donald Trump dined together in Buenos Aires, has infuriated Beijing.

The official Xinhua news agency published an editorial on Sunday morning condemning the arrest as an “extremely nasty” act that had caused “serious damage to Sino-Canada relations”.

“According to the words of the Canadian leader, he had known of the action in advance,” Xinhua said, referring to the fact that Canadian Prime Minister Justin Trudeau – whom it did not did name directly – had a few days’ notice of the arrest.

“But he didn’t notify the Chinese side. Instead, he let this kind of nasty thing to happen and assisted the US side’s unilateral hegemonic behaviour – this has hurt the feeling of Chinese people,” Xinhua added.

Huawei exec Meng Wanzhou

The last time that Beijing called Canada of hurting the feelings of the Chinese people was more than a decade earlier in 2007 when the then prime minister Stephen Harper hosted the Dalai Lama.

People’s Daily, the mouthpiece of the ruling Communist Party, published a similarly strongly worded statement, condemning Canada for arresting Meng and threatening to take action against Ottawa if Meng is not released.

“The Canadian side must realise clearly that there’s no vagueness between justice and arbitrariness,” the People’s Daily editorial reads.

“The Canadian side must correct its wrongs and immediately stop its infringement of the legitimate rights and interests of the Chinese citizen to give the Chinese people a right answer so that it can avoid paying a dear price.”

The joint condemnation by China’s foreign ministry, Xinhua and the People’s Daily against Ottawa is an unusual step, reflecting how seriously Beijing is taking the case and its determination to set Meng free.

While China did not specify what action it would take to inflict pains on Canada, the harsh wording suggests that it has plans to retaliate.

These could range from the freezing of diplomatic exchanges to the suspension of trade and would be likely to be set in motion if Meng is extradited to the US.

David Mulroney, a former Canadian ambassador to China, told Reuters on Friday that there will probably be “a deep freeze with the Chinese in high-level visits and exchanges”.

“The ability to talk about free trade will be put in the ice box for a while. But we’re going to have to live with that. That’s the price of dealing with a country like China,” Mulroney was quoted as saying.

Shi Yinhong, director of Renmin University’s Centre for American Studies and an adviser to the State Council, said that the Meng incident put China in a bind between the need to show it can protect its business people abroad without spooking other advanced industrial nations with a strong response against Canada.

“China is concerned that in the future more of its important people abroad will be seen as a threat, and that their safety will become an issue.”

“On the other hand, especially in the context of the comprehensive tension between Beijing and Washington, China has an interest to maintain and improve relations with other advanced industrial countries.

“If China takes a very strong revenge against Canada, it will hurt these relations. This is a dilemma, and it is difficult to predict what will happen.”

Adam Austen, a spokesman for Canadian Foreign Minister Chrystia Freeland, said Saturday there is “nothing to add beyond what the minister said yesterday”.

Freeland told reporters on Friday that the relationship with China was important and valued, and Canada’s ambassador in Beijing has assured the Chinese that consular access will be provided to Meng.

A court hearing over whether Meng should be bailed will continue on Monday.

Additional reporting by Reuters

https://www.scmp.com/news/china/diplomacy/article/2177091/beijing-blames-canada-huawei-arrest-and-threatens-grave

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Huawei Arrests Shows U.S., Canada Mean Business — Trump’s Confronting China Wins Over Skeptical CEOs

December 8, 2018

Some American executives now see administration’s blunt approach as best shot to resolve intellectual-property grievances

Donald Trump and Xi Jinping at a dinner meeting on Dec. 1 Photographer: Pablo Martinez Monsivais/AP

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When President Trump first threatened to levy major tariffs on China, business leaders worried the administration was using the wrong weapon on the right target.

It wasn’t the flood of washing machines coming in and the trickle of Fords going out that raised the ire of America’s CEOs. They wanted something done about counterfeiting, allegations that the Chinese were stealing U.S. intellectual property and investment rules Beijing leans upon that force technology transfers.

Getting China to play by the rules has proven tough over past decades. International bodies—such as the Word Trade Organization—have insufficient power. Export controls and indictments are tools to address theft, but they work only in specific situations and can require cooperation from U.S. companies that may be reluctant to rock the boat.

It’s becoming clear Mr. Trump’s prolonged tit-for-tat trade fight may represent American business’s best shot at addressing those long-standing grievances.

“Calling the abuser an abuser to their face is the first step,” Basheer Junjua, chief executive of San Francisco software development firm Calculi, told me this past week at The Wall Street Journal’s CEO Council in Washington.

U.S.-China tensions have rattled markets. The Dow industrials started the past week strong after positive news on the trade front but plunged as doubts about a favorable outcome re-emerged. The arrest of a senior executive of networking-gear maker Huawei Technologies Co. on Wednesday intensified negotiations on trade.

The dozens of CEOs gathered for the Journal’s meeting in the capital, however, suggest business leaders have shifted their view of Mr. Trump’s confrontational approach. They now say they are encouraged that the administration recognizes complex problems demand sophisticated solutions.

National Security Adviser John Bolton outlined how negotiations could take a turn over a 90-day cease-fire China and the U.S. agreed to this past week. Speaking to the CEO Council, he proposed a rule that says there will be no imports into the U.S. of products or services based on the theft of American innovation.

“That’s not a tariff question,” he said. “That’s a way of defending intellectual property from the United States.”

Mr. Bolton insisted the administration can’t ensure fair trade without getting China to agree to a broad set of reforms.

“Let’s take a show of hands,” Mr. Bolton said to the assembled CEOs. “How many of you believe in free trade?” Several hands went up. “How many of you believe that free trade means allowing the Chinese to kick us around, steal your intellectual property and not respond to it?”

No hands went up.

When critics accuse the administration of not pursuing a free-trade policy by goading the Chinese, he concluded, “I say if there’s going to be free trade, they’re going to have to live by it.”

, the president of the U.S. Chamber of Commerce’s China Center, said the White House has a supportive audience in the business community when it comes to confronting China. When Mr. Trump came to office, there was “a frustration that had been building over a number of years.”

Many companies across many sectors have rushed to China, seeking a new market for goods and a lower cost for manufacturing. As they did, it became increasingly clear what price they had to pay to enter the most populous nation in the world.

“The allure of a billion-plus-people market is an allure for every company,” Mr. Janjua, the Calculi CEO, said. “However, they made the rules say ‘if you want to come work with us you have to put all the technology on the table.’ ”

The trade-off is costly. Earlier this year, the White House published research estimating an annual cost of between $250 billion and $600 billion to the U.S. economy from China’s counterfeit goods, pirated software and theft of trade secrets. By comparison, the National Science Foundation estimates the U.S. spends an average of $445 billion in annual research and development.

Several experts say past administrations attempted to address alleged abuses but lacked resolve. For instance, many companies and regulators figured China would eventually act like the rest of the countries in the WTO.

“People were making a bet which direction China would take, and it looked like China would follow global rules,” said James Andrew Lewis, a vice president at the Center for Strategic and International Studies, a bipartisan research organization in Washington. When it comes to trade, Mr. Lewis says China’s strategy to win at any cost often overshadows the desire to be seen as a good citizen of the world.

“Calling the abuser an abuser to their face is the first step.”

—Basheer Junjua, chief executive of software development firm Calculi, on the need to confront China on intellectual-property grievances

Abigail Grace, a researcher at the Center for New American Security, a bipartisan think tank in Washington, said the Obama administration was initially reluctant to call China out on specific allegations of theft or counterfeiting. That’s because it was trying to get Beijing to cooperate on various multilateral agreements.

“If one pushed China too hard on individual issues, it would jeopardize those broader goals,” Ms. Grace said.

President Obama took a harder line with China during his second term when it became clear Chinese President Xi Jinping wasn’t going to open the Chinese market up as much as initially hoped, she said. Getting the support of American business was tough, Ms. Grace said, because “companies were hesitant to admit this type of rampant IP theft was taking place because of how shareholders might respond.”

Mr. Lewis, a former foreign service officer in the State and Commerce departments, said reforms could be messy, particularly because of the interconnectedness of supply chains or joint ventures.

For example, his organization is preparing to publish a report on whether the next generation of cellular networks, known as 5G, is viable without China’s help.

He said companies like China’s Huawei or ZTE Corp. “can’t make products without U.S. technology.”

Can Western firms could pull off 5G without Chinese partners? “The answer is yes, but it is going to cost a lot more.”

Write to John D. Stoll at john.stoll@wsj.com

Appeared in the December 8, 2018, print edition as ‘Trump’s China Tack Wins Fans.’

https://www.wsj.com/articles/trumps-tough-china-tack-wins-over-skeptical-ceos-1544245201

Germany Resists Pressure to Abandon Huawei

December 7, 2018

German officials were reportedly pushing earlier this year for their government to follow other countries’ lead and slap a ban on Chinese IT firm Huawei. But Berlin doesn’t seem inclined to bow to US pressure.

    
Logo von Huawei (Reuters/H. Hanschke)

Chinese multinational tech giant Huawei Technologies opened a new information security lab in the German city of Bonn last month. Some observers see the move as designed to butter up German regulators ahead of the country’s 5G mobile spectrum auction.

The German network regulator (BNetzA) is finalizing the terms for the 5G licensing round it plans to hold in the first quarter of 2019.

The total cost of building Germany’s 5G networks could be €80 billion ($91 billion) and this means high stakes for Huawei and its rivals Ericsson, Nokia, ZTE and Samsung.

Not too bothered

Germany doesn’t have its own indigenous telecoms hardware industry to speak of and maintains close trade and investment ties with Beijing.

The German interior ministry has said there is no legal basis to exclude foreign equipment providers from the country’s 5G system and no such measure is planned.

Read more: China’s Huawei finance chief arrested in Canada, faces extradition to US

There is no formal bilateral agreement on preventing commercial cyber espionage between Germany and China, but the number of known China-originated commercial cyber espionage attacks on German companies has dropped in the past two years, according to the Australian Strategic Policy Institute (ASPI).

This is corroborated by the Federal Office for the Protection of the Constitution (BfV), Germany’s domestic intelligence agency. The fall has been linked to an increase in Chinese foreign direct investment in high-tech and advanced manufacturing industries in 2016.

Former BfV head Hans-Georg Maassen has linked the decline to an increase in the use of legal tools for obtaining the same information, such as corporate takeovers.

“Industrial espionage is no longer necessary if one can simply take advantage of liberal economic regulations to buy companies and then disembowel them or cannibalize them to gain access to their know-how,” Maassen said.

But things may be changing. “The German public discourse around China has changed in the last year or so, not primarily rushed by the US,” cyber security specialist Raffaello Pantucci told DW. “The Germans have seen several cases where the Chinese have crossed a line.”

Read more: Exit the Dragon? Chinese investment in Germany

Pantucci believes the Chinese will now have difficulty winning the 2019 5G auction. “This puts the cat among the pigeons. No country can avoid this dilemma and I think it’s now very unlikely a Chinese firm will win.”

Huawei Australien (Imago/ZumaPress//Imago/M. Schwarz)Australia has cited national security risks with regard to Huawei

Issues in the UK, Australia and New Zealand

Britain’s BT Group said this week it will remove Huawei Technologies’ equipment from its core 4G network within two years and has also excluded Huawei from bidding for contracts to supply equipment for use in its core 5G network.

However, a ban remains unlikely in the UK, due to the advanced stage of Huawei’s involvement in 5G development in the country.

New Zealand has also rejected Huawei’s first 5G bid, citing national security risks while earlier this year, Australia banned Huawei from supplying 5G equipment for the same reason.

US pressure

The US is putting increased pressure on its political allies, including Germany, to exclude Huawei from their next-generation mobile networks. Washington has long said Huawei and ZTE, another Chinese hardware maker, are potential menaces to security and privacy.

US authorities have pointed to China’s national intelligence law, which they say could force Chinese companies to facilitate spying efforts in other countries. US authorities cited the issue when they blocked Broadcom’s hostile takeover of Qualcomm earlier this year.

In 2013, the US Commission on the Theft of American Intellectual Property estimated that the theft of Intellectual Property was $300 billion (€257 billion) annually, with 50 to 80 percent of the thefts attributed to China.

But why is it all such a big deal?

“Many states are concerned about using Chinese telecommunications and technology companies in critical infrastructure companies for a range of reasons,” Daniella Cave, a specialist on cyber security at ASPI, told DW.

Firstly, she says, the Chinese state has a history of aggressive and wide-ranging espionage and intellectual property theft.

Secondly, the national intelligence law they introduced in 2017 compels organizations and individuals to participate in intelligence activities and to keep secret the intelligence activities they are aware of.

Thirdly, there have been allegations that Chinese companies have been complicit, knowingly or unknowingly, in the theft of secrets and valuable government data, Cave says.

A double-edged sword

“I think the Chinese state’s introduction of the national intelligence law is going to place suspicion on the international activities of most of China’s large companies going forward,” Cave says.

“But it’s a double-edged sword for China, as the Chinese Communist Party has made it virtually impossible for Chinese companies to expand without attracting understandable and legitimate suspicion,” she adds.

Cave believes most developed states will be looking at ways in which they can move away from the use of Chinese products in their critical infrastructure.

“A lot of companies have already, and will continue, to look at ways in which they can minimize the risks to their supply chain by closely scrutinizing the hardware and software in their systems.”

https://www.dw.com/en/pressure-on-germany-as-uk-telecoms-company-shuns-huawei/a-46609010