How the fight for the next communications ecosystem could make a world dependent on Chinese technology, Chinese software, Chinese e-commerce, Chinese venture capital, and the Chinese market
By David P. Goldman March 19, 2019 • 12:00 AM
In 2013 my friend Eduardo Medina-Mora became Mexico’s ambassador to the United States. We had known each other since 1988, when I was preparing a study of Mexico’s tax and regulatory system for a U.S. consulting firm, and Eduardo was running a small Mexico City law firm after a stint as press officer for the Ministry of Fisheries. We kept in touch over the years. In 2003, when he headed Mexico’s foreign intelligence service, the CISEN, and I ran the fixed income research department of Bank of America, we compared notes over dinner in Mexico City. He went on to serve as attorney general and other senior posts.
Eduardo complained that no one in the Obama administration seemed responsible for Mexico. “We don’t even know who to call when a problem comes up,” he told me at his office at Mexico’s Embassy on Pennsylvania Avenue, where I called on him to offer my congratulations. “It’s easier for [then Mexican President Enrique] Peña Nieto to get the president of China on the phone than Barack Obama. What would you advise me to do?”
A few months earlier I had joined Reorient Group, a Hong Kong investment banking boutique, as managing director in charge of the Americas. I suggested that we remove the batteries from our BlackBerrys to prevent official eavesdropping. We did so. “You can invite the Chinese in to build a broadband network,” I then offered. “That will get the attention of the Americans.” It didn’t. But I did get a look at how China’s strategy for global economic hegemony worked from the inside.
A year and a half and many machinations later I brought Mexican Ambassador Alicia Buenrostro Massieu to the headquarters of Huawei Technologies in Shenzhen. Ambassador Buenrostro, the niece of a former finance minister whom I had known for years, came with as many of her Hong Kong entourage as would fit in a minivan. The trip to Shenzhen took a bit less than an hour including a stop to pass Chinese customs. The new bullet train from West Kowloon Station in Hong Kong to Shenzhen takes only eight minutes, one more technological wonder among the many that make some Chinese cities look like sets for science fiction films.
Huawei is employee-owned and its highly-incentivized employees put in terrifying hours. Its founder, Ren Zhengfei, owns a reported 1.4 percent of the company, valued at $450 million. His executives and workers own the rest. The Huawei campus covers 500 acres and makes Stanford University look dowdy. The executive dining center features an enormous artificial waterfall, young women in traditional costume playing ancient Chinese instruments, and three-star quality Cantonese food (or so I’m told; I eat kosher). We dined in a small private room with a Huawei executive, whence a guide escorted us to the exhibition hall. We passed thousands of Huawei workers returning from lunch. “They all have a futon under their desks,” said our guide. “They take a nap after lunch because they work until 10 o’clock.”
The Huawei tour took three hours. It might be the largest technology museum in the world, bigger than the Henry Ford Museum in Dearborn, Michigan, or the Franklin Institute in Philadelphia, except it shows only new things. One exhibit consisted of a 4-by-6-yard wall map of Guangdong City, glistening tens of thousands of small lights. “Every one of the lights is a smartphone,” said our guide. “We can track the location of every phone and correlate position to online purchases and social media posts.”
And what do you use this information for, I inquired? “Well, if you want to open a new Kentucky Fried Chicken franchise, this will help you to find the best location,” said the guide. Yeah, right, I thought. The Ministry of State Security knows where everyone is at all times and whom they are with; if the phones of two Chinese who posted something critical about the government are in proximity, the State Security computers will detect a conspiracy. That was before China installed high-definition video cameras with facial recognition software powered by Huawei chips at 100-meter intervals in major cities.
In response to Huawei’s domination of fifth generation broadband networks, the U.S. government is currently trying to isolate the company. Secretary of State Mike Pompeo on Feb. 21 warned that the U.S. would cut off information-sharing with countries that use Huawei systems. Last Dec. 1, while President Donald Trump di