The US War to Destroy China’s Crown Jewel and Secure US Cyber Supremacy

by Stephen Gowans, published on What’s Left, July 6, 2021

When then US president Donald Trump said he would call off US efforts to extradite from Canada Huawei CFO Meng Wanzhou to face bank fraud-related sanctions-evasion charges in exchange for trade concessions from China, he effectively admitted to a political kidnapping. The reality that normal US practice is to fine companies that violate US sanctions, not arrest their officers, strengthened the contention that Washington was conspiring with Canada to abduct Meng for political gain.

The Meng case has become the most high-profile aspect of a US campaign to cripple the Chinese tech champion Huawei. But it is also one of the least consequential elements of a multi-layered operation. Since 2010, Washington has spied on Huawei, declared it a national security threat whose equipment must be banned from telecom networks, starved it of US technology, harassed its employees to gather information to use in law suits against the company, and has even gone so far as to pay Huawei’s potential customers to buy from its competitors instead.

The impetus of the campaign is multidimensional and mutually reinforcing. Washington is trying to block China from achieving success in emerging tech industries. Huawei, a global telecom powerhouse, is seen by Beijing as a key player in China’s industrial strategy, a jewel in the country’s crown. Crippling the company could slow China’s technological ascent, condemn China indefinitely to low-wage manufacturing, and ultimately allow US investors, rather than Chinese enterprises, to reap the bounty of tomorrow’s industries.

Moreover, telecom networks are an important part of the infrastructure the NSA and its counterparts in the Five Eyes signal intelligence alliance—Britain, Canada, Australia, and New Zealand—use to gather political and business intelligence, and conduct cyberattacks, around the world. As the preferred network supplier, Huawei was on track to blanket the world’s telecom networks with its gear. This was hardly an auspicious prospect for the US intelligence community. As a Chinese company, Huawei is far less likely to cooperate with US intelligence than equipment manufacturers based in countries under US influence. The latter can be expected to accede to Washington’s demands to comply with US intelligence community requests for cooperation; not so Huawei.

In 2019, Huawei was the world’s largest telecom equipment manufacturer. It had 180,000 employees and the largest R&D budget of any tech company in China. [1] Over 40 percent of its employees worked in research and development. The company was held privately, with an ownership stake divided among 81,000 employees. [2] Renowned for the quality of its gear and the attractiveness of its prices, Huawei was at the forefront of the next-generation 5G networks. [3]

As a global leader capable of outcompeting its US-allied rivals, Huawei was vitally important to Beijing’s industrial strategy. Indeed, so important was the company to Beijing, that Wall Street Journal reporters Bob Davis and Lingling Wei called the company China’s “crown jewel.” [4]

But to Washington, Huawei was a threat. Referring to 5G, US telecom experts prepared a paper for the White House warning that “For the first time in modern history, the United States has not been the leader in an emerging wave of critical technology.” [5]

Huawei’s US competitors were seen as too small to compete with the Chinese firm. [6] As for Huawei’s main competitors, Nokia, Ericsson, and Samsung, Washington and London worried that the Chinese tech company was so attractive to the world’s telecom providers that it would drive its rivals out of the 5G business. [7]

In 2010, the NSA secretly broke into Huawei’s computers, looking for evidence that the company was covertly controlled by the Chinese military, and that the company’s CEO and founder, Ren Zhengfei—he had once served in the People’s Liberation Army Engineering Corps.—retained an active role in the Chinese military. The NSA was unable to confirm its suspicions. [8] All the same, two years later, Congress declared Huawei a national security threat, effectively shutting it out of the US market. [9]

A half a decade later, with Huawei defying Congress’s efforts to slow its rise, US National Security Advisor John Bolton decided to step up the war on Huawei. [10] Washington plotted to insert “the federal government deep into the private sector to stiffen global competition against Chinese telecom giant”. [11] Senator Tom Cotton, author of an attack plan to “roll back Chinese power”, [12] tweeted: “@Huawei 5G, RIP.” [13]

Screenshot of Tweet from Senator Tom Cotton.

One of the first salvos in the Bolton-initiated operation was to formalize the exclusion of Huawei from the US market. US president Donald Trump signed an executive order prohibiting US companies from doing business with China’s crown jewel. [14]

Next, Washington pressured its allies to declare Huawei’s network equipment a potential instrument of Chinese espionage. At its July, 2018 meeting in Halifax, the US-led eavesdropping network, the Five Eyes, announced it would work to ban Huawei 5G equipment from the core of its telecom networks. [15]

Other US allies were pressured to follow suit. Washington designated foreign telecom providers that shunned Huawei as ‘clean telcos’, and implied that those that did business with Huawei were US national security threats to be dealt with accordingly. [16] Frightened of US reprisals, telecom providers turned cool to the Chinese gear provider.

US pressure to eschew Huawei was seen by foreign telecom providers as a dishonest ploy to gain leverage in trade negotiations with Beijing, rather than an effort to address legitimate national security concerns. The view was reinforced by Washington’s failure to produce evidence showing Huawei was engaged in espionage or that its equipment could be used by Beijing to eavesdrop on Western governments and businesses.

Some US allies questioned “whether America’s campaign [was] really about national security or if it [was] aimed at preventing China from gaining a competitive edge.” [17] Executives at Canada’s first and third largest telecom providers complained that they were being asked to rip Huawei gear out of their networks to satisfy US trade ambitions and to allay US fears of losing its coveted place as a global technology leader. [18]

While trade ambitions and a desire to reply to China’s challenge to US global technology leadership were playing roles in Washington’s campaign to cripple Huawei, so too was another motivation: Controlling the world’s telecom networks to allow the United States to maintain its dominant role in espionage and cyberwarfare.

When the NSA penetrated Huawei’s computers in 2010, it had two goals: First, to find out whether Huawei was an espionage threat; and second, to look for a backdoor into the company’s network equipment. “Many of our targets communicate over Huawei-produced products,” a N.S.A. document leaked by Edward Snowden said. “We want to make sure that we know how to exploit these products,” in order to “gain access to networks of interest” around the world. According to the New York Times, the NSA’s goal was “to exploit Huawei’s technology so that when the company sold equipment to other countries — including both allies and nations that avoid buying American products — the N.S.A. could roam through their computer and telephone networks to conduct surveillance and, if ordered by the president, offensive cyberoperations.” [19]

Washington argued that as a Chinese company, Huawei is obligated to comply with any request from Beijing to use its equipment as a vehicle for spying and cyberattacks. But Washington’s real concern may have been, not that Huawei was a potential tool of Chinese espionage and cyberwarfare, but that it would be an unwilling tool of US espionage and cyberaggression. In contrast, Nokia, Ericsson, and Samsung, as companies based in US satellite countries, would be far easier to recruit, either knowingly or unwittingly, as instruments of NSA eavesdropping and US cyberoperations. From Washington’s perspective, the ideal intelligence scenario would be one in which the guts of a country’s network are provided by manufacturers under US influence. Since Washington has no sway over Huawei, it is undesirable as a provider of equipment to the world’s networks. From the vantage point of US intelligence, Huawei needs to be crippled and blocked so that ductile US-allied manufacturers—Washington’s ‘security’ partners—can take its place.

In order to promote Huawei’s rivals, Washington is paying network equipment buyers to use Nokia, Ericsson, and Samsung. Acting through the U.S. International Development Finance Corp, Washington offers “financial incentives and other enticements to countries willing to shun Chinese-made telecom gear.” [20] For example, the DFC has provided a $500 million loan to a consortium of telecom companies led by the UK’s Vodaphone to build a mobile network in Ethiopia. A condition of the loan is that it cannot be used to purchase Huawei equipment. [21] Meanwhile, Congress is expected to pass legislation that will allow Eastern European countries to use US aid to build cellular networks, so long as they use Huawei rivals. [22] In effect, Washington is paying countries not to use the Chinese supplier.

The DFC was created by Congress in 2018 to compete with China’s One Belt, One Road initiative. While its  main goal is to invest in US companies, the corporation is willing to support non-US firms, if doing so hurts Huawei, and pushes NSA-compliant manufacturers to the fore . “We’re not out to play defense,” DFC head Adam Boehler told the Wall Street Journal. “We’re out to play offense.” [23]

On top of promoting Huawei’s competitors, Washington has sought to degrade the company’s products, by denying it access to the US technology it needs. In 2019, Washington banned the export of US-made chips to Huawei, and additionally blocked Huawei’s access to chips made anywhere in the world with US equipment. The aim, according to the Wall Street Journal’s editorial board, is to decouple “computer technology supply chains from China” and Huawei. [24]

Washington has also mounted a campaign of harassment against the company. According to Huawei, US officials have instructed US “law enforcement to threaten, menace, coerce, entice and incite both current and former Huawei employees”. [25] US prosecutors have brought charges of racketeering conspiracy and conspiring to steal trade secrets against Huawei and its partners. [26] FBI agents have visited the homes of Huawei employees to pressure them to disclose information that could be used against the company in US courts. [27]

The most high-profile case of harassment has been the arrest of Huawei CFO Meng Wanzhou by Canadian officials at Washington’s request. Meng, the daughter of Huawei CEO, Ren Zhengfei, awaits a Canadian decision on her extradition to the United States. US prosecutors allege that Meng helped Huawei circumvent US sanctions on Iran by lying to banks.

On the surface, the case has a number of curious features.

First, the alleged crime appears to have little to do with the United States. Meng’s putative misdeeds occurred in Hong Kong; one of the alleged victims, HSBC, is a British bank; and the accused is a Chinese national. [28] The US connection is the alleged evasion of US sanctions on Iran, but US law does not apply to Chinese nationals or Chinese enterprises outside US jurisdiction.

Second, Washington’s standard practice is to punish corporations that violate its sanctions laws, not arrest company executives. The economist Jeffrey Sachs produced a long list of US and international banks that have paid fines to the US government for sanctions violations. None of their executives were arrested or charged with crimes. [29] Recently, the software giant SAP paid $8 million in fines for selling software to Iran. Not only were company executives spared arrest, the company wasn’t even prosecuted. Instead, it was let off with a promise to improve its compliance. [30] As Canadian political operative Eddie Goldenberg has argued, the arrest of Meng is not a criminal matter. Instead, it lies in “the realm of geopolitics. That is why Ms. Meng was personally targeted when the normal U.S. practice in similar matters is to charge the corporation, not the individual.” [31]

Third, while the Canadian government has presented the Meng affair as a purely criminal matter, when he was US president, Donald Trump told Reuters that he would intervene in her case if by doing so he could secure a better trade deal with China, suggesting Meng had been arrested as a bargaining chip. [32]

US prosecutors argue that the Huawei CFO committed bank fraud by misleading Huawei’s banks in order to evade US sanctions on Iran. The extradition case hinges on the question of whether bank fraud is a crime in both the United States and Canada. Under Canadian law, Meng cannot be extradited for an act that is not recognized as a crime in Canada.

Meng’s lawyers have argued that, notwithstanding US claims, the case pivots on sanctions-evasion, with bank fraud as a red herring. [33]

“It is a fiction to contend that the United States has any general interest in policing private dealings between a foreign bank and a foreign citizen on the other side of the world. However, it is the case that the United States has a global interest in enforcing its sanctions policy. Sanctions drive this case.” [34]

Meng’s lawyers have also argued that if the Huawei CFO had misled the banks—a point they do not concede—the banks would have suffered no harm in Canada, since Ottawa has no extra-territorial sanctions which would prohibit Huawei from selling equipment to Iran, and therefore would have no reason to penalize the banks for their actions. The critical point is that deception is not fraud unless harm befalls the deceived party and a benefit redounds to the party practicing the deception. Since the banks would have suffered no harm in Canada, and neither would Huawei have obtained any gain, the necessary condition for extradition of dual criminality—that the actions of the accused constitute a crime in both Canada and the United States—has not been met. [35]

In March, Canadian officials indicated that there was a “strong possibility” that the US Justice Department would drop its extradition request if Huawei admitted guilt and agreed to pay a substantial fine. [36] Huawei CEO Ren Zhengfei rejected the offer out of hand. His daughter, he said, had “committed no crime,” adding that “the U.S. is the side that should plead guilty.” [37]

While US prosecutors and the Canadian government argue that the Meng case is non-political, and purely criminal, the United States’ top business newspaper, The Wall Street Journal, thinks otherwise. “We might prefer that prosecution of its chief financial officer, Meng Wanzhou … were over something other than violating U.S. sanctions on Iran,” opined editorial writer Holman W. Jenkins, Jr. “But the U.S. is nonetheless positioning itself to destroy China’s shiniest success story.” [38]

If the US operation succeeds, not only will the world’s telecom networks be dominated by US-allied equipment manufacturers, but the United States will have secured its position as the world’s top cyberwarfare and cyberespionage threat, with the power to spy on governments and businesses, and carry out offensive cyberoperations, virtually anywhere in the world.

1 Dan Strumpf, Min Jung Kim and Yifan Wang, “How Huawei took over the world,” The Wall Street Journal, December 25, 2018

2 Ibid

3 Stephen Fidler and Max Colchester, “U.K. to Ban Huawei From Its 5G Networks Amid China-U.S. Tensions,” The Wall Street Journal, July 14, 2020

4 Bob Davis and Lingling Wei, Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War, Harper Business, 2020, p. 26

5 Editorial Board, “Huawei and the U.S.-China Tech War,” The Wall Street Journal, June 9, 2020

6 Ibid

7 Bojan Pancevski and Sara Germano, “In rebuke to US, Germany considers letting Huawei in,” The Wall Street Journal, February 19, 2019

8 Matthew Dalton, “Spy charges put Huawei’s European ambitions in jeopardy,” The Wall Street Journal, January 14, 2019

9 Ibid

10 Bob Davis and Lingling Wei, Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War, Harper Business, 2020, p. 25

11 Drew FitzGerald, Sarah Krouse, “White House Considers Broad Federal Intervention to Secure 5G Future,” The Wall Street Journal, June 25, 2020.

12 Gerald F. Seib, “Tom Cotton Has a China Coronavirus Attack Plan,” The Wall Street Journal, May 11, 2020

13 Bob Davis and Lingling Wei, Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War, Harper Business, 2020, p. 27

14 Parmy Olson, “US would rethink intelligence ties if allies use Huawei technology,” The Wall Street Journal, April 29, 2019

15 Matthew Dalton, “Spy charges put Huawei’s European ambitions in jeopardy,” The Wall Street Journal, January 14, 2019

16 Stephen Fidler and Max Colchester, “U.K. to Ban Huawei From Its 5G Networks Amid China-U.S. Tensions,” The Wall Street Journal, July 14, 2020

17 Matthew Dalton, “Spy charges put Huawei’s European ambitions in jeopardy,” The Wall Street Journal, January 14, 2019

18 Christine Dobby, “Bell, Telus warn of 5G delays, higher costs if Ottawa joins peers in banning Huawei,” The Globe and Mail, December 21, 2018

19 David E. Sanger and Nicole Perlroth, “N.S.A. Breached Chinese Servers Seen as Security Threat,” The New York Times, March 22, 2014

20 Stu Woo and Drew Hinshaw, “U.S. Fight Against Chinese 5G Efforts Shifts From Threats to Incentives,” The Wall Street Journal, June 14, 2021

21 Alexandra Wexler and Stu Woo, “U.S. Fund Set Up to Counter China’s Influence Backs Covid-19 Vaccine Maker in Africa,” The Wall Street Journal, June 30, 2021

22 Stu Woo and Drew Hinshaw, “U.S. Fight Against Chinese 5G Efforts Shifts From Threats to Incentives,” The Wall Street Journal, June 14, 2021

23 Editorial Board, “Huawei and the U.S.-China Tech War,” The Wall Street Journal, June 9, 2020

24 Ibid

25 William Mauldin and Chao Deng, “US-China talks stuck in rut over Huawei,” The Wall Street Journal, July 17, 2019

26 , Jacquie McNish, Aruna Viswanatha, Jonathan Cheng and Dan Strumpf, “U.S. in Talks With Huawei Finance Chief Meng Wanzhou About Resolving Criminal Charges,” The Wall Street Journal, Dec. 4, 2020

27 William Mauldin and Chao Deng, “US-China talks stuck in rut over Huawei,” The Wall Street Journal, July 17, 2019

28 K J Noh, “Why Canada must release Meng Wanzhou,” Asia Times, October 30, 2020

29 Jeffrey D. Sachs, “The U.S., not China, is the real threat to international rule of law,” The Globe and Mail, December 12, 2018

30 Aruna Viswanatha, “SAP Admits Iran Sanction Violations to Justice Department,” The Wall Street Journal, April 29, 2021

31 Eddie Goldenberg, “Want to bring the Michaels home? Send Meng Wanzhou back to China,” The Globe and Mail, January 16, 2020

32 Bob Davis and Lingling Wei, “China moves to address US economic concerns,” The Wall Street Journal, December 11, 2018

33 Sean Fine, Andrea Woo, and Xiao Xu, “Fraud allegations are a façade, lawyers for Meng Wanzhou argue at extradition hearing,” The Globe and Mail, January 20, 2020

34 Ibid

35 Dan Bilefsky, “Huawei executive goes to court, fighting extradition to US,” The New York Times, January 19, 2020

36 Robert Fife and Steven Chase, “Canada held secret U.S. talks in bid to free Kovrig, Spavor jailed in China,” The Globe and Mail, June 7, 2021

37 Robert Fife, Steven Chase, and Nathan Vanderklippe, “Meng Wanzhou in talks with U.S. Justice Department to allow her to return to China, The Globe and Mail, December 3, 2020

38 Holman W. Jenkins, Jr., “U.S. Can Destroy Huawei, Part Two,” The Wall Street Journal, January 29, 2019

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