ZTE, Huawei bans: Security issues or part of trade spat?
April 19, 2018
Security and regulatory troubles on both sides of the Atlantic threaten the future of China’s ZTE and Huawei. But to what extent are the recent disputes linked to Trump's attempts to rein in Beijing's economic ambitions?
The United States and Britain this week ordered government agencies, technology firms and other companies not to purchase telecommunications equipment from certain Chinese manufacturers, citing national security concerns.
The US Federal Communications Commission (FCC) named both Huawei and ZTE Corp. in their communique, while the UK singled out ZTE for criticism.
US authorities also punished ZTE for its failure to comply with sanctions on technology sales to Iran and North Korea. The Shenzhen-headquartered telecom equipment maker will face a seven year ban on the use of American parts for its hardware.
Despite making great headlines, suspicion about the security risks surrounding Chinese hardware which powers much of the global internet and cellular networks is nothing new.
US and European intelligence agencies have previously raised concerns over the damaging potential for espionage, particularly around Huawei, whose technology is used on 45 of the world's 50 largest telecoms operators.
"The Trump administration's stance against Huawei and ZTE is very much in line with its antagonistic approach to trade policy with China," Michael Plouffe, a lecturer in international political economy at University College London (UCL), told DW.
He said while potential security threats stem from Huawei and ZTE's close relationships with the Chinese government, similar concerns could be applied to any other infrastructure supplier where hardware can be compromised with backdoor access.
Plouffe acknowledged that Chinese firms have stronger incentives to introduce security vulnerabilities or give privileged access to networks, but said a far better approach would be for telecoms firms to test all equipment prior to deployment, rather than singling out individual manufacturers.
Washington may have also picked this particular time to clip the two Chinese firms' wings as the telecommunications sector is battling to control the roll-out of the next generation of wireless technology, the UCL academic said.
"The other political aspect to this situation stems from the US government's desire to prevent 5G infrastructure from being dominated by Chinese firms; while this predates the Trump trade war, the policy ramifications are very similar."
Despite the apparent security threat from Huawei and ZTE's technology, neither the US of Britain has recommended that the two firms' hardware be immediately removed.
Instead, security analysts told DW they expect most telecoms companies to step up tests to determine whether their networks are safe from infiltration.
Even so, the UK's National Cyber Security Centre (NCSC) was cited by the Financial Times as warning that the country's telecoms network contains a "significant amount" of equipment supplied by Huawei. In a letter to telecoms firms, it warned that adding in hardware from a second Chinese supplier, would "render our existing mitigations ineffective."
Suspicion moves to smartphones
Although the security alerts were firmly aimed at the two Chinese firms' backend telecoms solutions, both Huawei and XTE have over the past five years expanded to become major mobile handset manufacturers.
This week's action by US and British authorities has therefore reignited consumers' concerns about data-collection and privacy in relation to Chinese-made smartphones.
UCL's Plouffe gave examples of other major Chinese manufacturers, including OnePlus and Xiaomi, who were recently caught siphoning off far more sensitive user data than non-Chinese manufacturers, which he said forced industry-wide reforms in data-collection practices.
Reversal of fortunes
Washington's limit on ZTE buying American-made parts is likely to severely curtail the production of its new smartphone models, as it uses Qualcomm chips in its devices.
"A more important concern for ZTE will be the lack of access to much of the Android ecosystem, from which many key applications are licensed from Google," Plouffe said.
China says its economy can withstand trade tariffs
Although Google's Android operating system — which Huawei and ZTE rely on to power their smartphones — is an open source software, a number of Google's key apps aren't, and neither is access to the Google Play Store.
While Huawei appears to have given up on the American mobile market, at least in the short term, the new actions would likely severely damage ZTE's mobile sales in the US, where it has achieved a 12 percent market share in just three years, Plouffe added.
He told DW that American consumers would likely be the main losers from the sanctions, as both Chinese brands have reintroduced choice to a mobile market that Apple and Samsung recently dominated.
The UCL lecturer warned that the reputational damage from the US and British action would likely extend to other electronic equipment from Chinese manufacturers including other smart devices and home security systems.