Although communist China’s Big Tech champion Huawei is on the ropes after the arrest of Meng Wanzhou, Chief Financial Officer and daughter of founder Ren Zhengfei, and a series of crushing tactical blows by the former Trump administration, a recent study finds the regime’s vehicle to dominate the world’s 5G evolution has desperately pivoted to planting its dying roots in developing countries in Africa, Asia, Europe, and the Middle East.
A May 17 report by U.S. think tank Center for Strategic and International Studies (CSIS) found 70 agreements made between Huawei and 41 countries’ governments or state owned enterprises for the installation of the Chinese Communist Party’s (CCP) cloud computing and e-governance solutions.
The study found 57 percent of the deals were made with countries described as “middle-income” and 77 percent who are either “partly-free” or “not free” according to Freedom House. 36 percent are African countries and 20 percent are in Asia.
Perception is reality
Huawei makes big promises in their sales pitch, complete with offers of debt financing from the CCP’s banks to install what the report describes as “small, modular data centers the size of a shipping container to multi-level buildings packed with servers,” usually for the installation of technocratic “e-government” setups meant to run a country’s “document digitization, national ID systems, tax services, crisis communications, elections, and more.”
CSIS says that despite the U.S. government’s blacklist of Huawei, which dealt a heavy blow to its access to semiconductors, the regime’s golden goose has instead pivoted to take advantage of a demand for cloud computing created by the SARS-CoV-2 pandemic, increasing its cloud revenue by 168 percent in 2020.
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The study finds the demographic of countries putting ink to paper with the CCP share the same characteristics as the group CSIS sounded the alarm about in a 2019 paper on Huawei’s so-called “Safe Cities,” noting “warnings about Huawei’s security risks do not appear to be persuading decision makers in developing countries.”
Huawei, by its own admission, only controls about 4 percent of the global pie for Infrastructure-as-a-Service demand, making the developing world with its “strong demand, fewer barriers to entry, and less scrutiny than developed economies,” the only fruit hanging low enough for the struggling company to pick.
“The strategic stakes are far higher than Huawei’s currently modest global market share would suggest,” says CSIS. “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. 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.”
CSIS says Huawei’s salesmen spend a lot of work promising reduced operational costs to governments, such as a 20 percent savings allegedly obtained by Brazil’s Presidential Home, the Palanto Palace, although these claims are impossible to verify independently.
Huawei also ties hardware and services together, realizing developing countries often lack the infrastructure required to run cloud computing services, “That need, in turn, plays to Huawei’s historical strengths as a hardware provider. The company is able to tap existing ties with its cloud customers, having provided national fiber optic networks and wireless networks for them, for example,” says the report.
Finally, Huawei leverages loans most commonly from the Export-Import Bank of China and China Development Bank. The company uses access to lending as a way to close its deals, however, “In some cases, the data centers are essentially gifts from China.”
“In March 2020, for example, China launched a data center with Huawei equipment in the Serbian city of Kragujevac, paid for with a $2 million Chinese grant. A few months shy of its completion, in November 2019, Serbia signed an agreement with China for Huawei to provide cloud infrastructure and a national AI platform to its national data center, backed by a $13 million grant from Beijing.”
Poisonous fruit
The reality of the perception Huawei’s salesmen are hawking, however, is far from a comfortable one. The research found 16 percent of Huawei’s cloud and e-governance deals “have experienced complications from security, operational, or financial issues.”
“Rather than massive gains in efficiency, several customers have been left with projects that wasted public resources and now sit idle.”
The report uses several examples such as of a $53 million data center in Papua New Guinea that suffered from “systematically poor security,” an instance where Cabo Verde lost its e-government system for four days to a ransomware attack exploit that was several years old, and a case where Chinese hackers “siphoned data from servers at the African Union headquarters as well as video footage.”
Investigators found the problems with using Huawei’s made-in-China wares were not only security oriented.
For several countries, the purchase and installation of Huawei solutions were effectively a total waste of a developing country’s limited money, “State data centers in Ghana and Tanzania, for example, have suffered from financial difficulties after failing to attract sufficient users. E-government projects in Guyana and Zambia experienced procurement irregularities and allegations of corruption. Papua New Guinea’s state data center fell into a state of disrepair after planners failed to adequately budget for operations and maintenance.”
Competition is the solution
As a solution, CSIS urged the United States and its allies to start to aggressively compete with the Communist Party in the developing world, winning back its piece of the pie, “Action is needed because the developing world will play a much larger role in global networks in the coming decade.”
“The United States has advantages in cloud computing that could benefit more developing countries, boosting their competitiveness and supporting the U.S. economy in the process.”
“A more effective sales pitch will require empathy for the tradeoffs faced by decision makers in lower-income markets, where affordability often trumps security concerns, and fashioning incentives to encourage the adoption of alternatives. The United States has strong alternatives on hand. Now it must compete,” reads the report.
