5G Is Where China and the West Finally Diverge

The rollout of speedy new cellular networks is a geopolitical turning point, but neither Trump nor the public yet recognizes this.

The rollout of fifth-generation cellular networks around the world will likely be a defining geopolitical dilemma of 2020. But American and European consumers could easily mistake 5G for just another marketing ploy for early adopters—to the detriment of democracies worldwide.

When the number in the corner of our smartphone screens changed from 3G to 4G, few of us even noticed. Ditto when LTE, another step in the evolution of cellular networks, appeared as an alternative to 4G. Still, for the better part of the past two years, wireless carriers on both sides of the Atlantic have been hyping 5G—which, they promise, will offer data speeds of up to 100 times faster than current connections. Tech futurists say fifth-generation networks will support a plethora of internet-connected sensors, vehicles, appliances, and other devices that will perform functions yet unimagined.

In Europe, the walls of nearly every major airport from Stockholm and Brussels to Lisbon and Madrid have been plastered with 5G-related ads. In the United States, network providers such as AT&T have even rolled out what they’re calling “5GE” networks—a pre-5G deployment that capitalizes on the vaguely futuristic branding of fifth-generation networks even before all the requisite new radios and chipsets have been installed. Still, 7 of 10 Americans tell PricewaterhouseCoopers they’ll wait patiently to receive a 5G device until they are eligible for an upgrade from their current provider.

Amid this much public indifference, 5G may seem like an unlikely battleground between China and the West. Yet the transition to 5G may mark the point, after decades of Chinese integration into a globalized economy, when Beijing’s interests diverge irreconcilably from those of the United States, the European Union, and their democratic peers. Because of a failure of imagination, Western powers risk capitulating in what has become a critical geopolitical arena. Simply put, neither the American nor the European public seems to view the networks that supply Snapchat clips and Uber cars as anything close to a security threat.

Some of the world’s leading telecom-equipment manufacturers, including Huawei and ZTE, are Chinese companies with murky ownership structures and close ties to China’s authoritarian one-party government. Many in the U.S. national-security establishment rightly fear that equipment made by these companies could allow Beijing to siphon off sensitive personal or corporate data. Or it could use well-concealed kill switches to cripple Western telecom systems during an active war. The mere threat of this activity would endow China’s leadership with geopolitical leverage at all times.

This is why Secretary of State Mike Pompeo recently exhorted EU allies not to “trust Chinese firms with critical networks.” China has fought back, threatening to scuttle a trade deal with Denmark’s Faroe Islands and, more recently, to retaliate against the German auto industry should European officials bar the use of Huawei equipment in 5G networks.

The framing of 5G primarily as a consumer-technology matter works to China’s benefit. “Choose 5G,” proclaimed one ad in the Brussels airport—part of a campaign that presents a false choice between Huawei and the 4G status quo. A focus on tech alone would also suit U.S. and EU telecom operators eager to deliver faster speeds while minimizing their own costs. The Huawei equipment they buy is typically cheaper than the gear produced by the three suppliers based in democratic countries—the European firms Ericsson and Nokia and South Korea’s Samsung.

Meanwhile, policymakers on both sides of the Atlantic, from European economics ministers to President Donald Trump, have viewed the 5G dispute first as a trade issue. Even as the Trump administration has taken steps, as The New York Times has described it, to “block China’s national telecommunications champion, Huawei, from operating in the United States and starve it of American technology as it builds networks around the globe,” the president has also hinted at a willingness to waive restrictions in exchange for economic concessions from China. In 2018, Trump backed down from national-security sanctions against ZTE as a sweetener in his trade negotiations with Xi Jinping.

Against these attitudes, Pompeo and others sounding alarms about Huawei can be perfunctorily dismissed as protectionists, xenophobes, or military hawks. The American secretary of state has become a particular target of criticism in China, where government officials and the media have described him as a font of “lies and fallacies” and a “Cold War warrior.”

Yet the West has ample reason for caution about Chinese 5G suppliers. For one, the recent Chinese National Intelligence Law requires these companies to comply with Communist Party demands to turn over data or otherwise engage in snooping or network-disruption activities. Party-backed actors in China’s public and private sectors also have a long record of cyberattacks on the West, including stealing intellectual property from companies and sensitive personal information on citizens.

The case against Huawei isn’t just guilt by association. The company itself is suspected of committing blatant corporate espionage: A Justice Department indictment from early 2019 cited highly specific demands by Huawei headquarters in China for information from engineers embedded in T-Mobile’s facility in Bellevue, Washington. An email exchange exposed Huawei’s pressure on employees in the field to steal even guarded equipment and trade secrets; according to the Justice Department, a bonus program offered rewards for the most valuable information stolen. One Huawei employee, the U.S. government alleges, literally walked out the door with a proprietary robotic arm in his bag.

And recent revelations about how China’s ruling party exploits the full panoply of personal information it has amassed about its citizens—facial-recognition images, mandatory DNA samples, 24-hour GPS coordinates, and search-history and online-activity tracking, as well as plain old eavesdropping—to quash religious freedom and basic rights should give major pause to Western governments and wireless carriers alike.

While Pompeo’s State Department has been pressing its case at one international forum to the next, his message has been met with some skepticism in Europe. Simply to acknowledge 5G as a security threat invites headaches that EU governments and telecom carriers would rather not contemplate. Ripping out Chinese gear would be a massive financial and logistical undertaking.

European regulators are used to viewing the American tech industry as a rival, and they bristle today at taking direction from Washington. And despite the fact that two 5G suppliers are European, and EU officials have argued for “technological sovereignty”—a term most reasonably construed to mean technological independence from the United States—member nations have not yet settled on a joint policy.

On top of that, the EU single market prides itself on principles of fair competition and an unwillingness to favor or reject a company because of its national origin, especially when its products are competitive, as Huawei’s are, on metrics such as price. The irony in this approach, of course, is that the Chinese state has subsidized efforts by Huawei to undercut its European and South Korean competitors, not least because of the possibility of obtaining geopolitical leverage. The Wall Street Journal estimated recently that as much as $75 billion in state support fueled Huawei’s rise. The failure to see 5G beyond the consumer lens is also a failure to understand Chinese companies as implements of state power as much as private entities in their own right.

The dispute over 5G isn’t the first time in recent history that economic infrastructure matters have overlapped with geopolitics in unhealthy ways. Nor is it the first time that overlap has caused problems for the transatlantic relationship. The European energy sector has long relied on cheap natural gas piped in from Russia, and deregulation has allowed Russia’s state-owned gas company, Gazprom, to buy or build a large share of the infrastructure used to transport and distribute it. American policymakers have implored European leaders to diversify their energy sources, for fear of increased dependence on an authoritarian Russia. These warnings are often dismissed as self-serving, since American energy firms compete with Gazprom for European business.

The Trump administration’s mixed messaging on 5G lends credence to the cynical view that the United States is not serious about China as a national-security threat but regards it mostly as an economic competitor. (Never mind that U.S. telecom firms do not compete with Huawei on 5G equipment.) And the president’s trade threats against Europe—targeting products as varied as cheese, whiskey, and airplane fuselages—are not helping. Such positions prioritize trade conflicts over common security interests and alienate allies that the United States needs.

Even as Pompeo and others in the Trump administration warn against Huawei, European policymakers don’t know if Trump is serious about 5G as a national-security problem or planning to trade away the issue in exchange for the reduction in Chinese tariffs against U.S. farm products. But they do think he is serious about tariffs on them. They see trade as the one issue on which Trump has been consistent from the start of his presidential campaign.

The United States can work with its European partners to reduce geopolitical dependence on China and protect privacy and human rights in a data-centered age. But that will require Western policymakers and the public alike to conceive of 5G as something more than a consumer issue or a trade issue and devise a shared solution to protect the networks whose importance in our lives will only grow.

 

The Last Chance to Defeat China and Win Back the Cyber Domain?

Two months ago, when Zooming In did a story on Huawei and global 5G deployment, Huawei was poised to take control of much of the world’s cyber domain. We talked about the national security implications of that prospect. And we observed the U.S. efforts to raise awareness of that risk. Two months later, when we did another story on this topic, we realized the world knows Huawei a lot better through these efforts, but Huawei’s momentum has not stopped. In fact, Huawei and China are playing a grander game. They have a brilliant strategy that is working well with the very nature of a crony capitalism. Can this battle still be won by the free world? And what does it take to win? Let’s find out in this edition of Zooming In.
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China Finds It Can Live Without the U.S.

Hawks in Washington speak of ‘decoupling.’ Xi Jinping is already busy doing that—his way.

A China hand and former Treasury Department colleague told me before the 2016 election that officials in Beijing preferred Donald Trump to Hillary Clinton because they thought Mr. Trump would be an easier negotiator.

Yet Mr. Trump has proved to be anything but—and in ways that ill serve U.S. interests. Through a series of vacillating threats and entreaties that often seem to be decided on a whim, he has shown President Xi Jinping that he is an unreliable negotiator. Mr. Trump’s public bullying makes it hard for Mr. Xi to accept any deal while saving face, which is very important to the Chinese. Thus Mr. Xi is no longer earnestly negotiating, merely going through the motions.

The Costs of China’s Crackdown on Hong Kong

The new buzzword in Washington discussions of Sino-U.S. negotiations is “decoupling.” From the Trump administration’s perspective, they are threatening Beijing with the prospect of disentangling the U.S. and China entirely and creating two distinct economic systems, similar to the bipolar world of the Cold War. Many in Mr. Trump’s orbit believe that blocking China’s access to U.S. technology would thwart China’s attempts to surpass the U.S. on the world stage.

This approach is naive and probably counterproductive. It is accelerating rather than slowing the Made in 2025 program. Mr. Xi has jettisoned Deng Xiaoping ’s established strategy: “Hide your strength, bide your time, never take the lead.” From his perspective, decoupling is not only an American threat—it’s the new Chinese strategy.

Nowhere is this more evident than Huawei’s case. The Trump administration has temporarily cut off most transactions between U.S. companies and Huawei, and China hawks are pushing the president to make this decoupling permanent. Meanwhile, Mr. Trump dangles access to American-made components as leverage to get Mr. Xi to buy American soybeans. But Mr. Xi does not appear interested in tactical détente as he was last year, when he asked Mr. Trump to save ZTE, the other prominent Chinese telecommunications firm. Instead of giving in to Mr. Trump’s demands, Huawei recently introduced its own operating system, Harmony, an alternative to Android that will reduce Huawei’s reliance on U.S. technology.

I do not contend that China is benign or even that Mr. Trump has misdiagnosed the problem. Rather, my concern is that the president’s erratic approach has aggravated the situation by encouraging Mr. Xi to embrace decoupling on his own terms. After more than two decades of globalization, severing the integrated supply lines of the world’s two largest economies will necessarily be messy. For the U.S., Mr. Trump’s approach makes it even messier.

National-Security Concerns Threaten Undersea Data Link Backed by Google, Facebook

U.S. firms and Chinese partner have sunk hundreds of millions of dollars into Los Angeles-Hong Kong cable project

U.S. officials are seeking to block an undersea cable backed by Google, Facebook Inc. and a Chinese partner, in a national-security review that could rewrite the rules of internet connectivity between the U.S. and China, according to people involved in the discussions.

The Justice Department, which leads a multiagency panel that reviews telecommunications matters, has signaled staunch opposition to the project because of concerns over its Chinese investor, Beijing-based Dr. Peng Telecom & Media Group Co., and the direct link to Hong Kong the cable would provide, the people said.

Ships have already draped most of the 8,000-mile Pacific Light Cable Network across the seafloor between the Chinese territory and Los Angeles, promising faster connections for its investors on both sides of the Pacific. The work so far has been conducted under a temporary permit expiring in September. But people familiar with the review say it is in danger of failing to win the necessary license to conduct business because of the objections coming from the panel, known as Team Telecom.

Team Telecom has consistently approved past cable projects, including ones directly linking the U.S. to mainland China or involving state-owned Chinese telecom operators, once they were satisfied the company responsible for its U.S. beachhead had taken steps to prevent foreign governments from blocking or tapping traffic.

If the U.S. rejects Pacific Light’s application, it would be the first time it has ever denied an undersea cable license based on national-security grounds, and it could signal regulators are adopting a new, tougher stance on China projects.

The threat of a failed approval process reflects growing distrust of Chinese ambitions and comes amid escalating tensions between China and the U.S., part of a broad rivalry between the world’s two largest economic powers. A prolonged trade conflict has each side affixing tariffs on hundreds of billions of dollars in goods flowing between the two countries, while Washington has sought to blunt Beijing’s ambitions to expand military and economic influence in Southeast Asia, the Pacific, Africa and elsewhere.

A number of U.S. officials—as well as some from allied countries—also have been waging a high-profile campaign to exclude China’s Huawei Technologies Co. from next-generation mobile networks, and to limit its role in the undersea cable networks that ferry nearly all of the world’s internet data.

The Pacific Light project cost at least $300 million to build based on its route, according to consultants who advise companies on subsea cable construction. Companies like Google and Facebook have spent the past decade funding similar cables to handle ever-growing network traffic between the U.S. and Asia. The new link to Hong Kong would give them greater bandwidth to a major regional internet hub with links to growing markets in the Philippines, Malaysia and Indonesia as well as mainland China.

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Latest U.S. Concern Over Huawei Lies Deep Under The Sea

Latest U.S. Concern Over Huawei Lies Deep Under The Sea
While U.S. security officials have openly targeted Huawei’s operations in the airwaves, they have been less vocal about another potential security threat: its undersea cables. Experts say in theory these cables could enable China to spy. Photo: George Downs/The Wall Street Journal

Team Telecom’s concerns over Pacific Light include Dr. Peng’s Chinese-government ties and the declining autonomy of Hong Kong, where pro-democracy protesters have been holding massive demonstrations for months against Beijing’s efforts to integrate the territory more closely. Dr. Peng is China’s fourth-biggest telecom operator. Listed in Shanghai, the private firm serves millions of domestic broadband customers. In the past, a cable link to Hong Kong would have been viewed as more secure than one to mainland China, but the distinction is becoming less relevant, these people say.

Proponents of the project say its approval would give the U.S. better oversight over the data that flows through the cable because Team Telecom could advise the FCC to force the companies to agree to certain conditions to protect security. Even if the U.S. thwarts this particular cable, the need for greater data capacity will still exist, and that data will just find its way through other cables that aren’t necessarily within the U.S.’s jurisdiction, they say.

Roughly 380 active submarine cables carry almost all the world’s intercontinental internet traffic via about 1,000 landing stations.

Armoured

cable

Network

management

system

Terminal

equipment

Cable with

bundle of

fiber-optic

lines

Cable landing

station

Sources: U.K. Cable Protection Committee; Alcatel Submarine Networks

Team Telecom last year reversed its long-held stance on Chinese applications to provide telecom services through U.S. networks, and recommended for the first time the denial of an application based on national-security and law-enforcement concerns. In May, the Federal Communications Commission adopted the recommendation that came after years of deliberation, voting unanimously to deny an application from China Mobile Ltd. ’s U.S. arm even though it had previously approved applications from fellow state-owned operators China Telecom and China Unicom .

Though the FCC makes the final decision on whether to grant a license for the Pacific Light project, it has historically deferred to recommendations from Team Telecom after its members coalesce around a unified view. The ad hoc group has no resolution mechanism in the event of a dispute. It isn’t known how strongly other members of the team, including the Defense and Homeland Security Departments, feel about the issue.

Should the Justice Department hold firm in its opposition and win support from other Team Telecom members, the group’s negative view would likely kill the project. If other team members decide to fight the Justice Department on the issue—and it refuses to back down—any approval could be delayed indefinitely, leaving the project in limbo. It is possible regulators might extend the temporary permit in the interim. Team Telecom, meanwhile, could still recommend the FCC approve the project if the Justice Department changes its position.

Pacific Light Data Communication Co., the Hong Kong company managing the cable project, said it has already installed more than 6,800 miles of the cable system, which will be ready for service by December or January. Senior Vice President Winston Qiu said he hadn’t heard of any U.S. regulatory problems. “We didn’t hear any opposition,” he said.

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Dr. Peng didn’t respond to emailed and faxed requests for comment. Repeated calls to its offices and those of its subsidiaries and biggest shareholder went unanswered.

A Google spokeswoman said the company has “been working through established channels for many years in order to obtain U.S. cable landing licenses for various undersea cables. We are currently engaged in active and productive conversations with U.S. government agencies about satisfying their requirements specifically for the PLCN cable.” A Facebook spokeswoman declined to comment.

A Justice Department spokesman declined to comment on the project and said its reviews and recommendations are “tailored to address the national-security and law-enforcement risks that are unique to each applicant or license holder.” The Pentagon referred questions to the Justice Department as the team’s lead agency. Spokesmen for the Department of Homeland Security and the FCC declined to comment.

The Pacific Light project has taken an atypical path. Google ownerAlphabet Inc. teamed up with Facebook in 2016 to provide its U.S. financing, adding to the tech companies’ growing inventory of internet infrastructure. Google took responsibility for its U.S. landing site. The Hong Kong end fell to a company controlled by a mainland Chinese real-estate magnate that had only recently entered the telecom sector.

The Chinese partner later sold its majority stake in the project to Dr. Peng, a company with interests in telecom, media and surveillance technology. In 2014, Dr. Peng signed a strategic cooperation agreement with Huawei to jointly research cloud computing, artificial intelligence and 5G mobile technology, according to an exchange filing. Dr. Peng’s website lists Huawei as a partner.

Dr. Peng’s chairman, Yang Xueping, is a former Shenzhen government official, according to the company’s website, and its subsidiaries have worked on several projects with government entities, including building a fiber-optic surveillance network for Beijing police, its website and filings show. Last year, Dr. Peng said in an exchange filing that two wholly owned subsidiaries had been fined 2 million yuan ($279,000) after some of their executives were convicted of bribing Chinese officials in connection with Beijing police projects.