The Fate of Huawei Foreshadows the Fate of China

One of Beijing’s top goals is transforming China into a technology powerhouse, so what happens to Huawei matters beyond China’s own borders.

Visitors walk past a Huawei stand at the 2017 Mobile World Congress in Barcelona, Spain.
Visitors walk past a Huawei stand at the 2017 Mobile World Congress in Barcelona, Spain. (Eric Gaillard / Reuters)

As Ken Hu, the “rotating” chairman at Huawei Technologies, made the case during a briefing in southern China that his company’s telecom equipment was trustworthy and above board, he did something mundane for many global executives, yet remarkable for the embattled Chinese giant: He took questions from foreign journalists.

Hu’s press conference on Tuesday was an all-too-rare attempt by Huawei’s top brass to engage with the world—and it comes at a critical moment. This month, Hu’s colleague and the company’s chief financial officer, Meng Wanzhou, was arrested in Canada, accused by Washington of misleading financial institutions to break U.S. sanctions on Iran. Meng’s arrest is the latest front in a multipronged standoff between Washington and Beijing, one that encompasses disputes over trade, intellectual property, naval lanes, and much else.

In that broader context, focusing on Huawei may appear, at first glance, to be a narrow lens. After all, the company makes telecom gear that its critics can buy elsewhere. But what happens to Huawei matters—for China and the world. One of Beijing’s top goals is transforming China into a technology powerhouse able to innovate and control the vital know-how powering future industries, and to free itself from, and then challenge, the United States. Huawei, as one of China’s most prominent global enterprises, will be a key part of that quest. Hence, its problems are China’s problems, and the fate of the company could foreshadow the fate of the country.

Huawei has always insisted that it has never had ties to the Chinese government or military. Still, its critics remain unconvinced. The suspicion that Huawei is a threat to American national security has become—fairly or not—indelibly marked on the minds of many American officials. Sales of its major equipment in the United States have been stymied, its acquisitions of American assets have been blocked, and President Donald Trump’s administration, determined to defend American technology, has taken an especially hostile position on the company.

All of that, to a degree, is Huawei’s own fault. The problem starts with its mysterious corporate culture, which has left policy makers and security experts hazy about its background and intentions.

Huawei markets itself as a miracle of modern entrepreneurship, a rags-to-riches fairy tale of a regular guy who launched a business empire on hard work and chutzpah. In the company’s narrative, its founder, Ren Zhengfei, was a mere soldier-engineer who, after leaving the military, started Huawei in 1987 with no government connections, state aid, personal wealth, or experience in telecommunications. Somehow, despite this lack of expertise and resources, Ren managed to bring a complex technical system to market in a mere handful of years, an impressive achievement in what was then a decidedly low-tech China. Officially, the company is owned by its employees, who vote in their own management team. Ren, whom the company calls its “natural person shareholder,” controls only 1.4 percent of Huawei but has served as its chief executive for 30 years, and his daughter, the arrested Meng, now helps him run the company.

This story could be perfectly true. But Ren has done a miserable job of selling it. As Huawei has risen to worldwide fame, he remains an enigma. Rarely appearing in public, he has made little effort to refute his critics or build confidence in himself and his company. Though other Huawei executives reach out to an international audience here and there—as Hu did on Tuesday—Ren mostly delegates the talking to lobbyists and public-relations officers.

On the rare occasions he has personally tried to influence public opinion, he seems to only reinforce his persona. In 2012, Ren met with members of a U.S. congressional committee, but they came away frustrated with what they considered incomplete answers and information. Based on how he responded to questions during a public interview at the World Economic Forum in 2015, it’s not hard to see why. Asked point-blank if his company had links to the Chinese government or military, Ren never offered the requisite, emphatic “No,” and broke into a roundabout response, saying: “There’s no need to exert ourselves to explain who we are.”

Eric Harwit, an Asian-studies professor at the University of Hawaii at Manoa and the author of the book China’s Telecommunications Revolution, argues that Huawei’s fortunes have been damaged by Ren’s inability to schmooze and sell. “You need a Jack Ma who can stand up with Trump and shake hands, and Trump can say you’re a great guy,” Harwit said, referring to the effusive founder of the Chinese e-commerce firm Alibaba. “They don’t have a Jack Ma.”

Compounding Huawei’s woes is a history of suspicious behavior. American companies, including Cisco Systems, have accused Huawei of pilfering their intellectual property. Now comes the Meng case, which, according to Harwit, “puts Huawei in the headlines.”

“You jump from sanctions violations to what kind of company is Huawei overall,” he said. “Are they some kind of evil company that is doing the bidding of the Chinese government no matter what?”

Huawei says it complies with all regulations wherever it operates. And more broadly, the company has never been discovered spying in any country. To an extent, it is having to defend itself against crimes of which there is no evidence. With nearly $93 billion in revenues in 2017, it has also done business successfully with a wide range of countries. Yet distrust of Huawei is spreading. New Zealand and Australia recently barred it from providing the equipment for cutting-edge 5G cellular networks.

This widening concern about Huawei is representative of increasing wariness of China. The more assertive Beijing has become in pressing its diplomatic and economic goals—from its state-led ambitions to conquer world manufacturing to the sizable expansion of its military capabilities—the more threatening a rising China has appeared. Foreign governments are, in response, standing in China’s path. Both the United States and the European Union have introduced new policies to more carefully scrutinize foreign investments, an effort clearly aimed at keeping high-tech know-how out of Chinese hands. In Malaysia, Prime Minister Mahathir Mohamad recently halted high-profile infrastructure projects backed by Beijing while warning of a new “colonialism.”

In the Huawei case, American security experts fret that in China, where the distinction between state and society is, at best, blurred, intelligence services could and would exploit the company’s equipment, no matter what its executives promise. “Most of it is a China problem, and it’s gotten worse,” William Reinsch, a senior adviser in international business at the Center for Strategic and International Studies in Washington, D.C., said of Huawei’s issues. “If Huawei was an Indian company, I think that the attitude toward it would be very different.”

Thus China and Huawei are in a reinforcing loop of escalating distrust. The difficulties the company is facing in the United States and elsewhere should be a signal to Beijing’s top leadership that it needs to do more to ease fears about its ascent and ambitions. If not, both could find doors closing that they badly need open.

At the two-hour-long press conference at the company’s campus in Dongguan, Hu declined to comment on Meng’s legal situation, instead arguing that Huawei’s sales figures offered proof of how much its customers trusted it. Still, even at the briefing, the company could stomach only so much openness. Though television correspondents were invited, their cameras were not.

It was probably too little, too late anyway.

“They made a huge foray a while back to try to change their image here and it didn’t work,” Reinsch noted, referring to a past Huawei public-relations effort. Now, he added, “I don’t think it is possible.”