“By any means necessary”: China’s Huawei Technologies flies close to the sun in its quest commandeer proprietary technology.

Not all-smiles at the moment … Chinese leader Xi Jinping.

In China, it’s difficult to discern where private industry ends and the government begins. At some level, we’ve been aware of that conundrum for decades.

Still … opportunities for doing business in the world’s largest country have been a tempting siren call for American companies. And over the past 15+ years, conducting that business has seemed like the “right and proper” thing to do — what with China joining the G-8+5 economic powers along with incessant cheerleading by the U.S. Department of Commerce, abetted by proactive endeavors of other quasi-governmental groups promoting the interests of American commerce across the globe.

But it’s 2019 and circumstances have changed. It began with a change in political administrations in the United States several years ago, following which a great deal more credence has been given to the undercurrent of unease businesspeople have felt about the manner in which supposedly proprietary engineering and manufacturing technologies have suddenly popped up in China as if by magic, pulling the rug out from under American producers.

Nearly three years into the new presidential administration, we’re seeing evidence of this “new skepticism” begin to play out in concrete ways. One of the most eye-catching developments – and a stunning fall from grace – is Huawei Technologies Co., Ltd. (world headquarters: Shenzhen, China), one of the world’s largest makers of cellphones and high-end telecom equipment.

As recounted by NPR’s Weekend Edition reporter Emily Feng a few days ago, Huawei stands accused of some of the most blatant forms of technology-stealing.  Recently, the Trump administration banned all American companies from using Huawei equipment in its 5G infrastructure and is planning to implement even more punitive measures that will effectively prevent U.S. companies from doing any business at all with Huawei.

Banning of Huawei equipment in U.S. 5G infrastructure isn’t directly related to the theft of intellectual property belonging to Huawei’s prospective U.S. suppliers.  Rather, it’s a response to the perceived threat that the Chinese government will use Huawei equipment installed in U.S. 5G mobile networks to surreptitiously conduct espionage for military, political or economic purposes far into the future.

In other words, as one of the world’s largest telecom players, Huawei is perceived as a direct threat to non-Chinese interests not just on one front, but two: the demand side and the supply side.  The demand-side threat is why the Trump administration has banned Huawei equipment in U.S. 5G infrastructure, and it has also publicly warned the U.K. government to implement a similar ban.

As for the supply side, the Weekend Edition report recounts the intellectual property theft experience of U.S.-based AKHAN Semiconductor when it started working with Huawei. AKHAN has developed and perfected an ingenious form of diamond-coated glass – a rugged engineered surface perfectly suited for smartphone screens.

Huawei expressed interest in purchasing the engineered glass for use in its own products. Nothing wrong with that … but Huawei used product samples provided by AKHAN under strict usage-and-return guidelines to reverse-engineer the technology, in direct contravention of those explicit conditions – and in violation of U.S. export control laws as well.

AKHAN discovered the deception because its product samples had been broken into pieces via laser cutting, and only a portion of them were returned to AKHAN upon demand.

When confronted about the matter, Huawei’s company officials in America admitted flat-out that the missing pieces had been sent to China.  AKHAN enlisted the help of the FBI, and in the ensuing months was able to build a sufficient case that resulted in a raid on Huawei’s U.S. offices in San Diego.

The supply side and demand side threats are two fronts — but are related.  One of the biggest reasons why Huawei kit has been selected, or is being considered, for deployment on 5G mobile networks worldwide is due to its low cost. The Chinese government, so the thinking goes, “seduces” telecom operators into buying the Huawei kit by undercutting all competitors, thereby gaining access to countless espionage opportunities. To maintain its financial footing Huawei must keep its costs as low as it can, and one way is to avoid R&D expenses by stealing intellectual property from would-be suppliers.

AKHAN is just the latest – if arguably the most dramatic – example of Huawei’s pattern of technology “dirty tricks” — others being a suit brought by Motorola against Huawei for stealing trade secrets (settled out of court), and T-Mobile’s suit for copying a phone-testing robot which resulted in Huawei paying millions of dollars in damages.

The particularly alarming – and noxious – part of the Huawei saga is that many of its employees in the United States (nearly all of them Chinese) weren’t so keen on participating in the capers, but found that their concerns and warnings went unheeded back home.

In other words – the directive was to get the technology and the trade secrets, come what may.

This kind of behavior is one borne from something that’s far bigger than a single company … it’s a directive that’s coming from “China, Inc.”  Translation: The Chinese government.

The actions of the Trump administration regarding trade policy and protecting intellectual property can seem boorish, awkward and even clumsy at times. But in another sense, it’s a breath of fresh air after decades of the well-groomed, oh-so-proper “experts” who thought they were the smartest people in the room — but were being taken to the cleaners again and again.

What are your thoughts about “yesterday, today and the future” of trade, industrial espionage and technology transfer vis a vis China? Are we in a new era of tougher controls and tougher standards, or is this going to be only a momentary setback in China’s insatiable desire to become the world’s most important economy?  Please share your thoughts and perspectives with other readers here.

2 thoughts on ““By any means necessary”: China’s Huawei Technologies flies close to the sun in its quest commandeer proprietary technology.

  1. Trading with China always presumed that prosperity would defang a Communist dictatorship. We’ve let the idea-stealing skullduggery take place, in hope that our ethics would eventually catch on as a moral example for how to do business.

    This has been naive.

    The Communist Party is firmly in charge in China. The bubbling up of democratic tendencies through improving living standards has not interfered with the party’s power. It used to be thought that rural elections would ultimately depose the leaders or improve their character. It hasn’t. The party leaders have simply adopted surface gentility. That’s called “stealing our methods”.

    We traded with Hitler, too, at the start, and his character did not improve.

    I applaud making China hurt with our trade negotiations. Someday they will understand the notion of capitalism as a free exchange and of honestly observed patents as the protection for inventors of the future. But don’t expect Xi Jinping to read Atlas Shrugged anytime soon.

  2. Recent news reports and official pronouncements convey the impression that Huawei is a state-owned enterprise (SOE) but, according to The New York Times (25th April 2019), “Huawei Technologies is wholly owned by a holding company called Huawei Investment & Holding. That holding company has two shareholders … Mr. Ren, Huawei’s chief executive [and company founder, who is a member of the Communist Party of China and was formerly a People’s Liberation Army military technologist], owns a little more than 1% of shares. The rest are owned by an entity called the Union of Huawei Investment & Holding. This is Huawei’s labor union.” (see https://www.nytimes.com/2019/04/25/technology/who-owns-huawei.html).

    This is why Huawei describes itself as “employee-owned” and, according to the Chief Secretary of the company’s board of directors, the labour union’s stake is a means for workers to own virtual Huawei stock.

    In theory, this demonstrates that Huawei is not an SOE. But you have to take the company at its word to believe this assertion, because Huawei has never offered shares to the public and has therefore never made any official securities filings. Clearly the Trump administration believes otherwise, or that the Chinese government somehow pulls Huawei’s strings in other undisclosed ways. It could be as simple a matter as Huawei counting the government as its biggest and most strategic customer.

    As U.S. marketers always say, “the customer is king.” In fact, it was Chinese government contracts that fueled Huawei’s rapid growth immediately after its founding in 1987.

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