Huawei sends a message with its new smartphone

Let’s talk about telephones.

To begin, here is some housekeeping: All of you with Apple iPhones or who use the iOS system should download and install the new system update. Apple, with help from the University of Toronto’s Citizen Lab, has identified two vulnerabilities that allow hackers to access phones “without any interaction by the victim.”

The spyware, reportedly developed by the NSO Group, an Israeli company that has been in the news for providing software to governments that use it to hack journalists, business executives and activists rather than just criminals and terrorists, can compromise devices without the user doing anything. No need to click fake links, download malware or anything else. That’s scary. It’s also increasingly common.

While ordinary citizens aren’t likely to be targets of such attacks, it’s always smart to install security updates as soon as they are available to keep your devices safe.

Days before the update, the Wall Street Journal reported that the Chinese government had banned the use of iPhones and other Apple devices among state employees, those working for the government, its agencies or state-owned enterprises. The Financial Times cited an employee at the China National Nuclear Corp. who said: “We were informed by our management in August that we must not bring any Apple products — be they cell phones or laptops — into office buildings.”

There has been no official confirmation of the ban from either China or Apple. It wasn’t denied either. When asked, a spokesperson for the Ministry of Foreign Affairs merely said: “We welcome products and services from any country as long as they meet China’s legal and regulatory requirements.”

If it’s real, the ban isn’t a new policy. For several years, China’s central government has restricted the use of foreign-brand products in official business and Apple has been a particular target of official ire: Agencies and departments with links to the military have banned the use of iPhones for some time. (Tesla cars too have been banned from some government facilities because cameras and sensors in the vehicles could record data that compromises national security.)

The ostensible Chinese concern is security, but not the NSO type of risk. Stories about the ban feature interviews with anonymous employees who say they were told that U.S. government agencies could access devices through backdoors. According to the FT, a department of the China Aerospace Science and Industry Corp. advised staff on WeChat, the popular Chinese social media service, to check their phones for spyware.

The problem is security, but not as conventionally framed. China is focused on national, not personal, security. Apple takes privacy seriously and Chinese authorities complain that the company has not been as forthcoming as they would like when law enforcement agencies want access to phones for anti-corruption campaigns. In other words, the problem isn’t that Apple security is too weak, but that its encryption is too strong.

Another line of speculation is that the move is retaliation by China for U.S. efforts to cut Chinese hardware out of Western telecommunications networks. The U.S. has led a campaign to ban Huawei, the Chinese telecommunications giant, from national communication grids around the world, even going so far as to suggest that it would not share intelligence with countries that rely on Huawei gear.

The U.S. fear mirrors that of China: the existence of backdoors that would give Chinese authorities access to information in the network or a potential “kill switch” to shut it down in a crisis, charges that Huawei has tried to refute, with limited success. Since becoming alert to the problem, Western governments have expanded the list of banned Chinese products to include drones, TikTok and equipment for surveillance networks such as closed-circuit televisions, among others.

China has been playing tit-for-tat in response. In May, it banned operators of key infrastructure from using products by the U.S. memory-chip maker Micron, saying they posed “serious network security risks.”

With China accounting for about one-fifth of Apple’s revenues, a ban would hit the company’s bottom line. Mere reporting on the prohibition trimmed nearly $200 billion off Apple’s market value. That reaction reflects fear that denying its products to the over 56 million central and local government officials and employees of state-owned enterprises in China in 2021 will hurt Apple.

Analysts counter that many of those employees already have multiple phones and Chinese consumers continue to hunger for the newest Apple products, such as the iPhone 15 that is being released this week.

Those consumers will be tempted by the charms of the Mate 60 Pro, Huawei’s newest smartphone. It’s an impressive device, one that reportedly rivals the iPhone in speed and power. Credit goes to what is said to be an advanced 7-nanometer processor made by Semiconductor Manufacturing International Corp. (SMIC), China's top semiconductor manufacturer. (The current iPhone uses 4-nanometer chips and the iPhone 15 is expected to use a 3-nanometer chip.)

That isn’t just impressive — it was thought to be impossible. A chip of that size is near the frontier of new technology and the U.S. export controls to prevent sales to Huawei were intended to slow its acquisition of that very technology. If the new phone has those chips and is that good, then the U.S. and its partners have to look again at their strategy.

In its analysis of the phone, TechInsights, a semiconductor industry resource, found evidence of “SMIC 7nm (N+2), which represents a made-in-China design and manufacturing milestone for the most advanced Chinese foundry TechInsights has documented.” According to Dan Hutcheson, vice chair of TechInsights, the chip demonstrates “technical progress” and “the resilience of the country’s chip technological ability.”

There are a couple of conclusions to draw from these developments. First, while it is fashionable to blame the United States for decoupling China from tech stacks beyond its borders, China has been equally aggressive in pushing foreign technology out of its domestic market. For over a decade, and long before the Huawei brouhaha, the Chinese government restricted the access of Google, Facebook and other companies in China, in efforts to promote national champions and control the spread of information within the country.

More recently, China has been restricting the use of information technology equipment in Chinese companies, either through mandates that require the use of domestic products in government offices or by “recommended” companies and products for the private sector. Invariably, the U.S. is cast as the bad guy as the tech world bifurcates, but China and like-minded governments have been pacing that evolution.

Second, the U.S. and its partners need to look hard at their technology denial strategy. Export controls have been in place to slow if not stop China’s technological progress. The Department of Commerce argued in a statement last week that restrictions imposed since 2019 “knocked Huawei down and forced it to reinvent itself — at a substantial cost.”

But instead of slowing down and being forced to rely on stockpiled semiconductors, China’s chip manufacturers seem to be powering ahead. Capital Economics, another research firm, studied the new Huawei phone and concluded that it is “an important step toward technological self-sufficiency,” adding that it “suggests that China has made progress in overcoming some of the constraints imposed by U.S. export controls.”

China has not been shy about making that point. Huawei unveiled the new phone during a visit to China by Commerce Secretary Gina Raimondo, whose department both pushes for and enforces the export controls. Boo-ya!

Capital Economics warns that “it is too early to conclude that U.S. export controls have failed.” The new chips “push (SMIC’s) lithography machines close to their limits and Chinese firms still face major barriers to acquiring the major advanced machines needed to progress much further.” The U.S. government is investigating the new phone “to obtain more information on the character and composition of the purported 7-nanometer chip.”

Fear of turbocharging China’s indigenous development efforts has been one of the most powerful arguments against tightening export controls. That overlooks the determination of Chinese leaders to wean their country from any reliance on foreign science and technology.

For some, the failure of the hard line means the West should loosen that policy; for others, it’s a call to double down. U.S. national security adviser Jake Sullivan insists that Washington will maintain its “small yard, high fence” policy. I continue to doubt that we truly understand the stakes of the high-tech competition, which requires both a bigger yard and a still higher fence.