Huawei Probe Underlines U.S. Fears of China Strategic Threat

(Bloomberg) -- A federal investigation into Huawei Technologies Co. for allegedly stealing trade secrets from U.S. companies follows a long history of wariness and suspicion toward the Chinese telecommunications giant.

It also adds to a case the U.S. has been trying to make for years now: Huawei is a threat to national security.

The investigation -- tied to civil suits filed in Washington state, including a 2014 case involving the theft of T-Mobile US Inc. technology -- ratchets up pressure on a company already reeling. Last month, at the behest of the U.S., Canadian authorities arrested Huawei’s Chief Financial Officer Meng Wanzhou on fraud charges linked to Iran trade-sanction violations.

U.S. officials and industry executives have long harbored questions about Huawei’s ties to China’s government, and concerns about its technology have mounted in lockstep with its growing success. China’s rise as an economic and military competitor to the U.S. have only intensified those worries.

U.S. President Donald Trump’s administration has pushed European allies to block Huawei from telecom networks, and slapped tariffs on China in part to limit its access to next-generation technologies. American lawmakers on Wednesday introduced a bipartisan bill that would ban the export of U.S. components to Huawei and other Chinese telecom operators deemed to have violated American laws or sanctions.

Huawei holds an ever-growing share of the world’s smartphone market and is a frontrunner in the race to develop next-generation wireless equipment, which critics say could enable Chinese spying efforts. The federal investigation and Meng’s detention may point to U.S. efforts to build a public case against the company.

“This is another prong in what is starting to feel like a full 360-degree assault on the business,” said Isaac Stone Fish, a senior fellow at the Asia Society in New York. “Huawei is a sustained target, and the U.S. government is saying Huawei is a dangerous company and should be stopped,” he said.

The investigation is at an advanced stage and an indictment could come soon, according to a person familiar with the matter, who asked not to be identified because the information is private. The probe was reported earlier Wednesday by the Wall Street Journal.

Emily Langlie, a spokeswoman for the U.S. Attorney’s office in Seattle, declined to comment, as did a spokeswoman for T-Mobile.

“We’re not going to comment on such reports in the press,” Chase Skinner, a spokesman for Huawei, said late Wednesday.

China’s foreign ministry said Thursday the legal dispute between Huawei and T-Mobile had already been resolved, and expressed concern about the “reinvestigation.”

“We seriously doubt the true motives behind it,” Hua Chunying, a spokeswoman for the ministry, told reporters in Beijing. “We hope the U.S. can create a fair competitive environment for Chinese enterprises operating in the U.S.”

‘Hysteria’

She also blasted U.S. legislators for proposals to block sales of American components to Chinese telecom companies, saying it amounted to “hysteria.”

“The whole world is quite clear that the U.S. is using national machinery to suppress China’s high-tech companies,” Hua said. “This is not what the No. 1 world power should do.”

The arrest of a Huawei employee in Poland last week underscored the increasing pressure on the company in the U.S., Europe and elsewhere over espionage concerns. In 2012, congressional committees and other U.S. government entities criticized Huawei’s “pattern of disregard for the intellectual property rights of other entities and companies in the U.S.”

Earlier this week, Huawei’s billionaire founder Ren Zhengfei broke years of silence to dismiss U.S. accusations that the company helps spy for China’s government. He also praised Trump for helping business by cutting taxes, and called Huawei “only a sesame seed” in the wider U.S.-China trade fight.

Huawei Probe Underlines U.S. Fears of China Strategic Threat

The company is also mired in a U.S. criminal case alleging that CFO Meng conspired to defraud banks into unwittingly clearing transactions linked to Iran in violation of U.S. sanctions.

Meng, the daughter of Ren, was arrested in Canada on Dec. 1 and released on bail four weeks ago. She is awaiting extradition hearings to the U.S. while living under restrictions in her Vancouver home.

Huawei isn’t the only target. For at least three White House administrations, the U.S. has threatened to take new measures to punish China for the theft of American intellectual property. In November, the Justice Department announced its “China Initiative” designed to prioritize trade-theft cases and litigate them as quickly as possible.

The first companies indicted under the program were state-owned Fujian Jinhua Integrated Circuit Co., based in Jinjiang, China, and its Taiwan-based partner United Microelectronics Corp. The prosecution of Jinhua has already helped to hobble China’s aspirations of mass producing dynamic random access memory, or DRAM, chips.

Jinhua and UMC have pleaded not guilty to the charges. Three Taiwanese nationals were charged alongside the companies with conspiring to steal trade secrets. They are scheduled to be arraigned next month.

‘Tappy’

The U.S. probe into Huawei includes allegations from a 2014 lawsuit by T-Mobile, its U.S. partner at the time, that it stole information, according to the person familiar with the matter.

According to T-Mobile, one of Huawei’s engineers visited its Bellevue, Washington, lab to see a diagnostic robot called “Tappy,” which simulated a phone user’s use. T-Mobile alleged a Huawei engineer was curious about Tappy’s fingertips so he slipped one into his laptop bag during the visit and left with it.

T-Mobile said that days before the Huawei engineer took the part, a Huawei employee working at T-Mobile’s lab took unauthorized photos of the testing robot with his mobile phone, in violation of lab prohibitions.

The jury sided with T-Mobile in 2017, saying T-Mobile should get $4.8 million in damages for breach of contract.

©2019 Bloomberg L.P.