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Report: China Could Use Huawei Cloud to Blackmail Global Economies

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A report published by the Washington-based Center for Strategic and International Studies (CSIS) warns China could gain “coercive leverage” – in essence, blackmail material – over Asian, African, and Latin American countries thanks to telecom giant Huawei’s strategy to provide massive amounts of Internet storage to dozens of governments at discounted prices.

The reporttitled Huawei’s Global Cloud Strategy – Economic and Strategic Implications, charts Huawei’s efforts to sell cloud storage bundled with administrative services and computer hardware to 41 countries. 

Most of the client states for the 70 different deals the report analyzed are considered “not free” or “partly free” by Freedom House – or “non-liberal,” as CSIS put it – making them at least ideologically sympathetic to the authoritarian Chinese government. The bulk of Huawei’s customers were located in Asia or sub-Saharan Africa and classified as “middle-income” countries.

CSIS observed these are also the key characteristics of emerging economies that have bought into Huawei’s “Safe City” program – in other words, massive video and electronic surveillance systems. 

In short, these countries are growing more prosperous, but also more authoritarian and more dependent on China for the tools needed to maintain their systems of government. They also happen to represent the bulk of the world’s population growth for the coming decade.

The authors of the CSIS report worried about the “commercial and strategic implications” of Huawei becoming such a big player in the electronic infrastructure of emerging economies, even though it remains a comparatively small force in the international cloud storage market overall.

Huawei’s dominant position could help the Chinese Communist Party (CCP) shape the political cultures of these growing economies by moving in early to forestall any tendency toward liberalization that might be inspired by increasing prosperity. 

CSIS noted these “un-liberal” countries also provide Huawei and its Communist Party masters with ideal testing grounds for developing systems of surveillance and control that would be rejected as unethical in the Western world. That could translate to a future competitive advantage for Huawei over American and European e-government providers.

“In this contest, developing economies are valuable testing grounds and prizes in their own right, offering strong demand, fewer barriers to entry, and less scrutiny than developed economies,” the report observed.

Huawei is grabbing the market share in poorer countries with unverifiable claims of success, a range of hardware and software bundles that appeal to developing nations hungry for electronic infrastructure, and aggressive offers of financing through China’s state banks.

“In nearly every case for which financing could be identified, a Chinese financing entity was the source. The most common sources of financing, not surprisingly, were the Export-Import Bank of China and China Development Bank, Beijing’s two largest policy banks. In some cases, the data centers are essentially gifts from China,” CSIS reported.

The danger of China developing “coercive leverage” over its client states through Huawei’s bundles of hardware, storage, and services flows from the notorious security vulnerabilities of Chinese systems. CSIS ran through several examples of poor security at Huawei-built facilities, serious performance issues for its systems, allegations of corruption in the procurement process, and documented cases of Chinese hackers running wild in systems sold to poor state clients by Huawei.

The report envisioned Chinese intelligence agents procuring valuable information from Huawei’s systems, which could be used to influence developing economies or threaten their governments into compliance with China’s policy objectives. 

Commenting on the report, Voice of America News (VOA) noted on Friday that Chinese law puts every corporation completely at the disposal of the People’s Liberation Army (PLA) and its intelligence services, and conversely pledges the protection of the Chinese state for any corporation that betrays its customers by cooperating with “national intelligence efforts.”

CSIS concluded by advising U.S. and allied policymakers and corporations to compete harder for e-government and cloud storage contracts from developing countries, remove regulatory barriers that put Western cloud service providers at a disadvantage, and pool their resources to “expand financing and funding for digital infrastructure, technical assistance and training.”

“Action is needed because the developing world will play a much larger role in global networks in the coming decade,” CSIS cautioned. “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,” the report concluded, hinting those competitive advantages might soon be lost if the U.S. waits too much longer to get serious about competing for electronic infrastructure in developing nations.