Proposed by Texan Republican representative Mike Conway, the Defending US Government Communications Act, if enacted would prohibit the US government “from working with service providers that use any equipment from (Huawei or ZTE) for security reasons.” This ban would also extend to any entity that the head of the relevant agency reasonably believes to be controlled or connected to the Chinese government.
Conway commented that “Chinese commercial technology is a vehicle for the Chinese government to spy on United States federal agencies, posing a severe national security threat.”
Cited in the bill was General Michael Hayden, who served as Director of the Central Intelligence Agency and Director of the National Security Agency, he stated in July of 2013 that Huawei had “shared with the Chinese state intimate and extensive knowledge of foreign telecommunications systems it is involved with.”
Extracts from the bill included material from the FBI Counterintelligence Strategy Partnership Intelligence note that asserted that expanded use of Huawei technology equipment and services in US telecommunications significantly increased the risk of the Chinese government accessing US business communications, “China makes no secret that its cyber warfare strategy is predicated on controlling global communications network infrastructure.”
A Headache for Huawei
No doubt this act will be unwelcomed by Huawei, the world’s third-largest smartphone manufacturer and the biggest seller of telecoms equipment after Apple and Samsung, as it will make their task of reaching the US market more laborious. This comes as a further disappointing blow after US mobile carrier AT&T announced last week that it was pulling out of a deal to sell Huawei’s smartphones.
AT&T had come under pressure from US politicians and the Federal Communications Commission (FCC) to halt the deal. Despite this Huawei has said it still plans to continue to launch the Mate 10 Pro without a US Carrier Partner. For now, it will have to rely on selling unlocked devices through online channels.
Huawei’s Hopes For the Future Frustrated
While the US has cited numerous potential security threats from companies like Huawei, Android Authority points out that the “decision protects manufacturers and Apple from a strong competitor muscling in.” If allowed to enter the US market with US government backing, Huawei could have had a significant impact in America and possibly realised its goal of overtaking Apple.
Before the collapse of the AT&T deal and the new bill, Ken Hu, chief executive of Huawei had optimistically predicted in his New Years message that revenue would rise 15%, to earn 600 billion yuan in 2018.
In a 2017 interview with CNBC, Francisco Jeronimo, research director for European Mobile devices at IDC, said: “Huawei is today the biggest challenger to Apple and Samsung. Indeed, they are growing very fast. They will probably overtake Apple in the smartphone business, either this year or next year.”
Huawei is already the second-biggest smartphone supplier in several European countries, including Finland, Italy and Spain. In 2017 it shipped 153 million smartphone units worldwide. According to Business Insider UK, Chinese smartphones hold more appeal as they have a similar level of quality at a fraction of the cost.
Previous Moves to Limit Chinese Telecoms
This isn’t the first time the US has taken steps to limit China’s access to the US market over fears of illicit behaviour. In 2017, Chinese electronics giant ZTE was in 2017 fined over $1 billion after admitting it had violated US-Iran sanctions by shipping product from the US to Iran.
Huawei and ZTE aren’t alone, earlier this month the Committee on Foreign Investment in the United States (CFIUS) blocked Chinese firm Ant Financial’s $1.2 billion purchase of US money transfer business Moneygram, citing fears over Chinese espionage against US military personnel, who use the service.
The US is not alone in this approach, in 2013 Australia upheld its ban on prohibiting Huawei bidding on contracts for the country’s National Broadband Network similarly citing cyber security as the reason.
A Long Way to Go
The bill is far from becoming law, it still has to pass the committee stage, then the House and Senate before it can be signed off on by the President. However, if it does manage to navigate the copious amounts of red tape required it will be interesting to see how this impacts US-Sino relations.