Wednesday, October 17, 2012

Huawei in Canada-China Relations

On October 8, the Permanent Select Committee on Intelligence of the U.S. House of Representatives issued their "Investigative report on the U.S. National Security Issues posed by Chinese Telecommunications Companies Huawei and ZTE." It was based on a study carried out over 11 months at the behest of Huawei, the world's second-biggest maker of routers, switches and associated telecommunications. Huawei hoped the Congressional study would dispel persistent but unproven allegations that it is a heavily subsidized front company of the Chinese People's Liberation Army and the Chinese Ministry of State Security.

The Select Committee heard hearsay evidence of serious allegations of malfeasance by Huawei (which have been referred to the U.S. Justice Department and the Department of Homeland Security), but it turned up nothing definitive - at least not in the unclassified part of the report.

However, because there was enough doubt that Huawei "cannot be trusted to be free of foreign state influence and thus pose a threat to the United States and to our systems," Congress imposed severe restrictions on Huawei's future business activities in the U.S.

This compelling report is of high interest in Canada, where Huawei, through highly competitive bids, has won contracts to supply sophisticated data networking equipment to at least Bell, Telus, Sasktel and Wind.

Competitors claim that Huawei can offer below-market pricing in its network installations thanks to secret funding it gets from the Chinese Government. Regardless of whether that is true, the Select Committee's report suggests that buying Huawei could be a very false economy for Canada.

Some observers were quick to downplay any implications the U.S. report could have for Canada. Telecom analyst Iain Grant has been quoted as saying he is "not sure that the technical judgment of the U.S. Congress is a yardstick that Canadian companies need to consider when making technical decisions. Canadian companies assess the attraction of Huawei gear on its merits, on function, on delivery and timeliness, on quality of what is delivered and on price. Paranoia is not a measure they find germane."

But clearly there are bases for concern about any Huawei equipment processing massive quantities of Canadian data. Certainly, the Government of Canada has already indicated Huawei will be excluded from bidding on a new government digital, telephone, data and e-mail network, on the basis that it is "too dicey to be included in constructing the network."

Among the unproven allegations in the Congressional report is that Huawei routers are able to activate "back door" software that sends data to "an elite cyber-warfare unit within the PLA." Similar routines hidden in millions of line of code could enable China to remotely shut down any Huawei-installed networks for strategic reasons. As technology progresses, the ability to carry out targeted mining of the huge data quantities passing through Huawei-installed Canadian routers and switches, using sophisticated computer algorithms, becomes a greater cause for concern. Moreover, the equipment will require maintenance and "software updates", opening up the possibility of further opportunities for cyber-espionage.

It all comes down to a question of trust. If the Canadian telecommunications project had been prepared to pay more for the Swedish Ericsson or French Alcatel Lucent installations instead, there would be less cause for alarm.

According to the U.S. report, Huawei admits the Chinese Communist Party maintains a Party Committee within the company, but won't explain how the committee functions or even reveal which individuals compose the committee, on the grounds that this information is a Chinese state secret and Huawei could be prosecuted in China if they came clear on this point.

Furthermore, since only People's Republic of China nationals are permitted to own shares in Huawei by company policy, it stands to reason that Huawei's senior management (also citizens) could not ignore a Chinese Party-State order to facilitate cyber-intelligence gathering or "back door" network processes, if couched in Chinese national security terms. (And it would certainly be virtually impossible for buyers of Huawei networks to detect.)

Beyond a doubt, Beijing has shown a strong proclivity to engage in cyber espionage. After the German Chancellery and three ministries were penetrated by hackers, evidently from China, and infected with spyware, Chancellor Angela Merkel stood in public next to Chinese Premier Wen Jiabao and openly criticized his government for its attacks. Canadian government computers also suffered similar assaults just last year, causing considerable disruption to operations.

And what of private-sector customers of Canadian telecommunication companies that use Huawei equipment to carry their data? Should activists for Chinese human rights, or Canadian companies competing for business contracts in China, be concerned? Considering how unforthcoming and obscure Huawei was in its responses to the pertinent questions posed by the U.S. Congress, this is a valid concern.

Unfortunately it appears that, for Canada, it is already too late to second-guess our trust in the honesty and sincerity of this Chinese firm.

(An edited version of this text was published in Embassy on October 17.2012 under the title "Weighing Huawei in Canada")

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