A high-stakes contest for technological supremacy

Meng Wanzhou, chief financial officer of privately owned Huawei Technologies Corp., was arrested by Canadian police at the behest of American law enforcement authorities seeking extradition as she changed planes at Vancouver International Airport. Wanzhou is the daughter of the company’s founder, a former military engineer with China’s People’s Liberation Army.

She has been charged with conspiracy to defraud banks in connection with alleged violations of American sanctions on Iran. The December 1 arrest occurred on the same day that President Trump and Chinese President Xi Jinping agreed to a cease fire in the escalating trade war between the world’s two largest economies.

Huawei, China’s smartphone and telecommunications giant, has long been at the center of drama between the United States and China. The U.S. has pressured allies to limit use of Huawei products and technology.

Huawei may not be a familiar name to Americans, but it is a global telecom behemoth, with about $93 billion in revenue 2017, almost on par with Microsoft.

Based in Shenzhen, near Hong Kong, it has the biggest research and development budget of any Chinese company. The firm has benefitted from Chinese government subsidies, contracts, and financing from the state-owned China Development Bank. These subsidies give Huawei a huge advantage over its competitors.

The company is the world’s second largest maker of smartphones, behind only Samsung. It is the world’s largest provider of telecom equipment, including switches, routers, cell tower gear, cloud computing and cybersecurity. It also sells personal computers and a wide array of wireless devices like smart watches.

Huawei is seen as a global leader in 5G, the ultra-fast wireless technology that will soon allow all the objects around us to be connected. That is good for China and bad for the United States. The U.S. worries that if Huawei wins the race to develop 5G technology, Americans may someday be buying their equipment to connect factories, vehicles, homes, utility grids and more.

Huawei is also seen as a cyber-security threat. Washington has accused it of being a potential conduit for Chinese spying and cyber theft. The Justice Department, intelligence agencies, and regulators have long believed the firm has violated American sanctions against Iran, that it works primarily for Chinese government interests and that its equipment contains back doors that allow that government to spy on customers.

In 2012, the House Intelligence Committee released a report that tagged Huawei’s products a potential security threat, accused them of engaging in intellectual property theft and recommended a ban on the company’s equipment. As early as 2003, Cisco Systems accused Huawei of infringing on Cisco’s patents and illegally copying source codes used in its routers and switches. Other accusations have also surfaced. Motorola named the firm as a co-defendant in a lawsuit and T-Mobile alleged that Huawei stole technology form its headquarters.

The Committee on Foreign Investment in the United States, an inter-agency committee of the federal government, has blocked deals involving Huawei on grounds that it had possible ties to the Chinese government and that the strategic nature of the telecommunications industry made such deals potential threats to national security. This August a defense policy bill prohibited the federal government from using Huawei equipment.

President Trump is considering an executive order that would bar American companies from using telecommunication equipment made by Huawei and other Chinese telecom companies because the equipment poses serious national security risks. Of course, the company strongly denies stealing intellectual property or enabling Chinese espionage.

It is unclear how the arrest of Meng Wanzhou will influence ongoing trade talks between the United States and China. One possibility is that the U.S. government will allow trade to trump national security concerns, as the president has suggested he would intervene on the Huawei issue if it would help secure an agreement.

Americans best stay tuned as this high-stakes contest for technological supremacy unfolds.

Originally Published: January 4, 2019