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Huawei's Global Cloud Strategy May Give 'Coercive Leverage'

FILE - Residents pass by a Huawei electronics store in Beijing, April 12, 2021.
FILE - Residents pass by a Huawei electronics store in Beijing, April 12, 2021.

A new report suggests that Chinese telecommunication firm Huawei has successfully secured contracts to provide cloud infrastructure in emerging economies in Asia, Africa and Latin America — a strategy that could allow Beijing to harvest important and sensitive information for "coercive leverage."

The move comes as many developed economies such as the United States, Australia, the United Kingdom and France are banning or restricting Huawei from their 5G networks.

The report, "Huawei's Global Cloud Strategy — Economic and Strategic Implications," published by the Center for Strategic and International Studies (CSIS), a Washington think tank, identified 70 deals in 41 countries between Huawei and foreign governments or state-owned enterprises for cloud infrastructure and e-government services, a bundling that can cut administrative costs. The contracts were executed from 2006 until April 2021.

Most of the deals share three characteristics, according to report authors Jonathan E. Hillman and Maesea McCalpin.

According to the report, these are:

Not free: 77 percent of the deals are located in countries that are considered either "not free" (34 percent) or "partly free" (43 percent) according to Freedom House ratings.

In Africa or Asia: 56 percent of the deals are with countries located in sub-Saharan Africa (36 percent) or Asia (20 percent).

Middle-income: 72 percent of the deals are in lower-middle-income (38 percent) and upper-middle-income (34 percent) countries.

In 60% of these deals, Huawei packages the delivery of hard infrastructure with services and offers favorable financing from the so-called policy banks — the Export-Import Bank of China (Chexim), the China Development Bank (CDB), and the Agricultural Development Bank of China (ADBC) — all established by the Chinese government in 1994 and each dedicated to a specific lending purpose.

FILE - Huawei's Director of the Board William Xu speaks at the opening of Huawei Global Analysts Summit in Shenzhen, Guangdong province, China, April 12, 2021.

The CSIS report warned that as Huawei carves out a niche as a provider to governments and state-owned enterprises, "its activities could provide Chinese authorities with intelligence and even coercive leverage."

In response to the report, Huawei issued a statement saying the company does not own or control any customer data.

"Network security and user privacy are our top priorities," the statement added.

However, part of the concern surrounding Huawei and other Chinese tech companies such as ZTE stems from the language in a Chinese law covering matters of national intelligence, as passed on June 27, 2017, by the 28th meeting of the Standing Committee of the 20th National People's Congress.

Article 7 states, "All organizations and citizens shall support, assist, and cooperate with national intelligence efforts in accordance with law, and shall protect national intelligence work secrets they are aware of.

"The State protects individuals and organizations that support, assist, and cooperate with national intelligence efforts."

VOA contacted Huawei for further comment, but did not receive a response.

VOA also emailed the Chinese Embassy in Washington and has not received a response about the report's suggestion of the potential for information sharing between Huawei and Beijing.

Smartphone slump

Once a global leader in smartphone sales, Huawei has seen its market share outside China plummet since the Trump administration restricted its supply of technology needed to produce modern 5G handsets. And the company's business installing mobile telecommunications infrastructure, especially new 5G-capable systems, has been severely damaged by a U.S. campaign against the company.

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Huawei has made its cloud business a strategic priority to counter sanctions from developed countries that limit its access to mobile semiconductors.

Ken Hu, rotating chairman of Huawei, was quoted in March by the Japanese business news site, Nikkei Asia, saying that the COVID-19 pandemic had advanced the adoption of cloud services by global enterprises by one to three years, and that revenue generated by Huawei Cloud grew 168% year on year.

Jason Li, a research associate with the East Asia program at the Stimson Center, told VOA Mandarin by phone that it's in Huawei's interest both financially and strategically to move its focus to cloud infrastructure.

"It's obviously looking for new markets to offer its new products in order to stay afloat, and this comes at a time when Huawei is reconsidering exactly how it wants to market itself," he said.

Richard Weitz, a senior fellow at the Hudson Institute, agreed that Huawei is now trying to reposition itself in developing markets.

"We know nobody in the U.S. or Europe who most likely will buy Huawei cloud services because of security and other challenges," he told VOA Mandarin via phone. "But there are markets that are undeveloped — particularly in Africa but also Latin America, parts of Asia — and Huawei seems to be making some progress there with its cloud service offerings."

'Coercive leverage'

The CSIS report pointed out that "Huawei's cloud infrastructure runs the gamut from small, modular data centers the size of a shipping container to multilevel buildings packed with servers, and its e-government services include document digitization, national ID systems, tax services, crisis communications, elections and more."

And there are strategic implications.

"Huawei's cloud infrastructure and e-government services are handling sensitive data on citizens' health, taxes and legal records. These services also operate critical infrastructure, from oil production and fuel distribution in Brazil to power plant operations in Saudi Arabia," the report said.

FILE - Information on Huawei's 5G equipment is seen on a screen at the World 5G Exhibition in Beijing, China, Nov. 22, 2019.

Huawei landed on what's known as the entity list during the Trump administration over concerns it posed an espionage threat because of its ties to the Chinese government.

In March, the U.S. notified some Huawei suppliers that more items would be banned for export because of their use in 5G technology.

China has long objected to restrictions imposed or proposed by the U.S. On March 12, 2021, Foreign Ministry spokesman Zhao Lijian said, "The previous U.S. administration abused the concept of national security and left no stones unturned to suppress Chinese high-tech companies with state power. ...

"The U.S. side should stop its crackdown on Chinese companies, treat them in an open, fair, unbiased and non-discriminatory manner, and do more to enhance China-U.S. scientific and technological exchanges and economic and trade cooperation."

Weitz said Chinese authorities will benefit from Huawei's ability to collect data from other countries.

"This would allow them to access information that could provide what the Russians call 'compromising information' in bad or illicit activities — misbehavior that you don't want it to be released into the public. They could leverage that for gains," he told VOA Mandarin.

As Beijing develops its artificial intelligence capabilities, "having access to millions of additional sources of data can help them refine their computer and control models," Weitz said of Huawei's collecting.

In July, Senator Bob Menendez, ranking member of the Senate Foreign Relations Committee, published a report stating that China is developing "digital authoritarianism" to conduct surveillance, control the internet and censor information within its borders and around the world.

Cloud competition?

To compete with Chinese influence in these developing economies, the authors of the report recommend that "the U.S. and allied policymakers should prioritize cloud infrastructure and services as an area of strategic competition."

This would include "packaging cloud services with support for the infrastructure that underpins them, including not only data centers and fiber optic networks, but also energy infrastructure."

The authors also recommended that "the United States and its allies should pool resources to expand financing and funding for digital infrastructure, technical assistance and training. They should also cooperate to remove and prevent foreign regulatory barriers that disadvantage U.S. and allied cloud providers."

Herbert Lin, an expert in cyber policy and security at the Hoover Institution, said the U.S. must become a real competitor and provide developing countries an alternative to China's Huawei.

"The U.S. policy now is 'Just say no to Huawei.' But that's not a strategy. You have to be a competitor," he told VOA Mandarin via phone. "You have to have the technological competence to build a competing service, and you have to have a willingness to sell it aggressively at terms that another nation will find more favorable. … If the U.S. is going to play, we have to have a policy that will support our bid."