One of the world’s leading providers of fifth-generation (5G) mobile technology, Huawei is a Chinese telecommunications giant that has stoked fears of espionage and intellectual property theft in the United States and many other countries. In response, Washington and its allies have imposed sweeping restrictions on Huawei as part of a larger crackdown on Chinese technology companies.
Some experts warn that tensions between Washington and Beijing over technology could lead to a “digital iron curtain,” which would compel foreign governments to decide between doing business with the United States or China.
It is the world’s largest provider of 5G networks and a leader in sales of telecommunications equipment. Based in Shenzhen, China, Huawei sells its products domestically and internationally. In the United States, it has helped provide connectivity in rural areas of Alabama, Colorado, Oklahoma, and other states.
Ren Zhengfei, the company’s billionaire CEO, founded Huawei in 1987. With more than 190,000 employees, according to its website, Huawei claims to be a private company fully owned by its employees, though its precise ownership structure is unknown.
In recent years, the United States and several other countries have asserted that the company threatens their national security, saying it has violated international sanctions and stolen intellectual property, and that it could commit cyber espionage. Many U.S. policymakers view Huawei as a commercial extension of the Chinese Communist Party (CCP).
Cyber espionage. The main concern, according to U.S. intelligence agencies, is that the Chinese government could use Huawei to spy. Officials, primarily in the United States but also in Australia and several other countries, point to intentionally vague Chinese intelligence laws that could be used to force Huawei to hand over data to the Chinese government. (The United States has not publicly provided evidence that this has happened.) There are also concerns that Huawei’s 5G infrastructure could contain backdoors that allow the Chinese government to collect and centralize massive quantities of data and give Beijing the necessary access to attack communications networks and public utilities. In 2022, an FBI investigation found that Huawei equipment can be used to disrupt U.S. military communications, including those about the U.S. nuclear arsenal.
Congress began receiving warnings about Huawei as early as 2012, when a U.S. House Permanent Select Committee on Intelligence report [PDF] concluded that using equipment made by Huawei and ZTE, another Chinese telecommunications company, could “undermine core U.S. national security interests.” In 2018, six U.S. intelligence chiefs, including the directors of the CIA and FBI, cautioned Americans against using Huawei products, warning that the company could conduct “undetected espionage.”
At the heart of Washington’s concerns is 5G, the latest technology standard for cellular networks, which provides faster download speeds for smartphones, connects devices in smart cities, and supports autonomous vehicles and robots. “5G is a different type of risk versus 4G or 3G. It’s much harder to separate the core from the periphery,” says CFR’s Adam Segal. “Once you have those risks, you have to trust the company much more. But it is difficult to trust Huawei, given the relationship between companies and the Communist Party.”
Intellectual property theft. U.S. companies and global telecom firms have for years accused Huawei of stealing trade secrets, starting with Cisco’s 2003 lawsuit alleging that its source code appeared in Huawei products. (The suit was later settled.) In 2017, a U.S. jury found Huawei guilty of stealing intellectual property from T-Mobile, and in 2020, the U.S. Justice Department charged Huawei with racketeering conspiracy and conspiracy to steal trade secrets. According to the indictment, these violations allowed Huawei to “drastically cut its research and development costs and associated delays, giving the company a significant and unfair competitive advantage.”
Trade violations. The United States claims that Huawei has violated sanctions on Iran and North Korea. A federal indictment unsealed in January 2019 against Meng Wanzhou, Huawei’s chief financial officer and Ren’s daughter, said that Huawei defrauded banks in order to do business with Iran and obstructed justice in the process by destroying evidence. Meng was detained in Canada in 2018 at the request of the United States, which was seeking her extradition. In 2021, she reached a deferred prosecution agreement with the U.S. Justice Department, which later dropped the charges against her.
The government has considerable sway over Chinese private companies through heavy regulation, including the requirement that they establish CCP branches within them, and state-backed investment. Executives of many of the biggest companies are party members, including Alibaba cofounder Jack Ma and Huawei founder Ren, who served as an engineer in the People’s Liberation Army during the Cultural Revolution.
Under President Xi Jinping, the lines between public and private have become even more blurred. Experts have observed that the CCP is working to boost its influence over private industry, especially tech companies. In recent years, state-run companies and local governments have invested more in private firms. Foreign news organizations have also reported that the government could start pressuring tech companies to offer the party direct ownership stakes and give party members even greater roles in management. While there is no evidence that this has happened at Huawei, Beijing has taken a stake in an entity owned by ByteDance, the parent of video-sharing monolith TikTok.
Some experts and U.S. officials also point to vague Chinese laws that could be used to force Huawei to help the government with intelligence gathering. For example, the National Security Law [PDF], enacted in 2015, states that citizens and enterprises have the “responsibility and obligation to maintain national security.” The 2017 National Intelligence Law [PDF] declared that Chinese companies must “support, assist, and cooperate with” China’s intelligence-gathering authorities. These laws have prompted additional U.S. concerns that TikTok could share user data with the Chinese government.
Huawei has distanced itself from the CCP, repeatedly asserting that its equipment has never been used, and will never be used, to spy. In January 2019, Ren said he “would never harm the interest of my customers” and that Huawei would not answer government requests for intelligence. In May 2018, Huawei commissioned a report [PDF] from a Chinese law firm supporting its argument that it cannot be forced to spy, but other lawyers in China and around the world said the law has never been tested. The Chinese government has also gone to bat for Huawei, saying it would “take all necessary measures to safeguard” Chinese companies.
Huawei became the world’s largest telecommunications company over three decades, reporting $138 billion in revenue in 2020, a 12 percent jump from the previous year. This success has helped drive suspicion that the Chinese government has played a more significant role in the company in recent years than its leaders have let on.
In 1996, both the government and military began treating Huawei as an official “national champion,” a status reserved for firms that bolster China’s strategic aims. The move highlighted a shift in official policy. From then on, Beijing explicitly supported domestic telecom companies—and Huawei even more than others [PDF]—to prevent foreign domination of the industry. The Chinese government ensured Huawei had easy access to financing and high levels of government subsidies—up to $75 billion in state support since the company was founded.
These underpinnings have allowed Huawei to price its network equipment below foreign competitors’ rates; a European Commission investigation found that Huawei has underbid its competitors by up to 70 percent. Experts said that Huawei’s prices would not have even covered the cost of producing their parts without subsidies. Chinese state banks also provide countries with low-interest loans to use Huawei’s equipment.
Huawei says its low prices are the result of technological expertise—a claim with some merit, according to industry experts. Huawei’s annual research and development (R&D) budget is among the world’s largest, and Ren says his firm spends more on it than most publicly listed firms can. At over $22 billion in 2021, Huawei’s R&D expenditures rank alongside those of Alphabet (Google’s parent company) and Amazon; when R&D is measured as a percentage of sales, Huawei’s expenditures are proportionally double.
U.S. government limitations on Huawei have been ongoing since 2017, when Congress restricted some Department of Defense networks from using Huawei or ZTE equipment. In 2018, the Donald Trump administration banned more U.S. federal agencies from using the telecom giants’ equipment. (Huawei sued the United States over the restriction.) That same year, following pressure from regulators, AT&T walked away from a deal to sell Huawei’s smartphones.
U.S. actions against Huawei continued to build throughout the Trump presidency: in 2019, Trump signed an executive order prohibiting U.S. companies from doing business with Huawei, and the Commerce Department added the company to its “entity list,” restricting it from buying U.S. goods. Shortly after, Google said it would restrict Huawei’s access to its products, including its Android operating system; a new Huawei phone unveiled later in the year didn’t come with Android apps.
The department cracked down further in May 2020, issuing new rules to block foreign semiconductor manufacturers that use U.S. machines and software from shipping products to Huawei without a license. Prior to the bans, Huawei said it relied on U.S. software, microchips, specialty lasers, and other products for one-third of its supply chain, amounting to $11 billion. More than one hundred Huawei affiliates have been added to the commerce department’s entity list since then, crippling the company’s ability to obtain critical U.S. goods.
Other government agencies have followed suit. In November 2019, the Federal Communications Commission (FCC) voted to designate Huawei and ZTE as national security threats, which prevents U.S. internet providers from using federal funds to purchase the tech companies’ equipment. Huawei filed a legal challenge, but the FCC’s decision went into effect in June 2020. That same year, Congress provided $1.9 billion to the FCC for the agency to remove Huawei equipment from existing U.S. networks. The Trump administration also imposed visa restrictions on Huawei employees it says contribute to human rights abuses committed by the Chinese government, including against Uyghurs in China’s Xinjiang region
President Joe Biden has upheld restrictions against Huawei and introduced new bans that have further hamstrung the company. In November 2021, Biden signed a bill aimed at preventing Huawei and ZTE from receiving equipment-making licenses from U.S. regulators, including the FCC. A year later, in November 2022, the FCC adopted new rules that prohibited the sale of some communications equipment made by Huawei or ZTE in the United States, citing “unacceptable” national security risk. And in January 2023, the Biden administration stopped providing licenses for U.S. companies to export goods to Huawei. Biden has also taken such measures beyond Huawei, signing legislation that precludes any Chinese manufacturer from obtaining chips or chipmaking equipment made with U.S. parts anywhere in the world.
Despite the restrictions, the Commerce Department has allowed some business activities that it says do not pose significant risks to U.S. national security. Since 2017, the Trump and Biden administrations have allowed over $60 billion [PDF] in transactions between Huawei and U.S. firms.
Some critics say that while the restrictions have handicapped Huawei, they would be even more effective if combined with a U.S.-led alternative. “A principal reason that the United States has not had more success in persuading countries not to use Huawei equipment is that it cannot offer an alternative,” CFR’s David Sacks writes. “The United States does not and will not have a company that is competitive in the full stack of 5G equipment.”
To get more countries to wean off Huawei, Sacks argues that the United States should finance European competitors’ 5G networks and develop open radio access networks, a system that would allow multiple companies to provide different components of a singular 5G network. Meanwhile, it should fund research and development to better compete in sixth-generation (6G) technology, which is expected to replace 5G within fifteen years.
It’s not just the United States that has banned Huawei. Washington has pressured its allies to follow suit, even threatening to stop sharing intelligence with countries that use Huawei. The countries of the so-called Five Eyes intelligence alliance—The United States, Australia, Canada, New Zealand, and the United Kingdom—have banned or are rolling out bans of Huawei. Other U.S. partners, such as Belgium, Denmark, Estonia, France, Lithuania, Poland, Romania, and Sweden have restricted the use of Huawei equipment in the construction of their 5G networks.
Experts say that the bans have caused Huawei to reprioritize its domestic market due to a shortage of international business. In 2020, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip supplier, halted business with Huawei, citing U.S. export controls. TSMC had supplied over 90 percent of Huawei’s smartphone chips. Because of the semiconductor restrictions, Huawei has had “to exit whole lines of business, because [they] don’t have access to advanced semiconductors because of these export controls,” CFR’s Sacks says. While Huawei accumulated a limited number of semiconductors before the bans took effect, it reportedly ran out in late 2022. The shortage has hurt Huawei’s bottom line: in 2021, the company reported $95 billion in revenue—a 23 percent drop from 2019 levels.
Other countries, especially those participating in China’s Belt and Road Initiative, are already using or have agreed to use Huawei’s equipment to build 5G networks.
Many have been attracted by the company’s ability to provide high-quality networks for low prices. Huawei is helping Malaysia and Russia build their 5G networks, and it has signed contracts to build 5G networks for a number of countries in Latin America.
Authorities in potential markets that have not ruled out using Huawei, including several European countries, argue that security risks are inherent in all 5G networks, regardless of the supplier. They acknowledge, however, that the risks are higher for Huawei. Officials in these countries say they prefer to keep their auctions for 5G construction open to all firms and will tighten security measures to minimize any risks.
Analysts say U.S. policymakers have not come up with a better option for low-income countries, especially as 5G networks are dominated by just three firms: Huawei, the Finnish firm Nokia, and the Swedish firm Ericsson. Even after U.S. restrictions went into place, many low-income countries still chose Huawei, which is frequently the cheapest option, to build their 5G networks.
“We still haven’t really addressed the larger issue, which is that developing countries and other countries have connectivity demands and Chinese tech is cheap and reliable,” says CFR’s Segal.
Republished from the Council on Foreign Relations under a Creative Commons license in the United States.
Noah Berman writes about economics, energy, and geopolitics for CFR.org. He has also covered emerging economies for Frontier Markets News and politics for the Gotham Gazette. He holds a bachelor’s degree from Georgetown University, where he studied government and Spanish.
Lindsay Maizland writes about Asia for CFR.org. Before joining CFR, she covered breaking news for TEGNA’s central digital team and reported on world news for Vox. She holds a BA in international relations and journalism from American University.
Andrew Chatzky is a Foreign Service Officer at the U.S. Department of State.
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