Chapter 3: China and 5G
This section will focus on China’s rise to technological power since the early 1990’s. More specifically, it will focus on the rise of Huawei into the global spotlight for telecommunications companies.
Beginning over a decade ago with the 2006 long-term national innovation strategy, the People’s Republic of China has been determined to become “a digital technology superpower.”40 This strategy included, “setting goals of technological indigenous innovation and untying itself from the West.” 41 When referring to the West, this mainly meant the need to use U.S. based products for everyday life. To remove itself from Western technology, China backed the effort to create “firm government guidance and control, with focused government investment into technology research and development. By restricting Western companies’ access to the Chinese market, Chinese industry has been able to benefit from the economies of scale in its home market, largely unchallenged by foreign competitors. Government subsidy and direct financing has boosted Chinese companies’ competitive position on the global market, both in terms of technological advance and affordable prices. Over recent years, Chinese capital has acquired numerous Western technology and infrastructure companies, which is leaving European and US regulators increasingly concerned.”42
40 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
41 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
42 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
In recent years, China has turned its attention towards the introduction and implementation of 5G networks into their society, which would then allow its domestic companies to sell these products to the world. In 2020, Chinese operators accelerated the deployment of 5G networks across the country and now operate more than 700,000 5G sites nationwide. New implementations are expected to occur later this year, to further expand 5G coverage in urban and rural areas of the country.43 “China plans to achieve full urban/rural coverage of the 5G network by 2025. It will build the world’s largest 5G network. Operators are expected to deploy nearly 1 million base stations in China in 2021, to continue to expand 5G coverage. China is in a leading position in the global 5G field. Its successful practice will provide valuable reference for the development of global 5G.”44
One of the reasons China has been able to deploy 5G networks and stations across the country is because “of focused government industrial policy and accompanying funding instruments.”45 Meaning, the government has increased state funding and incentives for their domestic companies.
Through these efforts, Chinese companies have increased their number of patents, made large technological advancements compared to other companies, and increased the capabilities to compete with and take over Western companies’ foothold in the world technological market. These Chinese efforts for 5G dominance have been funneled through one company: Huawei.
43 Tomás, Juan Pedro. “Chinese Telcos Expected to Deploy 1 Million 5G SA Base Stations This Year.” RCR Wireless News, 8 Feb. 2021, www.rcrwireless.com/20210205/5g/chinese-telcos-expected-deploy-1-million-5g-sa-base-stations-this-year.
44 Tomás, Juan Pedro. “Chinese Telcos Expected to Deploy 1 Million 5G SA Base Stations This Year.” RCR Wireless News, 8 Feb. 2021, www.rcrwireless.com/20210205/5g/chinese-telcos-expected-deploy-1-million-5g-sa-base-stations-this-year.
45 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
I. Huawei
“Huawei Technologies Co Ltd is a Chinese company founded by former military officer Ren Zhengfei in 1987 in Shenzhen. It began by selling switching equipment to direct phone traffic through rural China but now produces smart devices, cloud services and telecommunications equipment.” 46 However, the size and ability of the company greatly changed when it was granted a government contract in 1993. “That contract gave the company an important boost over its rivals. A year later, Ren managed to secure another form of protection from the state. He met with Jiang Zemin, the Communist Party general secretary, and told him that a country without a domestic telecom switch industry was like a country without a military. “Well said,” Jiang replied, according to Ren’s account of the meeting.” 47
By 1996, under Ren’s prodding, “the Chinese government shifted its industrial policy to favor domestic telecommunications companies, keeping foreign competitors out.”48 It was because of this meeting that Ren was able to give Huawei a portion of the telecommunications market. Starting in 1997, Huawei entered the Global System of Mobile communications (GSM) network, making equipment for 2G and 3G mobile systems.”49 The increased Chinese focus on domestic telecom companies has allowed Huawei the access and ability to grow without competition that American companies face and become a telecom giant. Since entering the market in 1997, Huawei has become a
46Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131- p53wf0.html.
47 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
48 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
49 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
telecom giant because of the “billions of dollars in support from the Chinese government, last year posting more than $107 billion in revenue from operations in some 170 countries. More important, Huawei has, by most accounts, taken the lead in the race to develop one of the modern world’s most important technologies: fifth-generation mobile telephony. Unlike its various predecessors, which simply offered consumers the ability to send texts, then to surf the web on their phones, and finally to stream video, 5G promises to revolutionize the entire global economy.” 50
While the US was dominating the early 4G markets in the late 2000’s, Huawei made the decision that it was going to focus its efforts on 5G in order to create this new network before the United States. Huawei did this the same way that it started: funding and research/development. “The US wrote 4G,” says Charles Clancy, vice president for intelligence programs at MITRE, a nonprofit that manages US research projects. “In the meantime, through government subsidies and cybertheft of competitors’ intellectual property, Huawei became the global leader while nobody was watching,” says Clancy, who has studied 5G security. “They slowly took control of the standards groups, and China wrote 5G.”51 The reason that Huawei has been able to ‘write 5G’ is because of government funding, a cost advantage over their competitors, patents, and the ability to create every piece of hardware that is used in the development of their phones.
China has long been accused of providing state funding for its companies and organizations to have better standing within the international markets compared to countries with completely free markets. The Chinese government, however, often says
50 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
51 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” *The Sydney Morning Herald, *The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
that their markets are free, while it has largely been speculated that they are run by the CCP. While China continues to claim it does not provide funding for their organizations, recent reports counter this claim made by the CCP. In 2019, the CIA reportedly told members of the Five-Eyes Intelligence alliance that Huawei has received funding from “the People’s Liberation Army, China’s National Security Commission and a third branch of the Chinese state intelligence network.”52 Continuing with the article, “only the most senior U.K. officials are believed to have seen the intelligence, which the CIA awarded a strong but not cast-iron classification of certainty. The Chinese ministry of state security — its principal security and espionage organization — had approved government funding for Huawei.”53
Huawei has most likely used government funding throughout its history. While they say they have no ties to the Chinese government many documents have linked the telecom giant to multiple Chinese owned banks for large investments. “Huawei appears to have benefited from state support not available to the company’s Western rivals such as Qualcomm or Ericcson, though the exact nature of that aid is difficult to quantify, as is the broader relationship of any private Chinese firm to the government.” 54 While the number of subsidies is not known, it is claimed that Huawei receives massive funding from the Chinese government. “Analysis by The Wall Street Journal puts the figure at $75 billion. Huawei disputes this but will not specify the amount itself.” 55 Huawei does
52 Fisher, Lucy. “CIA Warning over Huawei.” News | The Times, The Times, 20 Apr. 2019, www.thetimes.co.uk/article/cia-warningover-huawei-rz6xc8kzk.
53 Fisher, Lucy. “CIA Warning over Huawei.” News | The Times, The Times, 20 Apr. 2019, www.thetimes.co.uk/article/cia-warningover-huawei-rz6xc8kzk.
54 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
55 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
not have to specify the amount because the company is privately held through complex employee ownership. This ownership may show that the company is indeed funded by the Chinese government as US researchers say “it is owned by a holding company that is 99 percent owned by an entity called a “trade union committee” and 1 percent owned by Ren. The researchers have found that if the ownership stake claimed by the trade union committee is genuine, and if the trade union and its committee function as trade unions generally function in China, then Huawei may be deemed effectively state-owned.”56 Further investigation has also shown that “Huawei may have received a massive $30 billion line of credit from the China Development Bank, among other well-timed financing. State-backed finance was crucial in Huawei’s growth,” said Matthew Schrader, a China analyst at the Alliance for Securing Democracy at the German Marshall Fund. It helped Huawei sew up the domestic market, which in turn enabled it to expand overseas by offering deep discounts.”57 This funding has given Huawei a cost advantage in comparison to western products.
This cost advantage makes Huawei products more affordable while being just as technologically advanced. “Huawei’s affordable pricing is more likely an outcome of China’s domestic policy than its fundamental technological superiority over competitors. Preferential treatment of domestic providers means that the latter ‘control 75 percent of the [Chinese] market, giving them unbeatable economies of scale’.” 58 Because of this cost advantage, more Europeans are turning to Huawei to use their products due to the
56 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131- p53wf0.html.
57 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
58 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
expensive nature of American-made smart phones. “Europe is a market, with a sizable lower middle class which isn’t able to afford an iPhone — especially not when such a device becomes obsolete so quickly.” He continues to say, “There is a huge market remaining for cheaper, lower-end smartphones.”59 Once Huawei was able to see the demand that exists in Europe, they started exponentially increasing their share of the market. “In 2015, only about 2 percent of smartphones sold in Europe were Huawei devices; now Huawei sells nearly a quarter of the smartphones in Europe.”60 This cost advantage is also true for Huawei’s infrastructure. “Huawei is about 30 percent cheaper than its rivals. Critics say massive Chinese state subsidies are allowing the company to undercut and kill rivals, leaving the world depending on Chinese equipment for its critical infrastructure.”61 With this cost advantage, more countries are likely to choose Huawei to build their cellular networks compared to more expensive companies such as Nokia and Ericcson. Recently, Huawei has been contracted to build over 39 5G networks around the world, with dozens of other countries close to signing on.62 This is especially true in Europe.
Huawei has “a baked-in 5G advantage in Europe, because it helped build out extensive 4G networks.” 63 For example, in Britain, “Huawei is allowed to supply 35% of
59 Burdeau, Cain. “Europe Becomes a Battleground Over Huawei and 5G.” *Courthouse News Service, *12 Feb. 2020, www.courthousenews.com/europe-becomes-a-battleground-over-huawei-and-5g/.
60 Burdeau, Cain. “Europe Becomes a Battleground Over Huawei and 5G.” Courthouse News Service, 12 Feb. 2020, www.courthousenews.com/europe-becomes-a-battleground-over-huawei-and-5g/.
61 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
62 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
63 Feng, Emily, and Amy Cheng. “China’s Tech Giant Huawei Spans Much Of The Globe Despite U.S. Efforts To Ban It.” NPR, NPR, 24 Oct. 2019, www.npr.org/2019/10/24/759902041/chinas-tech-giant-huawei-spans-much-of-the-globe-despite-u-s-effortsto-ban-it.
what it categorizes as periphery infrastructure, such as masts and antennae.”64 However, Ren says that Huawei’s goal is not global dominance in the infrastructure of smartphones, but with operations in 170 countries and the fact that “Huawei recorded total revenues of $US87 billion – up 24% on the same period in 2018,” it begs the question, what are they after? Ren says, “Huawei wants to be the world’s leading supplier of the equipment that runs 5G networks enabling super-fast mobile broadband speeds.”65 This mission seems to be funded by the Chinese goal of dominance over the world, which they are attempting to get to through 5G networks.
To become the world’s leading supplier in 5G related equipment, Huawei has been stockpiling patents and creating technology at a rate that other countries have not. “Huawei has more 5G-related patents than any other firm, according to IPlytics, a German-based company that tracks intellectual property development. That means other companies will have to pay Huawei to use key bits of 5G technology.” 66 However, Huawei is not in this so-called “patent race” alone. Along with Huawei and other Chinese telecom companies, China is taking active role in securing “core” patents and rights for 5G essential property rights. China currently holds an estimated 10 percent of the ‘5Gessential’ industrial property rights in radio access solutions; of these, Huawei has the most patents, followed by ZTE.” 67 By securing patents, Huawei is giving themselves the
64 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
65 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
66Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
67 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
leading role in shaping the future of 5G by making companies ask and pay Huawei to use these patents or patented products. Huawei’s leading role in shaping the most important new technology standard will likely pay dividends in terms of billions of dollars in license fees. Additionally, it could give the Chinese firm an advantage as countries around the world scramble to build 5G networks. “In the developing world, China is internationalizing Chinese technology standards.”68 By making the world come through Huawei for use of such patents, it allows China to continue to attempt to asset their dominance on a world technological stage.
To receive these patents and IP rights to technology, Huawei has had to build technology and technological networks which it has done faster than its competitors. Huawei also does something that no other technology company has done with 5G; it makes and designs every component of their 5G technology, including their 5G smartphones.69 Because of these advances which set them apart, Huawei is currently the only company that can produce ‘at scale and cost all the elements of a 5G network, with its closest competitors Nokia and Ericsson not yet able to offer a viable alternative. Huawei’s ambition is to dominate the market for 5G wireless communications, and it has established cooperation with telecommunications companies in a number of countries in Europe and worldwide.”70 By making each part or component of their 5G products and networks, Huawei can control how fast or how vast they want to expand and implement their 5G networks around the world. Additionally, by creating every component Huawei
68 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
69 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
70 Kaska, Kadri, et al. *Huawei, 5G and China as a Security Threat, *28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
has an economic advantage over each of their competitors who do not make every piece of technology.
Huawei is able to make these components because of their extensive patents and rights, which has allowed them to produce not just 5G infrastructure, but also every part of their smartphones. They now produce the second most smartphones in the world behind South Korea’s Samsung. “By designing chipsets and the handsets they talk to, experts argue, Huawei may have an edge in getting 5G products to market more quickly.”71 By being able to make their phones faster, Huawei as been able to get their products to market faster as “the company is now estimated to supply 30% of the world’s mobile technology market, double the reach of its nearest rivals, Nokia and Ericsson.” 72 While some would argue that producing all parts of a phone or infrastructure could break down advancements and speed, Huawei has managed to continually average high 5G speeds. It employs 194,000 staff worldwide, 60,000 of them based in Shenzhen. Huawei says 45 percent of its staff work on researching and developing new technologies.”73 This statistic is also back up by field-testing and research. “We have field-tested its 5G technology in lower frequencies (good for coverage) and higher frequencies (better for high data speeds). Earlier this year, it debuted its own, in-house-designed chipset and devices that will make 5G a reality.” 74
71 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
72 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
73 Bourke, Latika. “Why Are Huawei and 5G Such a Big Deal around the World?” The Sydney Morning Herald, The Sydney Morning Herald, 14 Feb. 2020, www.smh.com.au/world/europe/why-are-huawei-and-5g-such-a-big-deal-around-the-world-20200131-p53wf0.html.
74 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
Huawei is writing 5G. Studies have shown that with their advancements and lower costs, Huawei is in control of the 5G race. “5G will be, simply put, the central nervous system of the 21st-century economy—and if Huawei continues its rise, then Beijing, not Washington, could be best placed to dominate it.”75 This can be shown by the number of 5G subscribers that will be in the world by the end of 2021 as “global 5G mobile subscriptions are expected to reach 220 million by the end of this year, with China accounting for almost 80% of the total, Ericsson said in a report last month. North America is expected to have 4%.”76 By accounting for 80 percent of 5G subscriptions around the world, China is making its case for 5G dominance.
Others have said that Huawei is building their market dominance with 5G and will be a telecom company to be dealt with for the foreseeable future. “5G is totally different than the internet. It’s like a global nervous system. Huawei is the leading company in 5G. They will be around in 10, 20, 50 years—you cannot say that about the US tech companies. In the internet era, the US produced a few trillion-dollar companies. Because of 5G, China will have 10 or more trillion-dollar companies. Huawei and China now have the lead.”77
Some have even seen Huawei being the company that the United States and others should be worried about for years to come. “From the year 2001 to the present—three administrations—not enough attention has been paid to Huawei and their technological advancements,” says Reed Hundt, a former Federal Communications Commission chair
75 Johnson, Keith, and Elias Groll . “The Improbable Rise of Huawei.” Foreign Policy, 3 Apr. 2019, foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/.
76 Mukherjee, Supantha, and Isla Binnie. “Analysis: Europe Plots Catch-up in Global 5G Race to Drive COVID-19 Recovery.” Reuters, Thomson Reuters, 28 Dec. 2020, www.reuters.com/article/us-europe-5g-analysis/analysis-europe-plots-catch-up-inglobal-5g-race-to-drive-covid-19-recovery-idUSKBN2920WJ.
77 Levy, Steven. “Huawei, 5G, and the Man Who Conquered Noise.” Wired, Conde Nast, 2020, www.wired.com/story/huawei-5gpolar-codes-data-breakthrough/.
during the Clinton administration. Hundt is one of a number of current and former officials alarmed that the United States has no equivalent to Huawei—that is, a major telecommunications company that both develops next-generation technology and builds it into equipment. “In Europe, they have an Ericsson. In Japan, they have companies. And in China, they have not just Huawei but also ZTE. But Huawei is the one that covers the whole range of products.” All of this made Huawei’s 5G standards bid an alarming prospect. “Huawei’s IP and standards are the wedge they intend to use to pry open the Western computing world,” Hundt says.” 78 With Huawei, China will assert its self as the dominant country in the world, at least technologically and economically, for years to come.
Huawei is the Chinese leader, and disputed world leader in current 5G telecommunications and networks. While many authors have spoken about the concerns with Huawei leading the way for 5G, some analysts are worried about the implications this could have in relation to China. “While Huawei stands in the limelight due to its advanced 5G capacity, the issue is not just about Huawei: many states are likewise concerned about other Chinese communications and video surveillance technology manufacturers – primarily ZTE, but also Hytera Communications Corporation, Hangzhou Hikvision, and Dahua Technology, all of whose technology has been banned from use in government networks under US law.” 79 These implications and security concerns listed, among others, will be discussed and analyzed more in depth later in the paper, but one
78 Levy, Steven. “Huawei, 5G, and the Man Who Conquered Noise.” Wired, Conde Nast, 2020, www.wired.com/story/huawei-5gpolar-codes-data-breakthrough/.
79 Kaska, Kadri, et al. Huawei, 5G and China as a Security Threat, 28 Mar. 2019, www.ccdcoe.org/uploads/2019/03/CCDCOEHuawei-2019-03-28-FINAL.pdf.
thing is clear from the research: “No one knows the future. But Huawei and China now have a hand in controlling it.”80
80 Levy, Steven. “Huawei, 5G, and the Man Who Conquered Noise.” Wired, Conde Nast, 2020, www.wired.com/story/huawei-5gpolar-codes-data-breakthrough/.
Table of Contents
- Chapter 1 - Introduction
- Chapter 2 - History of 5G
- Chapter 3 - China and 5G
- Chapter 4 - United States and 5G
- Chapter 5 - Europe and 5G
- Chapter 6 - The Context of 5G Competition - U.S.-China Relationship
- Chapter 7 - Assessments and Projections
- Chapter 8 - Policy Implications and Responses
- Chapter 9 - Conclusion and Outlook
- List of References