What is Huawei and why is its role in UK's 5G so controversial?

The UK government is due to announce its decision on the extent of the Chinese firm Huawei’s participation in the 5G network.

What is Huawei and why has it become controversial?

Fast-growing Huawei is arguably China’s first global multinational. The Shenzhen-based company makes mobile phones, base stations and the intelligent routers that facilitate communications around the world.

But its success increasingly concerns the US, which argues Huawei is ultimately beholden to the Chinese Communist party and has the capability to engage in covert surveillance where its equipment is used.

Founded in 1987 by a former technical officer in the People’s Liberation Army, Ren Zhengfei, it now employs 194,000 people and made a profit of $8.9bn (£7.05bn) in 2019.

How embedded is Huawei in the UK?

The company successfully targeted the UK early on. It has supplied BT since 2003 and gradually expanded to the point where it agreed to create a special unit in Banbury, known as the Cell, where the spy agency GCHQ could review and monitor its software code. Vodafone is another key customer.

Britain’s intelligence agencies said in January that any Huawei risk could be managed as long as the company was not allowed to have a monopoly. As a result, Boris Johnson concluded Huawei’s market share should be capped at 35% for forthcoming high-speed 5G networks.

That decision failed to placate either Donald Trump’s White House or a growing band of Tory rebel MPs, who argue a Chinese company cannot be trusted. They are demanding a rethink, and specifically for Huawei to be kicked out.

What is going on in the US and elsewhere?

Huawei is by some distance the world’s largest supplier of telecoms equipment with an estimated 28% market share in 2019, ahead of Nokia of Finland and Ericsson of Sweden. It was also the second largest phone maker in 2019, after Samsung and ahead of Apple.

But Australia banned Huawei from 5G in 2018, with its spy agencies declaring they were worried the company could shut down power networks and other parts of its infrastructure in a diplomatic crisis.

Trump banned US companies from working with Huawei last year and has strenuously lobbied others to follow suit, venting “apoplectic fury” in a phone call to Boris Johnson after the UK agreed to allow the Chinese company into 5G.

What is happening now – why has the 35% decision not gone through?

Rebel Conservative MPs registered their dissent when 38 of them refused to support the government on an unrelated telecoms bill in March. That was not quite enough to defeat Johnson but they claim their numbers have grown to more than 50, enough to amend a planned bill to make the 35% cap law.

Continued White House pressure led to the announcement of fresh sanctions in May, banning Huawei from buying microchips from American companies or using US-designed software. That forced Downing Street to launch an emergency review, ostensibly to see if the US ban would affect the security of Huawei kit.

Rebel MPs want Johnson to ban new Huawei kit from the end of this year – and go further by ripping out all existing kit by the end of 2023. But BT and Vodafone have warned that doing so would cost them and potentially consumers a few billion and could even lead to outages where calls can no longer be made.

Phone companies say it would be easier to eliminate Huawei at the end of the decade, although doing that would nevertheless be a major victory for the US as the existing equipment had been assured as safe to use by British intelligence.

Can China hit back?

Liu Xiaoming, China’s ambassador to the UK, said last week his country’s business community was watching closely and argued Britain was at risk of succumbing to foreign pressure, meaning the US.

China can make it harder for British firms to operate in its country and halt efforts to invest in the UK, signalling the end of the “golden era” policy of engagement pursued by David Cameron when he was prime minister. Until now the UK has been China’s largest investment destination in Europe.

The UK is also embroiled in a diplomatic dispute with China over Hong Kong, and Beijing’s imposition of a national security law on the former British colony and there could yet be wider consequences in terms of travel or visa restrictions.

Will the UK-China dispute stop there?

Almost certainly not. There are growing calls for the UK to review its nuclear relationship with China, with China General Nuclear Power a minority investor in the new reactor being built at Hinkley Point in Somerset. CGN also wants to build a reactor in Bradwell, Essex.