Huawei Technologies Co., one of China’s most global companies, is increasingly in the crosshairs of the U.S. government and its Western allies, just as it’s pushing for a leadership role in the new wireless standard known as 5G. The telecommunications giant is facing multiple battles, including the arrest in Canada of its chief financial officer, criminal charges in the U.S. and the prospect of being banned from buying American components and shut out of new infrastructure projects around the world. The wrangling also comes amid a growing U.S.-China trade war in which Chinese technology companies have been a particular bugbear for U.S. President Donald Trump.

1. Why does the U.S. have an issue with Huawei?

The company has enjoyed favorable treatment in China, and U.S. government officials and industry executives have long harbored suspicions that it works for Chinese government interests. A report released in 2012 by the U.S. Permanent Select Committee on Intelligence tagged Huawei and ZTE Corp. as potential security threats, saying neither had assuaged concerns that they are subject to political pressure. The report also said Huawei refused to describe the “full military background” of Ren Zhengfei, the former People’s Liberation Army engineer who founded Huawei in 1987. U.S. concerns about Huawei drove the 2018 decision by the Trump administration to block Singapore-based Broadcom Ltd.’s hostile takeover bid for the U.S. chipmaker Qualcomm Inc. The transaction could have curtailed American investments in chip and wireless technologies and handed global leadership in those spheres to Huawei.

2. What’s the Trump administration done?

Moved to curb Huawei’s ability to sell equipment in the U.S. and, more significantly, to buy parts from U.S. suppliers, via an executive order and by adding Huawei to a Commerce Department blacklist on May 17 that requires U.S. companies to seek a special license to sell their products to Huawei. (Some U.S. companies were given a 90-day reprieve.) Qualcomm, Intel Corp., Google and others soon began to freeze the supply of critical software and components to Huawei, threatening its ability to make its products. That could retard the rollout of 5G wireless networks worldwide and push countries and telecoms carriers toward more expensive equipment from Nokia Oyj and Ericsson AB.

3. Why does the equipment matter?

The U.S. government — like the Chinese and others — is wary of employing foreign technology for vital communications for fear that the equipment manufacturers could leave a backdoor that allows their home-country intelligence agencies to access information, or that the companies themselves would hand over sensitive data. Vodafone is said to have found and fixed backdoors on Huawei equipment used in the carrier’s Italian business in 2011 and 2012. While it’s hard to know if the vulnerabilities were nefarious or harmless mistakes, the revelation dealt a blow to the Chinese company’s reputation. U.S. Secretary of State Michael Pompeo has said the U.S. might hold back intelligence-sharing with NATO allies if they use Huawei equipment. Still, some allies including the U.K. and Germany have balked at shutting Huawei out completely from 5G network construction, partly due to price.

4. What does Huawei say?

It has repeatedly denied that it helps Beijing spy on other governments or companies, and points out that no one has provided any proof to support such charges. The company, which says it’s owned by Ren as well as its employees through a union, has in recent years begun releasing financial results, spent more on marketing and engaged foreign media in an effort to boost transparency. In January, Ren, who is famously reclusive, spoke about the challenges facing his company, including the arrest of CFO Meng Wanzhou, who’s also his daughter. While he said he was proud of his military career and Communist Party membership, he rejected suggestions he was doing Beijing’s bidding or that Huawei handed over customer information. In March, Huawei went on the offensive, filing a lawsuit in federal court against a statute that blocks U.S. government agencies from using its equipment. It also criticized what it called “unreasonable restrictions” on doing business in the U.S.

5. What’s happening with Meng?

She was detained in Vancouver on Dec. 1 at the behest of the U.S., which has filed a formal request seeking her extradition as part of a criminal case alleging that she conspired to defraud banks into unwittingly clearing transactions linked to Iran in violation of U.S. sanctions. Both Meng, who is also deputy chairwoman, and the company have denied wrongdoing. Meng is suing the Canadian government for alleged wrongful detention. Meng was granted bail Dec. 11, allowing her to stay in a luxury home in Vancouver while the courts decide her fate. She lives mainly in Shenzhen, Huawei’s hometown.

6. Are there other cases?

Civil ones go way back. In 2003, Cisco Systems Inc. sued Huawei for allegedly infringing on its patents and illegally copying source code used in routers and switches. Huawei removed the contested code, manuals and command-line interfaces and the case was dropped. Other accusations that Huawei stole intellectual property from U.S. companies surfaced. Motorola sued in 2010 for allegedly conspiring with former employees to steal trade secrets. That lawsuit was later settled. In 2017 a jury found Huawei liable for stealing robotic technology from T-Mobile US Inc., and on Jan. 28 the Justice Department indicted Huawei for theft of trade secrets related to that case. Meanwhile, Poland, a staunch U.S. ally, arrested a Huawei employee on suspicion of spying for the Chinese government. Huawei fired the employee and denied any involvement in his alleged actions.

7. How big is Huawei?

In just over three decades it’s grown from an electronics re-seller into one of the world’s biggest private companies, with leading positions in telecommunications gear, smartphones, cloud computing and cybersecurity and operations in Asia, Europe and Africa. With a 2019 sales target of $125 billion, Huawei generates more revenue than Home Depot Inc. or Boeing Co. It’s plowed billions of dollars into 5G and is now among China’s top filers of patents both internationally and domestically. It has helped build 5G networks in more than 10 countries and expects to do the same in another 20 by 2020. In a direct threat to Qualcomm, Huawei is designing its own semiconductors. The Kirin series of mobile processors, made via subsidiary HiSilicon, compete with the Qualcomm Snapdragon chip employed extensively by Samsung Electronics Co. and other global smartphone brands. Huawei’s Kunpeng range is challenging Intel Corp.’s dominance in servers.

8. Are other Chinese companies feeling the heat?

Yes. ZTE almost collapsed after the U.S. Commerce Department banned it for three months in 2018 from buying American technology. The U.S. Justice Department has charged state-owned Fujian Jinhua Integrated Circuit Co., its Taiwanese partner and three individuals with conspiring to steal trade secrets from Micron Technology Inc. The same day, then-Attorney General Jeff Sessions said the Trump administration would be focusing more resources to counter threats of “Chinese economic espionage.”

--With assistance from Grant Clark.

To contact Bloomberg News staff for this story: Reed Stevenson in Tokyo at rstevenson15@bloomberg.net;Gao Yuan in Beijing at ygao199@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Paul Geitner, Robert Fenner

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