‘No technical grounds’ to ban Huawei says UK Parliament committee

Chair of the Science and Technology Committee in the UK, Norman Lamb, has stated there is not enough technical evidence to ban Huawei and is demanding a final decision by the end of August.

In a letter written to Jeremy Hunt, Secretary of State for Digital, Culture, Media and Sport (DCMS), Lamb has demanded a conclusion to the Supply Chain Review which has staggered the progress of 5G networks in the UK. Many in the industry have become increasingly frustrated with the state of purgatory which has loomed over the UK telecoms industry, and now the influential Science and Technology Committee has had enough.

“Following my Committee’s recent evidence session, we have concluded that there are no technical grounds for excluding Huawei entirely from the UK’s 5G or other telecommunications networks,” said Lamb.

“The benefits of 5G are clear and the removal of Huawei from the current or future networks could cause significant delays. However, as outlined in the letter to the Secretary of State for Digital, Culture, Media and Sport, we feel there may well be geopolitical or ethical considerations that the Government need to take into account when deciding whether they should use Huawei’s equipment.”

This is the interesting aspect of the letter to Wright. Lamb is effectively telling DCMS and the National Cyber Security Centre (NCSC) to hurry up and make a decision, but not to come to a conclusion too quickly as there are ethical and political considerations to account for. It’s a bit of a mixed message, but a deadline is perhaps overdue for this saga.

The message from Lamb is relatively simple; there are no technical grounds to ban Huawei. Quoting the NSCS’ assumption that 100% secure is impossible, suggesting a lack of concrete evidence against Huawei espionage, reasserting legal obligations placed on telcos to maintain security and pointing towards the international nature of supply chains nowadays are all points made by Lamb to suggest Huawei should be allowed to contribute to network infrastructure.

There are of course concessions make in the letter. Lamb is suggesting Huawei should be excluded from contributing to the network core, while there should also be a mechanism introduced to limit Huawei should it fail on-going competency tests and security assessments, but the message seems to be focused on the idea that Huawei is no more of a security threat than any other organization.

“Supply chains for telecommunications networks have been global and complex,” the letter states. “Many vendors use equipment that has been manufactured in China, so a ban on Huawei equipment would not remove potential Chinese influence from the supply chain.”

Another interesting point raised by Lamb is the legal obligation which has been placed on the telcos to ensure security. Communications infrastructure is a key component to today’s society, but the telcos are the ones who will suffer some of the greatest consequences for poor risk mitigation and due diligence. None of the telcos have raised concerns of an increased security risk from Huawei, and this should be taken as some of the most important evidence when considering the fate of the Chinese vendor.

Ultimately, this is action from the Government. It might kick-off some bickering between the parties (Lamb is a Liberal Democrat) and between departments, but finally someone is forcing DCMS and NSCS into a decision. It seems Lamb is not concerned about the distraction of a party leadership contest or Brexit, he simply wants an answer by the end of August.

Interestingly enough, this letter also forces DCMS into basing the outcome of the Supply Chain Review on politics. By stating there are no technical grounds for a ban, should Wright and his team want to exclude Huawei it will have to be done for another reason. Lamb has asked DCMS to consider the ethical and political weight of a decision, as well as the impact it might have on relationships with allies.

This is now a very difficult decision for DCMS. Lamb has seemingly taken technical considerations off the table; any ban would have to be political.

In China, the government controls everything except the 100,000 hackers attacking Western targets every day

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Telecoms Consultant John Strand ponders the contradictions in Chinese cyber security policy.

It is well known that the Chinese government has the country on lockdown: people are monitored 24/7 with millions of CCTV cameras; the “Great Firewall of China” blocks access to unapproved content and tracks attempts to circumvent it; municipal party leaders keep tabs on citizens. All networks and equipment are operated by companies either owned by the government or are beholden to them. All surveillance data is aggregated into a unified system of social credits intended to standardize the assessment of the social and financial reputations of individuals and firms.

People who don’t live up to the Chinese government standards are sent to “transformation-through-education” or reeducation camps and generally are denied due process to defend their activities, according to Amnesty International. In practice, not a single bit of information moves outside of the government’s purview.

It’s curious then why more cyberattacks originate from China than any other nation. Indeed, if China was so concerned about law and order, they could end these attacks immediately, but they don’t.

The Chinese goal is to get Global domination from telecommunications networks over computers to IOT devices.

China’s expectation is win global domination in 10 key strategic industries by 2025. At the top of the list is information technology and the key products and services associated with AI, IoT, and smart appliances. China’s national champion in this domain is Huawei Technologies Ltd. Huawei’s founder and CEO Ren Zhengfei, a former Chinese military official, is clear about the company’s strategy to deliver not just the equipment that makes up the world’s information networks, but the devices that attach to it for consumer and industrial communications.

Huawei’s 25-year trajectory has been assisted by China’s government ensuring favorable operating conditions as well as a supply of guaranteed contracts to conduct the surveillance state across 1.4 billion Chinese. It’s no surprise that Huawei supplies the telecom infrastructure in Cuba and Venezuela where the Chinese government has close ties to the political leadership and can provide references on how to monitor political opponents.

Chinese hackers are here there and everywhere

What advanced technology China has not been able to develop itself, it appropriates through other methods, whether forced technology transfer or theft. U.S. cybersecurity vendor Cybereason issued a report describing “an ongoing global attack against telecommunications providers that has been active since at least 2017.”  The report concludes the perpetrator is the APT10, an “advanced persistent threat,” and a state-supported Chinese espionage group.

In December 2018, the U.S. government has indicted APT10 members with conspiracy to commit computer intrusion, conspiracy to commit wire fraud, and aggravated identity theft.  The indictment noted the hackers worked in tandem to steal intellectual and technological information from dozens of commercial and defense technology companies throughout the continental United States.  Additionally, APT 10 is also responsible for the theft of personnel information for 100,000 U.S. Navy personnel.

In Norway, the supplier of finance systems in the cloud Visma saw that Chinese hackers tried to steal client data – Visma is a company that delivers finance systems to hundreds of thousands of companies around the world.

Australian intelligence officials claimed China may have accessed thousands of files and 19 years’ worth of data – to include tax and banking records – on Australian National University students and staff.  Many of ANU’s graduates serve in the country’s intelligence and security agencies.

Symantec unveiled in June how Chinese hackers have attacked satellite and telecommunications infrastructure in the west.

Breaches like these are not new. The Center for Strategic and International Studies identified China as responsible for the greatest number of cyberattacks by any nation over the past dozen years.  It reached this conclusion from examining public data only.  The true depth of China’s efforts – and successes – in penetrating western networks is probably still unknown. Foreign Policy also described China’s Hacker Army in 2010.

One thing is that you use telecommunications networks to monitor people something else is the way you can use computers and the many Internet of Things devices in the future. If a Huawei network is a security threat, then a Lenovo computer or one of the many IOT solutions that Huawei is aiming for may also be a threat in the future.

Cyberhackers are looking for vulnerabilities to exploit, but if you can build products and services with backdoors, the Chinese government has an open road to Western information, technology, and secrets.

Why does the Chinese system stop the many hackers in the country?

There is something to suggest that the Chinese system and the Chinese president Xi Jinping are in control of anything but the many hackers in China. What causes the Chinese government to control almost the entire population, close to those who often try to hack into Western companies and governments’ systems.

If the board of Beijing has the will, there is no doubt that they could easily stop the many Chinese hackers. Some of the most well-known Chinese hacker groups are: APT10, APT1 or Comment Crew, KeyBoy, Honker Union, NCHP or Network Crack Program Hacker Group, Elderwood group etc. Many of these groups have, according to experts, close relations with the Chinese People’s Liberation Army and the Chinese government in general. We suspect that there is a reason why China does not do a serious job of stopping the many Chinese hackers.

Can a contract create security? No.

The fact that the Chinese government and companies like Huawei have not understood how to look at national security in the West has meant that “Made in China” has gained a whole new meaning. In a world where more and more is being digitized, bad experiences have resulted in Western companies and governments not having the same belief in the system in China as you have a few years ago.

When talking to telecommunications companies around the world, many of them respond that the greatest pressure in relation to their use of Chinese equipment does not come from governments but from their business customers who often compete against Chinese companies. Companies that have experienced how their Chinese competitors have stolen their intellectual properties and who have experienced the Chinese spying on them. Many of these companies’ fears relate to things they have experienced on their own body in their own business.

The fear of Chinese networks is not a fear isolated to governments, it is a fear that many large, medium and small companies share with the authorities and with their telecommunications providers.

There has been written and said a lot about Huawei over the past 9 months and about their relationship with the Chinese government. Let’s be honest Huawei uses gigantic resources to influence the press with a story of trusting them and not having the close relationship with the Chinese government that many are talking about.

In recent weeks, Huawei has come up with an offer that they would like to sign a document in which they undertake not to spy. This is probably one of the most grotesque offers I have seen in my business career. I would like to see the CEO of a mobile operator who goes to a board meeting and says that there is nothing to worry about as his government has just entered into an agreement with the Chinese that they must not spy on their customers.

The disclaimer of cyber security is important and ultimately it is not about convincing the telecommunications companies and governments, ultimately it is about business and private customers feel pressured when their data runs through Chinese infrastructure and Chinese devices.

 

John StrandJohn Strand founded Strand Consult in 1994. Its first focus was optimizing the sales process and reducing cost for companies in the IT, Telco and Media industry. John had already built successful consulting company providing sales and marketing services for the Telecom, It, Finance and Publishing sectors. The mobile industry exploded in the 1990s, and Strand Consult grew along with its new clients from the mobile industry, analyzing market trends, publishing reports and holding executive workshops that have helped telecom operators, mobile services providers, technology manufacturers all over the world focus on their business strategies and maximizing the return on their investments.

IBM and Google reportedly swap morals for cash in Chinese surveillance JV

IBM and Google executives should be bracing for impact as the comet of controversy heads directly towards their offices.

Reports have emerged, via the Intercept, suggesting two of the US’ most influential and powerful technology giants have indirectly been assisting the Chinese Government with its campaign of mass-surveillance and censorship. Both will try to distance themselves from the controversy, but this could have a significant impact on both firms.

The drama here is focused around a joint-venture, the OpenPower Foundation, founded in 2013 by Google and IBM, but features members such as Red Hat, Broadcom, Mellanox, Xilinx and Rackspace. The aim of the open-ecosystem organization is to facilitate and share advances in networking, server, data storage, and processing technology.

To date, the group has been little more than another relatively uninteresting NPO, serving a niche in the industry, though one initiative is causing the stir. The OpenPower Foundation has been working with Xilinx and Chinese firm Semptian to create a new breed of chips capable of enabling computers to process incredible amounts of data. This might not seem extraordinary, though the application is where the issue has been found.

On the surface, Semptian is a relatively ordinary Chinese semiconductor business, but when you look at its most profitable division, iNext, the story becomes a lot more sinister. iNext specialises in selling equipment to the Chinese Government to enable the mass-surveillance and censorship projects which have become so infamous.

It will come as little surprise a Chinese firm is aiding the Government with its nefarious objectives, but a link to IBM and Google, as well as a host of other US firms, will have some twitching with discomfort. We can imagine the only people who are pleased at this news are the politicians who are looking to get their faces on TV by theatrically condemning the whole saga.

Let’s start with what iNext actually does before moving onto the US firms involved in the controversy. iNext works with Chinese Government agencies by providing a product called Aegis. Aegis is an interception and analysis system which has been embedded into various phone and internet networks throughout the country. This is one of the products which enables the Chinese Government to have such a close eye on the activities of its citizens.

Documentation acquired by The Intercept outlines the proposition in more detail.

“Aegis is not only the standard interception system but also the powerful analysis system with early warning and timely action capabilities. Aegis can work with all kinds of networks and 3rd party systems, from recovering, analysing, exploring, warning, early warning, locating to capturing. Aegis provides LEA with an end to end solution described as Deep Insight, Early Warning and Timely Action.”

Although the majority of this statement is corporate fluff, it does provide some insight into the way in which the technology actually works. This is an incredibly powerful surveillance system, which is capable of locating individuals through application usernames, IP addresses or phone numbers, as well as accurately tracking the location of said individuals on a real-time basis.

Perhaps one of the most worrying aspect of this system is the ‘pre-crime’ element. Although the idea of predictive analytics in some societies has been met with controversy and considerable resistance, we suspect the Chinese Government does not have the same reservations.

iNext promises this feature can help prevent crime through the introduction of an early warning system. This raises all sorts of ethical questions, as while the data estimates might be accurate to five nines, can you arrest someone when they haven’t actually committed a crime. This is the sticky position Google and IBM might have found itself in.

OpenPower has said that it was not aware of the commercial applications of the projects it manages, while its charter prevents it from getting involved. The objective of the foundation is to facilitate the progress of technology, not to act as judge and jury for its application. It’s a nice little way to keep controversy at arm’s length; inaction and negligence is seen as an appropriate defence plea.

For IBM and Google, who are noted as founding members of the OpenPower Foundation, a stance of ignorance might be enough to satisfy institutions of innocence, but the court of public opinion could swing heavily the other direction. An indirect tie to such nefarious activities is enough for many to pass judgment.

When it comes to IBM, the pursuit of innocence becomes a little bit trickier. IBM is directly mentioned on the Semptian website, suggesting Big Blue has been working closely with the Chinese firm for some time, though the details of this relationship are unknown for the moment.

For any of the US firms which have been mentioned here, it is not a comfortable situation to be in. Although they might be able to plead ignorance, it is quite difficult to believe. These are monstrous multi-national billion-dollar corporations, with hordes of lawyers, some of whom will be tasked with making sure the technology is not being utilised in situations which would get the firm in trouble.

Of course, this is not the first time US technology firms have found themselves on the wrong side of right. There have been numerous protests from employees of the technology giants as to how the technology is being applied in the real-world. Google is a prime example.

In April 2018, Google employees revolted over an initiative the firm was participating in with the US Government. Known as Project Maven, Google’s AI technology was used to improve the accuracy of drone strikes. As you can imagine, the Googlers were not happy at the thought of helping the US Government blow people up. Project Dragonfly was another which brought internal uproar, this time the Googlers were helping to create a version of the Google news app for China which would filter out certain stories which the Government deemed undesirable.

Most of the internet giants will plead their case, suggesting their intentions are only to advance society, but there are numerous examples of contracts and initiatives which contradict this position.

Most developers or engineers, especially the ones who work for a Silicon Valley giant, work for the highest bidder, but there is a moral line few will cross. As we’ve seen before, employees are not happy to aide governments in the business of death, surveillance or censorship, and we suspect the same storyline will play out here.

Google and IBM should be preparing themselves for significant internal and external backlash.

US/Huawei saga enters the realm of ‘who knows what going on?’

The US Commerce Department has held a press conference to announce some companies can now trade with Huawei, but no-one knows who, how, what or where.

Speaking at the annual department conference in Washington, Commerce Secretary Wilbur Ross has said US companies can now start trading with Huawei, assuming they have had a license approved by his department, which is unlikely to happen, while little guidance has been offered to the criteria on how decisions will be made.

The only clue which we have so far is a reference to ‘national security’. Huawei and its affiliates remain on the ‘Entity List’, though US firms are allowed to do business if it doesn’t compromise national security. What that actually means is anyone’s guess.

The move from the US Commerce Department follows comments from President Donald Trump at the G20 Summit in Japan. In order to get trade talks back on track, Chinese President Xi Jinping insisted the aggression towards Huawei be ended. This seems to be somewhat of a compromise with a nod to the likely domestic opposition the White House will face.

Immediately after Trump signalled his intentions to let Huawei off the hook, two of the President’s biggest opponents, from opposite sides of the aisle, voiced their disapproval. Republican Senator Marco Rubio, who has Presidential ambitions, and Democrat Senator Chuck Schumer, who consistently undermines the President, both suggested they were going to be hurdles in the pursuit of Huawei relief.

For the moment, the language is still very negative. US suppliers can apply to work with Huawei, but applications will be looked at with refusal at the front of mind. There will have to be proof such business would not compromise security, though it is highly likely the vast majority will be turned down.

“To implement the president’s G20 summit directive two weeks ago, Commerce will issue licenses where there is no threat to US national security,” said Ross during the conference.

“Within those confines, we will try to make sure that we don’t just transfer revenue from the US to foreign firms.”

This seems to be an attempt to keep all parties involved happy. In China, it might look like the White House is trying to relieve pressure on Huawei, while in Congress, Trump seems to be attempting to give the impression he is protecting national security. However, it does paint an incredibly confusing picture.

Ross’ statements seem to ignore the fact that supply chains are now globalised, and it is almost impossible to do business without working beyond domestic shores. Few firms will have any concrete understanding to where they stand either.

For those who have lobbied against the ban, its difficult to see whether this is a win or not. Yes, it is somewhat of a concession, but it might not mean anything ultimately. If the US Commerce Department is going to be stubborn, few suppliers might receive the golden ticket to do business with Huawei. Only time will tell whether this is anything more than ego stroking from Ross.

China responsible for one in seven attacks on UK business – report

Cybersecurity attacks directed towards businesses in the UK are on the up and it appears the source of these nefarious activities can be quite often traced back to China.

After years of being ignored or swept aside for another day, security professionals are finally being taken seriously in the world of IT. It might be considerably overdue, but it is at a very apt time; according to research from enterprise ISP Beaming, the number of cybersecurity attacks directed towards UK businesses increased by 179% year-on-year for the second quarter of 2019.

“The rate at which UK businesses are attacked online has soared over the last year and companies large and small are under sustained attack from hackers around the world,” said Sonia Blizzard, MD of Beaming.

“The majority of cyber-attacks on businesses are indiscriminate, malicious code that trawls the web seeking to exploit any weak point in cyber security systems. A single breach can be catastrophic to those involved.”

Unfortunately for those who would like international tensions to simmer-down, Beaming is also pointing the finger towards China as the source of many threats. China is seemingly the source of one in seven of these attacks, though Taiwan, Brazil, Egypt and the US are some of most persistent offenders.

Amazingly, on average UK businesses are under-threat from a cyber-criminal every 50 seconds, totalling 146,491 over the period in question. It might sound ridiculous, but it demonstrates the simplistic nature of some of these attacks. For the most part, large businesses will be able to avoid any serious damage by simply investing in basic security principles and systems, though you have to wonder how many SMEs are underprepared to resist the suspect fingers of the dark web.

According to Beaming, 63% of small businesses suffered a cyber-attack last year, with the average cost to the business being £63,000. The total cost of cybercrime for small businesses was £13.6 billion. The under-preparedness of SMEs is perhaps best indicated by its proportion of the total; £13.6 billion of the £17 billion total.

Although there is likely to be a fair bit of fear-mongering from Beaming here, security is considered to be one of the selling points of the business, the threat of cybercrime should not be undervalued.

One trend which presents as much of a threat as it does opportunity is IOT. This is a technology which has the potential to revolutionise business models but also give rise to new services and products. However, the threat is just as prominent. The more a company relies of IOT, the bigger the perimeter of its network and the more points of exposure. The number of gateways increases, increasing complexity of cybersecurity.

For those companies which are struggling to cope in the embryonic version of digital which we live in today, tomorrow could be a disaster.

The research has been released at a very intelligent time when you consider the number of GDPR fines which are potentially on the horizon. Earlier today, July 8, the Information Commissioner’s Office (ICO) announced its intention to fine British Airways £184 million for a data breach which occurred in September 2018.

This is the biggest fine handed out by the ICO, but it is worth remembering this is only one of the first examples of the watchdog swinging the GDPR stick. The number of ‘contacts’ the ICO has had with businesses, organizations and individuals has increased 66% since GDPR was introduced in May 2018. In terms of workforce, 200 additional employees have been drafted in since GDPR with plans to hire another 100 to take the total north of 800.

These numbers suggest the ICO is getting more serious about investigation and enforcement, though another consideration for the importance of security is the buying preferences of UK consumers.

If the number of complaints about personal data breaches are increasing, up to 14,000 for the 12 months to May 1 from 3,300 in the prior year period, consumers are clearly more aware about security and data protection. With more products incorporating connectivity, and consumers becoming more away of the dangers of the internet, the security credentials of an organization will become a factor in the purchasing decision-making process.

If start-ups are going to challenge the status quo in the digital world, they will need to sort out security systems and processes. It might surprise some that SMEs account for such a large proportion of the cost of cybersecurity to UK businesses, but such statistics will start to become more prominent as digital increasingly becomes the norm.

Theoretically, the digital world levels the playing field, affording the opportunity for start-ups to challenge the status quo, but if they aren’t up-to-speed when it comes to security, it might well turn out to be a non-starter.

Study tenuously links Huawei to the Chinese state

A new study used a bunch of CVs to draw the conclusion that many Huawei employees have ties to the Chinese state security services.

The study was conducted by Christopher Balding, Associate Professor at Fulbright University Vietnam, but with support from hawkish foreign policy think tank Henry Jackson Society. It seems to set out to undermine Huawei’s repeated claims of innocence when it comes to collaborating with the Chinese state, as it’s headlined ‘Huawei Technologies’ Links to Chinese State Security Services’.

“Using a unique dataset of CVs that leaked from unsecure Chinese recruitment databases and websites and emerged online in 2018, I analyze the relationship between Huawei and the Chinese state security services,” wrote Balding in his introduction. “In the first of what will be a series of papers, I find that key mid-level technical personnel employed by Huawei have strong backgrounds in work closely associated with intelligence gathering and military activities.”

The core evidence revolves around just three CVs, which the author concedes are a limited source but insists are just a sample of the material he uncovered. One CV reveals a Huawei software engineer also holds a position at the National University of Defense and Technology (NUDT), which apparently means he’s officially employed by the People’s Liberation Army (PLA).

The second CV reveals a person who used to work at a state-owned organisation before joining Huawei as a Ministry of State Security (MSS) representative. Balding notes that the MSS is the main Chinese spy agency and that the CV indicates the person was involved with building lawful interception capability into Huawei equipment.

The third CV covers someone who once worked at China Aerospace Science and Technology Corporation (CASTC), before eventually joining Huawei. Balding reckons that ‘placed him in contact with some of the most sensitive aspects of all PLA operations and technologies.’ The report also notes that the CV talks of expertise in Cisco and Nortel switches and that such equipment was extensively hacked by actors linked to the Chinese state at the time he worked at CASTC.

“This paper has sought to answer whether there is evidence of Huawei acting in concert with the Chinese state, military, and or intelligence gathering services,” concludes the report. “After examining a unique dataset of employee provided work activity at Huawei, it is clear that there is an undeniable relationship between Huawei and the Chinese state, military, and intelligence gathering services.

“While data limitations prevent us from saying whether Huawei follows official commands, acts in concert with the state, or seeks to preempt greater control by acting in advance, there is significant direct evidence of Huawei personnel acting at the direction of Chinese state intelligence with multiple overlapping relationship links through the Chinese state. This should concern governments worried about Chinese intelligence gathering.”

Huawei, you’ll be amazed to hear, doesn’t agree with these conclusions. Here’s its initial statement: “We have not been able to verify any of these so-called ‘Huawei Employee CVs’ Professor Christopher Balding is citing following our preliminary examination. As such, we cannot confirm the veracity of all of the information published online.

“Huawei maintains strict policies for hiring candidates with military or government backgrounds. During the hiring process, these candidates are required to provide documentation proving they have ended their relationships with the military or the government.

“Cyber security and privacy protection have been and will always be our top priorities. Huawei conducts background checks and provides pre-job training to this effect for employees who will access customer networks and data. Huawei requires all such employee operations be authorized and monitored by the customers. This institutional requirement has enabled Huawei’s products and services to serve our global customers well over the past 30 years.

“Huawei understands that cyber security concerns are paramount in the digital world. We welcome professional and fact-based reporting on investigations into Huawei’s transparency. We hope that any further research papers will contain less conjecture when drawing their conclusions, and avoid so many speculative statements about what Professor Balding ‘believes’, ‘infers’, and ‘cannot rule out’.

The company then issued this follow-up statement once it had given the study a further look. “The report fails to identify any clear evidence that Huawei works on military projects. It is based on just three CVs and in each case admits its attempts to link the company to military activity is based on inference and speculation – not hard facts.”

A few third parties have also questioned the rigour of the study, of which this Twitter thread is a good example.

The author, as you would expect, has taken to Twitter to defend his work.

Our first impression was that this whole thing fells like a bit of a reach, which draws dotted lines between Huawei and the Chinese state on the basis of a few CVs. Having said that Huawei does insist that none of its employees have ties to the state and at least one of these CVs seems to contradict that. This study is one of a steady drip of leaks and reports alleging Huawei to have closer ties to the Chinese state than it admits, but conclusive evidence remains elusive.

Ren’s back to tell us how Huawei is starting to ditch the US

Huawei founder Ren Zhengfei appears to be little more than a celebrity spokesperson nowadays, but a recent interview suggests the vendor is just fine with its US shunning.

Speaking to the Financial Times, Ren has once again been called into action to address the tensions between China and the US, as a result of which, Huawei has become a prime target for anyone hoping to inflict damage on the worlds’ second largest economy. The message from Ren is relatively simple; we’re doing OK and we’ll move away from US suppliers.

Such comments will certainly set off alarm bells in the offices of some US semiconductor firms, but it should hardly come as a surprise. The ‘Made in China 2025’ strategy might be unpopular with the US and Europe, but it is by no-means a secret.

‘Made in China 2025’ is an initiative set into action by Chinese Premier Li Keqiang during 2015. Through this initiative, the Chinese Government wants to evolve the perception of the country, ditching the ‘world’s factory’ tagline and moving up the value chain towards higher value products and services. The Government will be contributing $300 billion to the project to enable China to compete with the US.

This plan has been heavily criticised by the US for a number of reasons, but ultimately it all boils down to one; this is a genuine threat to the technological domination of the US on the global scene.

Of course, there are plenty of reasons not to like the idea. Some have suggested it violates the World Trade Organization (WTO) rules on self-sufficiency. Others have said trade secrets have been stolen from foreign companies or unfairly obtained through forced joint-ventures. For ‘Made in China 2025’, companies have to move up the value chain, targeting growth industries such as AI or medicine, and these smarts have to come from somewhere.

However, you always have to bear in mind the end-result irrelevant of path taken to get there. If ‘Made in China 2025’ succeeds, the US will no-longer be the dominant force in the technology world, and other economies could be shattered if China replaces imported goods with domestic.

In the latest interview, Ren is suggesting that even if there is a reprieve from President Donald Trump following the G20 summit last weekend, Huawei will continue to move its supply chain out of the US. Perhaps this is the catalyst which was needed to kick the ‘Made in China 2025’ concept up another gear.

“The US is helping us in a great way by giving us these difficulties,” said Ren. “Under external pressure, we have become more united than ever.

“If we aren’t allowed to use US components, we are very confident in our ability to use components made in China and other countries.”

Although there has been a concession from Trump with regard to the ban facing Huawei, some might view this pardon with scepticism. The President’s opinion seems to change more often than the tides so why would any organization pins its hopes and aspirations on the door of the Oval Office. Instead of a power demonstration, the US seems to have pushed the Chinese further towards autonomy.

While it is far from confirmed, we strongly suspect the huffing and puffing from the White House was little more than a demonstration of power. Huawei’s entry onto the Entity List might have been an aggressive move to gain the upper-hand in trade talks with the Chinese; look what we did to ZTE last year, the US appears to be saying, so play nice or we’ll do the same to Huawei.

But it doesn’t seem to have worked; Huawei is still alive and still OK, if you listen to Ren.

How OK Huawei actually is remains to be seen. Ren has been wheeled out to put a positive spin on the situation, but the picture is rather gloomy. Smartphone shipments are set to decline by 40-60% over the remainder of the year, Google hasn’t said it is once again on friendly terms with Huawei despite Trump’s amnesty, and some have questioned whether China is capable of filling the semiconductor hole created through the China/US vacuum.

Huawei has done a lot to add diversity to its supply chain in recent years, while also moving numerous operations to its own fabless semiconductor company HiSilicon, but can it satisfy its appetite for more specialised components? Huawei works with a number of US firms who have niche operations, Qorvo supplies radio-frequency systems and solutions for Huawei for example, and when it comes to specialised components, the US rules the world.

For certain segments of the semiconductor industry, field programmable gate arrays as another example, and China has not been able to replicate the US success just yet. Despite what Ren says about moving Huawei’s supply chain out of the US, it will still be reliant for some incredibly important cogs.

One way of viewing this situation is that there is a short-term demonstration of power. Without the likes of Xilinx, Qualcomm, Qorvo, NeoPhotonics and numerous other semiconductor businesses, Huawei cannot produce the products it is promising customers. Not yet at least.

But long-term, perhaps this approach is simply forcing ‘Made in China 2025’ to accelerate and eroding the control the US has globally over some very high-value, highly profitable segments. Prior to the trade war, US companies were inside the tent. Admittedly conditions were not perfect, but they were inside not outside.

Perhaps this is the watershed moment; companies are going to be forced out as companies like Huawei increasingly look for domestic suppliers, and once they find them (by luck, convenience or necessity) there is no coming back.

Trump’s Huawei de-escalation plans face broad domestic opposition

President Donald Trump might be about to find out, once again, that he cannot do whatever he pleases in the Oval Office, especially when it comes to national security.

A few tweets have emerged over the last couple of days which indicate prominent Senators are going to be standing in the way of the Trump grand plan. Republican Senator Marco Rubio and Democrat Senator Chuck Schumer have both voiced opposition to Trump’s plans to let Huawei off the hook to get trade discussions with China back on track.

What Trump has done over the last couple of months is something which might have worked in the world of private business, but it does not seem to be a legitimate strategy from a politician. The President built the hype surrounding Huawei as a national security threat to impose legislation in an attempt to cripple the firm, but now wants to step back.

It seems the demonstration of power has been enough, now Trump wants to offer an olive branch to the Chinese while he seemingly has the upper-hand in the trade talks. Unfortunately, the two prominent Senators are reading from the same playbook.

Rubio and Schumer have seemingly bought into the idea of Huawei as a threat to national security, and do not believe protections of US citizens can be used as a playing card in the international game of poker Trump is attempting to mastermind.

The message from the two Senators seems to be clear here; if Huawei is a national security threat, as the President has made so clear, it remains so. Just because there is an advantage to be claimed in the political game of trade talks doesn’t change the impression of Huawei.

We suspect Trump hasn’t fully grasped the dynamics of politics. This sort of play, a demonstration of power and influence, might have worked in private industry where Trump rules with iron authority, but that is not the way politics operates. There is a separation of power, with Congress holding the White House accountable and preventing abuses of power.

This is of course not the first time this dynamic has been exposed. During the ZTE saga, Trump demonstrated the power of the US economy to the Chinese and then wanted to stand-down. Congress proved to be a difficult compatriot to Trump in this instance, and it seems it wants to do so again.

What this could mean is a return to the status quo of uncertainly and passive aggressive tariffs. If the security conscious Senators get their way, Huawei would still remain an enemy of the state and the world will return to the political purgatory which has dominated the headlines for the last 12 months. If Huawei remains in the US crosshairs, Chinese demands are not being met and we suspect trade talks with stagnate once again.

What we will leave you decide is how much of this saga is political opportunism.

Let’s say Trump doesn’t believe Huawei is a national security threat and this entire incident has been a strategy to gain greater influence in the trade talks with China, we wonder if Rubio and Schumer are simply taking advantage of the situation also. Rubio is an opponent of Trump with ambitions of representing the Republicans in the White House, while Schumer and the Democrats will want to make life as difficult for Trump wherever possible.

Perhaps we are being overly cynical. We’ll let you come to your own conclusions.

What can Western businesses learn from China’s digital innovators?

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article Angus Ward, CEO, Digital Platform Solutions, BearingPoint//Beyond, takes a look at some of the ways in which China is more innovative than the West.

Over the past five years, China and its internet-born businesses have become a globally recognised force for digital innovation. This year, China’s retail market is set to become the largest in the world, exceeding sales in that of the United States and topping $6 trillion in 2020. Last year, it also had 186 unicorns (i.e.: a privately held start-up company valued at over $1 billion), with a combined valuation of more than USD $736 billion.

So, what’s the secret? What is China’s trajectory as a digital superpower and how far beyond Asia does it extend?

Consumers in Asia are voracious consumers of technology. They’re happy to switch to a new digital service (preferably mobile) if it offers a more convenient solution to a problem. They will concede on data privacy as a price for that convenience. That’s why Asia is a hot bed for innovation with digital players adopting a fail-fast mentality – rapidly taking an idea, launching a product to test the market to see if it flies and then rapidly building.

Through this approach, digital lifestyle app WeChat has grown from a simple messaging platform into an ecosystem of solutions for just about every customer problem – from mobile payments and e-commerce even to transport.

Western companies have a lot to learn from many of the Chinese digital heavyweights. Until recently, these firms were relatively unknown outside China, but this is no longer the case. With the launch of 5G in the UK, new smartphone models from the likes of Oppo and OnePlus are the first handsets to hit the market. US brands are nowhere in sight currently. Huawei is seen by many as a market leader in 5G technology and communications service providers (CSP) like China Mobile have set up European bases from which to expand. This suggests that these Chinese companies are innovative, ambitious and are ready to take the west by storm.

So, what can western players learn from their digital rivals from the east?

Eyes on the prize

For every western tech giant, there is a Chinese equivalent. Given China’s population, it’s on a scale that is pretty similar to the west. In the past 18 months, some of the best-known western technology giants have experienced a breach of trust with customers stemming from their lack of transparency into how the giant tech player actually use – and misuse – customer data. Facebook and Cambridge Analytica scandal are an example. The entire episode has left customers both questioning the integrity of the technology companies they’ve come to rely on for much of their online digital interactions but also it has weakened the bonds tying them to their customers.

While Facebook and its fellow FAANG companies face criticism over data privacy, the likes of Baidu, Alibaba and Tencent – known as the BAT companies – go from strength to strength in China. Thanks to investment and other support from the Chinese Government, Baidu dominates online search in China: Tencent is the country’s biggest gaming firm and is also behind the WeChat messaging and payments app: and Alibaba has used its success in China’s e-ecommerce market to invest billions in Artificial Intelligence (AI). With China’s plans to build a USD $1 trillion AI industry by 2030, the country is on track to overtake the US as the world’s leader in use of this technology.

And it’s not just in AI where China wants to claim the top spot. The country’s “Made in China 2025” strategic plan aims to move the country away from large-scale manufacturing and transition into high value product and services. China is also striving to take the lead in robotics, IT and clean energy, among other sectors.

Undoubtedly the real winners of 4G were the FAANG companies who dominated in handsets, social media, internet search, advertising revenues, content streaming and e-Commerce alongside gaming. But in the race to 5G, it’s China now ready to claim a material share of global revenues. With Government sponsored focus on the new technologies like AI and robotics, and a massive home market of tech savvy consumers with a voracious appetite, Chinese digital players will be much faster at innovating the new applications that will power technology adoption such as for 5G

Without as many areas of interest, and lacking the same levels of capital, customer base and support of national governments behind them, it’s difficult to see how Western players will enjoy the same success as Chinese firms. But while they can’t draw on the same resources as their Chinese peers, there is no reason why Western firms cannot adopt the same approach.

There is no “I” in team

Chinese companies’ willingness to work closely with global partners has played a significant part in the success of its tech start-ups. China’s decision to invest heavily in the tech sector, both at home and abroad, means that it is slowly but surely working its way up the value-added ladder. Western companies can learn much from this collaborative approach in order to innovate and better compete.

In sectors like e-commerce and the Internet, Chinese firms create ecosystems that drive innovation because of their size and also the advantages and benefits they offer to third-party partners, in terms of access to new markets.

For example, Chinese ride-hailing app DiDi outperformed its rival Uber in China on everything from marketing to speed to market, before finally acquiring Uber’s China assets. DiDi regularly introduces new features and services from its partner ecosystem, such as sending a driver for your car when you’ve had too much to drink: and an SOS feature to improve customer safety.

Partner ecosystems help to innovate new ideas, expand offerings, increase reach and grow revenue. An effective partner ecosystem solves customer problems through the exchange of ideas and combining contrasting capabilities to create new more functional, multi-faceted and compelling solutions. Nevertheless, ecosystems are complex to manage and so must always be underpinned by a digital business platforms to automate operational processes to bring governance, efficiency and control but also to secure and share the benefits across the parties. This is why both FAANG and BAT are also digital business platform companies.

According to a May 2018 study by consulting firm BearingPoint, 60 percent of Communication Service Providers (CSPs) expect partner ecosystems to drive cost-effective innovation, 59 percent expect ecosystems to help them remain competitive, 51 percent believe ecosystems will help them improve customer experience and 48 percent believe that ecosystems will create direct relationships with customers. This picture was replicated across almost every other industry covered by the survey from automotive to financial services.

The reality is that very few innovations – whether it’s an entirely new service or improving an existing one – are created solely in-house anymore. For CSPs to thrive in the expanding, fast-moving and hugely competitive digital market, cultivating and actively participating in a partner ecosystem is now essential.

 

Angus WardAngus is the CEO of BearingPoint’s digital platform solutions arm, BearingPoint//Beyond, appointed in September 2017. Angus brings 30 years of consulting and solutions experience to his role, supporting organisations across multiple industries in shaping strategies and adopting platform-based business and operating models with differentiating partner ecosystems.