Huawei’s Role in the ‘Chinese Espionage Enterprise’

Chinese telecommunications company Huawei has a footprint in countries across the world, including the United States. But in China, companies aren’t really independent from the communist government—which means that the data Huawei is acquiring about the habits and practices of its users could be also obtained by China. Klon Kitchen, a senior research fellow at The Heritage Foundation, joins us to discuss. Read the lightly edited transcript, posted below, or listen on the podcast:

We also cover the following stories:

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Kate Trinko: Joining us today is Klon Kitchen, a senior research fellow at The Heritage Foundation whose work focuses on technology. Klon, thanks for joining us.

Klon Kitchen: My Pleasure.

Trinko: Let’s talk about Huawei. First of all, we’re going to go very basic here, it’s a Chinese telecommunications company. What service or goods does it actually provide?

Kitchen: One of the things that makes Huawei powerful is that it’s a full-service telecommunications company. So they make hardware, they make phones, they make software—so the operating systems for mobile devices and the like. But most importantly in the current events is that they build network infrastructure.

The conversation right now is centered around what’s called fifth-generation wireless networks, so that’s 5G, and they’re actually the only company on the planet who can by themselves deploy and manage a 5G network all within itself, all unilaterally.

Trinko: Why are they the only company that can do that? You would think that there’d be others interested in that space?

Kitchen: Well, there are plenty of people who do parts of it, but the short answer is that that’s the way the market has evolved in the sense that there are a lot of American companies who can do parts of that—some of the hardware, some of the software—but not all of it.

The two key rivals to Huawei on 5G are Nokia and Ericsson. But a lot of markets around the world have found it more advantageous and efficient to outsource a lot of the development to China.

Now, one of the reasons why Huawei is able to do it at a significant reduction in price is because, as a company, they’re heavily subsidized by the Chinese government.

So, in Europe, for example, a typical Huawei bid is about a third of the cost of anyone else, and that’s one of the reasons why it’s so attractive to a lot of governments.

But what those governments should be asking themselves is, “Well, if profit’s not their motive, what is? How are they able to keep their prices so low?” And the answer to that question is the Chinese government is supporting them.

Trinko: Let’s talk about the relationship between the Chinese government and Huawei. You’ve written in the past about how we from the United States view companies and the government [as being] very separate, but it’s not really that way in China. Can you explain that?

Kitchen: Yeah, of course. It’s exactly as you said. In China there is a deliberate philosophy that they call military-civil fusion. And what that means is that by law and by practice the government and industry work cooperatively together to further the state’s aims.

So in the case of Huawei, part of what that looks like is, the Chinese government will say, “Huawei, we will use our state mechanisms and capabilities to steal intellectual property and then we will feed that information to you so that you can innovate and kind of build your capacity.”

Also, the government will say, “We’ll also subsidize you so that you can expand your market presence by underbidding everybody, but the thing you have to do for us then is that as you expand, you now have to operate as an extension of our intelligence service. So as you grow, that’s good for you, but it’s going to be good for us, too, because you’re going to be stealing a lot of information that’s on your networks and we’re, as the state, going to be using that.”

So it’s this symbiotic relationship that characterizes much of the way China does business in general.

Trinko: OK. Does Huawei have any presence in the United States right now?

Kitchen: It does. It currently has a relatively small presence within local telecommunications companies but not nationally. So the federal government has made a decision that it is not going to allow Huawei to participate in its fifth-generation wireless networks.

There are active steps being taken by Congress right now to help subsidize or at least to further costs of ripping and replacing Huawei equipment in some of the local telecommunications networks precisely because they’ve been judged to be a national security threat.

Trinko: Is the long-term goal that all of Huawei’s presence will be removed from the United States?

Kitchen: Absolutely.

Trinko: And is there a timeline for that?

Kitchen: Not an explicit one, but people are moving quickly.

Trinko: OK. So last week the U.S. government announced new charges against Huawei specifically accusing it of stealing trade secrets and not following the sanctions that we have on Iran and North Korea. What’s going on there?

Kitchen: Huawei is actually kind of renowned for its theft of intellectual property so, so much to that point that Huawei actually gave company bonuses to individuals who stole intellectual property.

Trinko: Wow.

Kitchen: They have been brought up on charges of the IP theft in multiple jurisdictions inside and outside the United States and convicted on multiple ones as well.

So this is a known practice. It’s not that uncommon, honestly, within Chinese companies at large, but Huawei has taken that to just an art form and have really built their business off of it.

The most recent charges are in continuation of that. It’s another example of the United States publicly kind of turning the screw on the company, but also demonstrating to some of our Western allies like the United Kingdom, France, and Germany that their flirting with Huawei or their active choice to include them in their networks is going to be a problem for them and this is another demonstration of that.

Trinko: OK. So also last week some government officials expressed concern about the level of access Huawei has. Robert O’Brien, the national security adviser, said per The Wall Street Journal, “We have evidence that Huawei has the capability secretly to access sensitive and personal information and systems it maintains and sells around the world.” What do we know about that?

Kitchen: Yeah, so what NSA O’Brien is saying there is what he’s been saying privately to other government officials, partners, and allies for quite some time, and that is that, “Hey, listen, our intelligence service has a very deep understanding of Huawei’s special access to their networks. They’ve built in a capability to see and to kind of gather all data that’s coming across those networks.”

And he’s now saying that publicly because some of our partners and allies have chosen to use Huawei and this is our mechanism for making public some of our concerns.

Now, one of the things about the 5G conversation up until this point is that the conversation is largely centered around the notion of cybersecurity, and some governments have said, “No, no, we think we can mitigate that risk.”

But one of O’Brien’s key points in the announcement of all this is that even if Huawei is able to secure their networks theoretically, you still have the underlying reality of how the Chinese government operates and the laws under which they operate in China, specifically that the way they understand information is, if information is on a Chinese company’s servers or network, even if it’s your information or my information, Beijing considers that Chinese information and they therefore have access to it and by law Huawei has to provide it to them, they can’t say no when asked.

And so the point that O’Brien and others are making now publicly is that, even if you fill the security gaps in the network, which is a tall order, but even if you do that, you still have the underlying legal responsibility that these companies have to the Beijing government to provide any and all information when asked.

Trinko: So just to boil this down and make sure I understand you correctly, are you saying in a nation that uses Huawei for its 5G, potentially, if Beijing wanted, they would have access to all the phone conversations that happened?

Kitchen: Well, they would have access to the data. Now it’s unclear as to how much of the content of communications they’d be able to get.

A good portion of that’s going to be encrypted and we’re just not clear, frankly, on what China’s capability is in terms of decrypting some of that. It’s likely that they wouldn’t be able to get all of the details, but you don’t need conversation content to be really scary. I mean, metadata … would be something they absolutely would collect.

You can do a lot with that in terms of predicting where people are going to be. You start building networks in terms of like, these two phones are always co-located together and at nights when people are normally sleeping, they reside at this residence.

So I don’t have to know the names, but I can start building network profiles on individuals and what their habits are and proof of life and that kind of thing.

Trinko: So they would know where your phone was, you’re saying, at all times potentially?

Kitchen: Not only that, they would likely know where you live, where you work, how you often get there, who you interconnect with, who do you call the most frequently, all that kind of stuff.

Trinko: Yeah. I’m not interested in anyone knowing that about me.

So you heard a few weeks ago that Britain was making a huge mistake by allowing Huawei to build a 5G network there. Do you think there’s any chance Britain will reverse that decision? And why do you think they would be open to this?

Kitchen: They still have time and I do believe that there are some members of Parliament who are going to make a strong push to help the Johnson government reconsider.

I want to be clear, and I said this in the paper, that what we’re asking Britain and other nations to do is no small thing, it could be potentially costly in terms of foregoing some of the near-term benefits of 5G by delaying its deployment, by not allowing Huawei to do it.

But all of that can be managed, but what they can’t do is
catastrophically turn themselves over to what is an existential challenger in
the international geopolitical world, right?

So we know what China’s intents are, they’ve made it very clear, and the reason that the Johnson government gives for not making what I would say is the right choice up until this point is, we’re unwilling to forego the very real economic benefits of deploying 5G as soon as possible.

Trinko: You mentioned that other European countries have also been interested in Huawei again, presumably because of the economic benefits. In what countries does Huawei have a presence now in Europe and what consequences do you foresee from that?

Kitchen: Yeah, in one sense, they’re all over the place in Europe and, honestly, in Southeast Asia and elsewhere. They’re poised to have as much as 50% of the global 5G marketplace, which is massive.

One of the key aspects of this challenge with Huawei is that … 5G is about more than fast phones. 5G is going to be the central nervous system to the new economy. And so when governments are making a decision about 5G, they’re making a decision that really does have massive consequences.

And a lot of politicians are going to be very tempted, especially politicians in European countries where they’re bleeding legitimacy because they’re not delivering on kind of cradle-to-grave promises of entitlements. They’re looking for any and every opportunity to kind of deliver, and 5G is one of the most potent opportunities that they’re going to have.

So they’re making short-term trades for kind of economic deliverables against long-term national security. They’re giving up sovereignty for resources.

Trinko: Let’s take a step back, you’ve mentioned how great 5G will be, what about it makes it so great? How’s that really going to change things?

Kitchen: Yeah. The biggest constraint on kind of technological innovation at the network level hasn’t been good ideas, it’s been physics.

So if you imagine a garden hose, you can only put so much water through a garden hose, right? Well, imagine water is data, you can only put so much data through a 4G network, right? OK. So 5G expands the garden hose to a fire hose.

It is the single-largest what’s called data throughput. It’s the single-largest data throughput gain between generations that we’ve ever had. So the jump from 4G to 5G will be a bigger jump than any previous generational jump that we’ve had.

Trinko: So what does that mean concretely? Because I’m thinking, as a consumer, I can already stream everything. My calls don’t drop. Why do I care if it’s this much better?

Kitchen: Yeah, that’s great. So all of the dreams that we’ve had about the internet of things and all the connectedness, we haven’t been able to really realize that because we didn’t have the data pipes to support it, now we’re going to.

What does that mean? So take an idea like Uber. Before 4G, we couldn’t have Uber, we couldn’t support the data throughput that would allow real-time tracking of both you and a car, we just couldn’t do it.

Then we got 4G, all of a sudden we’ve opened up an entire ride-sharing economy, right? We didn’t think about Uber when we pulled 4G, we realized that after the fact.

So some of the implications of 5G we’re not even thinking about yet because we don’t even know what it means operating an environment where we can do that type of data throughput.

Trinko: That’s so interesting. I look forward to the next Uber.

Kitchen: Yeah.

Trinko: Should the U.S. do anything further regarding Huawei? And if so, what?

Kitchen: I think we should turn every screw we have. I think we should leverage every element of national power to help partners and allies understand China’s intentions and how they use their domestic companies to realize those intentions. I think we should continue to publicly demonstrate all of the risks associated with Huawei. I think you’re going to see a lot more of that.

So I think the statement that O’Brien made here recently, I think the DOJ charges, I think you’re going to see just an ongoing torrent of that.

I also think you’re going to see out of the cybersecurity research community … a lot of vulnerabilities in Huawei equipment and capabilities being discovered out of that community and made publicly known. And it is kind of a public campaign to partners and allies, like, “You cannot absorb this risk.”

Trinko: What do you think China’s long-term game here is? Do they just want information for the sake of having information to figure it might be useful? Are there particular information goals they have?

Kitchen: Yeah. So one, China is like every country in the history of the world, they want to amass and wield influence for their own ends. I don’t begrudge them that, it’s a completely coherent way to operate in our international system.

I think they’ve also rightly concluded that leading in key tech sectors, one of which being telecommunications, will be essential for amassing and wielding that influence in the future. I think that’s right. We in the United States have certainly experienced that.

So, as they do that, I think they have two goals. The primary goal I think initially is, actually, internal domestic security and stability of their government. So if you look at how they’re employing this technology and this data primarily, it’s about internal management of their system and of the regime.

The second goal is that larger intention of being a counterbalance geopolitically to the United States and to any other would-be challengers, particularly within their area or within their region.

Trinko: OK. To take another step back, do you think there’s other Chinese companies that we may or may not be interacting with right now that have a similar relationship between the Chinese government as Huawei does? In other words, is China using other businesses in a similar way?

Kitchen: Yes, absolutely. No. 1, any Chinese business is going to be subject to the same requirements and laws as I’m describing as Huawei, so no one is immune from it. But two, this is the same reason why we’ve had conversations about ZTE and other technology companies.

The single-largest individual messaging app is a WeChat. Massive, billions of people on WeChat and total integration with banking and everything else, completely owned by the Chinese government in terms of their ability to kind of see into it and know what’s going on there.

This relationship between industry and government has been a core part of why people have raised concerns about the presence of TikTok, the social media app here in the United States.

There’s a lot of information, again, from metadata that can be delivered and just because you or I as American citizens we’re using it here in the United States, again, a Chinese company, they see it as Chinese data, it goes back.

And so yes, essentially any technology company should be understood as at least a potential extension of the Chinese espionage enterprise.

Trinko: OK. Well, thank you so much for joining us.

Kitchen: My pleasure.

Source material can be found at this site.

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