Q&A: What’s the big deal about Huawei?

The arrest of a Chinese tech executive in Canada this month has quickly become a focal point in a wider battle between the U.S. and China over trade, national security and trust in the age of globalization.

Meng Wanzhou, the chief financial officer of Huawei, was charged with helping the company dodge U.S. sanctions against Iran. On Tuesday, she was released on $7.5 million bail to live under tight security while she awaits extradition to the United States.

In the meantime, China appeared to strike back Tuesday with the detention of a former Canadian diplomat, as the dispute continued to escalate.

Here are some of the basics behind the conflict:

What is Huawei?

Huawei may not be a household name in the U.S., but it’s the biggest telecom company in the world and the second-largest maker of smartphones behind Samsung.

Often called a “national hero” by Chinese state media, the company has helped China spread its influence abroad. It is highly visible across Africa, the Middle East, Southeast Asia and much of Europe — wherever China is working on development and infrastructure projects.

About half its $92.5 billion in revenue last year came from outside China.

Huawei was founded in 1987 by Meng’s father, Ren Zhengfei, who is widely lauded at home as the embodiment of the Chinese Dream, having grown up in the mountains of Guizhou, China’s poorest province.

When Meng was arrested, many Chinese concluded that the U.S. and its allies were bullying Huawei because it’s so successful, in order to keep the U.S. tech industry ahead.

Why isn’t Huawei more visible in the U.S.?

Because the U.S. intelligence community doesn’t trust it. The FBI, CIA and National Security Agency all say that Huawei is a national security threat and potential collaborator in Chinese espionage.

In 2012, Congress reached a similar conclusion about Huawei and another Chinese telecom, ZTE, and this year banned U.S. government agencies from using their products. Private companies took the government actions as a warning to back away from the companies as well.

U.S. consumers can still buy some Huawei smartphones and laptops, and many small wireless providers in rural parts of the United States depend on Huawei because its networking equipment is much cheaper than its competitors’.

But those providers may soon be forced to rip out billions of dollars’ worth of Huawei infrastructure, because the FCC is considering a proposal to withhold funding from businesses that use the company’s products.

Why is the U.S. so worried about Huawei?

Huawei is a private company that belongs to its shareholders. But last year, China passed a new National Intelligence Law that requires all companies and individuals to support any intelligence work the Chinese state requires.

Another big security concern is Huawei’s leading role in the development of the fifth-generation cellular wireless, or 5G, which is poised to become the new standard.

The technology offers the ability to move data so quickly that it will be possible to link your smartphone to your smart refrigerator, smart car, smart shoes and numerous other devices. But there’s also a downside: Because 5G is so decentralized, it could be easier to hack.

U.S. intelligence agencies are especially worried because Huawei is developing its own semiconductors — the heart of those tiny chips that are powering all our smartphones — raising the possibility that it could help the Chinese government build a hidden “back door” that allows access to devices and networks.

The U.S. has its own experience with this method, as classified documents exposed by the former CIA analyst Edward Snowden have shown that the National Security Agency modified Cisco hardware before it was exported in order to spy on foreign targets.

Snowden also revealed that the NSA had hacked Huawei networks as early as 2007 to look for links between the company and the Chinese military, and to conduct surveillance and potential cyber offensives on China and Chinese customers including Iran, Afghanistan, Pakistan and Cuba.

Is there hard evidence that Huawei is being used for espionage?

None that has ever been made public. But Michael Hayden, the former head of the CIA, has said that he has seen enough evidence to persuade him that Huawei is spying for China.

There have been hacking cases that put Huawei under suspicion. In January 2018, France’s Le Monde newspaper reported that China had been hacking the African Union’s headquarters’ computer systems in the Ethiopian capital of Addis Ababa for five years, downloading confidential data onto servers in Shanghai.

Those computer systems were installed by Huawei. While China has denied the hacking reports, the continental body got new servers and rejected Chinese offers to configure them.

Huawei has tried to mitigate security concerns by inviting British intelligence to dismantle Huawei products in an evaluation center, but that effort appears to have been ineffective.

British telecom company BT recently decided to remove Huawei from key parts of its wireless network. Japan, Australia and New Zealand have all barred Huawei from building 5G infrastructure, and Canada is now considering doing the same.

What does all this have to do with the U.S.-China trade war?

Decades ago, when China was a developing country just beginning to reform, foreign companies did everything they could for the chance to access China’s 1.4 billion consumers.

But now, with China vying for the position of global superpower and tech at the forefront of competition, companies like Huawei are seen as a threat.

As technology advances and more devices around the world talk to one another, the U.S. and China are being forced to decide how much they trust each other.

The Eurasia group, a political risk consultancy, calls the face-off a “U.S.-China tech cold war,” with the two countries racing to dominate 5G, the U.S. pushing to shut China out, and China protesting that this isn’t fair.

It’s all part of the larger, ongoing trade war, which started this year when the Trump administration accused China of unfair practices and began slapping its exports with tariffs.

How will the dispute over Huawei play out?

The worst-case scenario for Huawei would be a total ban from the U.S. market, including being barred from buying semiconductors that are critical to Huawei products.

Last year, the U.S. government banned ZTE from buying American-made semiconductors because it violated Iran sanctions. That pushed the Chinese telecom to the brink of collapse, until President Trump intervened upon personal request from Chinese President Xi Jinping and lifted the ban.

Trump has suggested that he could intervene in Meng’s case as part of ongoing U.S.-China trade talks. In any case, Huawei is likely to ramp up investment in making its own semiconductors to reduce its reliance on American ones.

Even if Huawei were shut out of the U.S., it could still thrive on China’s customers in the rest of the world. “Huawei is very popular because it’s cheap and it’s good,” said Adam Segal, cybersecurity expert at the Council on Foreign Relations.

Last month, Papua New Guinea’s government rejected Australia, Japan and the United States’ pressure to pull out of a deal allowing Huawei to build its internet network.

Mike Freeman, a staff writer at the San Diego Union-Tribune, contributed to this report.

alice.su@latimes.com

@aliceysu