Huawei probed for security, espionage risk

(CBS News) U.S. companies have largely left the telecommunications business to foreigners, but can we trust the Chinese to build and maintain the critical data infrastructure that government and industry rely on without spying on us? Steve Kroft investigates.

The following is a script from "Huawei" which aired on Oct. 7, 2012. Steve Kroft is the correspondent. Graham Messick, producer.

If you're concerned about the decline of American economic power and the rise of China, then there is no better case study than Huawei. Chances are you've never heard of this Chinese technology giant, but in the space of 25 years it's become the largest manufacturer of telecommunications equipment in the world; everything from smart phones to switchers and routers that form the backbone of the global communications network. It's an industry the U.S. invented and once dominated, but no more.

Now, Huawei is aggressively pursuing a foothold in the United States, hoping to build the next generation of digital networks here. It's prompted an outcry in Washington, and a year-long investigation by the House Intelligence Committee that has raised concerns about national security, Chinese espionage, and Huawei's murky connections to the Chinese government.

Huawei's world headquarters is located on this sprawling Google-esque campus in Shenzhen, not far from Hong Kong. China's first international conglomerate is a private company, ostensibly owned by its 140,000 employees, but exactly how that works and other details of corporate governance are closely held secrets.

What we do know is that Huawei is now the world leader in designing and building fourth generation communication networks, known as 4G, the latest technology for moving high volumes of phone calls, data, and high definition video. Its innovative low cost systems have already captured markets in Africa, Latin America and Europe.

Now with Huawei eyeing potential customers in the U.S., congressional leaders and the national security establishment are doing everything they can to prevent it from happening.

Steve Kroft: Do we trust the Chinese?

Mike Rogers: If I were an American company today, and I'll tell you this as the chairman of the House Permanent Select Committee on Intelligence, and you are looking at Huawei, I would find another vendor if you care about your intellectual property, if you care about your consumers' privacy, and you care about the national security of the United States of America.

Republican Congressman Mike Rogers and the ranking Democrat on the House Intelligence Committee, Dutch Ruppersberger, believe that letting a Chinese company build and maintain critical communication infrastructure here would be a serious mistake.

Dutch Ruppersberger: One of the main reasons we are having this investigation is to educate the citizens in business in the United States of America. In the telecommunications world, once you get the camel's nose in the tent, you can go anywhere.

Their overriding concern is this: that the Chinese government could exploit Huawei's presence on U.S. networks to intercept high level communications, gather intelligence, wage cyber war, and shut down or disrupt critical services in times of national emergency.

Jim Lewis: This is a strategic industry. And it's like aircraft or space launch, or computers, IT. It's a strategic industry in the sense that an opponent can gain serious advantage, can gain serious benefit from being able to exploit the telecommunications network.

Jim Lewis has followed Huawei's explosive growth for years from the State Department and the Commerce Department, where his job was to identify foreign technologies that might pose a threat to national security.

Steve Kroft: How did they get so big and so cheap, so quickly?

Jim Lewis: Two answers. First, steady, extensive support from the Chinese government. If you're willing to funnel hundreds of millions, maybe even billions of dollars to a company, they're going to be able to grow. The second reason is industrial espionage. And Huawei was famous in their developing years for taking other people's technology.

Steve Kroft: You mean stealing?

Jim Lewis: I guess technically, yes, it would be theft.

Cisco accused Huawei of copying one of its network routers, right down to the design flaws and typos in the manual. And Motorola alleged that Huawei recruited its employees to steal company secrets.

Both cases were settled out of court. But the Pentagon and the director of National Intelligence have both identified Chinese actors as the world's most active and persistent perpetrators of economic espionage.

Bill Plummer: Huawei is Huawei. Huawei is not China.

Bill Plummer is the American face of Huawei, the company's U.S. vice president of external relations and the only executive the home office in Shenzhen would let us speak to. We met him at Huawei's North American headquarters in Plano, Texas.

Bill Plummer: We have the responsibility to clean up 10 years of misinformation and innuendo.

Steve Kroft: What's the misinformation and innuendo?

Bill Plummer: The suggestion that a company by virtue of its heritage or flag of headquarters is somehow more vulnerable than any other company to some sort of mischief.

Plummer told us that Huawei is just another multinational corporation doing business in the United States, no different than Siemens, Samsung or Hyundai.

Bill Plummer: This room is a clean room.

He says Huawei buys six billion dollars in components from American suppliers every year and indirectly employs 35,000 Americans. And he says that the latest telecom gear Huawai hopes to sell in the U.S. poses no threat.

Steve Kroft: One national security expert said that if you build a network like this in another country, you basically have the keys to intercepting their communications. Is that a true statement?

Bill Plummer: Part of that might be a little bit fantastical. But you know, Huawei is a business in the business of doing business -- $32.4 billion in revenues last year across 150 different markets, 70 percent of our business outside of China. Huawei is not going to jeopardize its commercial success for any government, period.

Steve Kroft: What's the relationship between Huawei and the Chinese government?

Bill Plummer: We have a Beijing office. So, you know, we're a regulated industry the same as we are here. You need to be able to interface with government.

Steve Kroft: So you're saying the Chinese government has no influence over Huawei.

Bill Plummer: We're another business doing business in China.

Steve Kroft: If you look at Huawei, it looks like just a big international company with an American face.

Chris Johnson: Yep. And that's the intent.

Until last spring, Chris Johnson was the CIA's top analyst on China, and he's briefed the last three presidents on what's been happening behind the scenes in Beijing. He tells a different story than Huawei's Bill Plummer.

Chris Johnson: The problem I think is really it boils down to an issue of will the company take some steps to make themselves, you know, more transparent about their operations, and what their ultimate goal is, especially this relationship with the Chinese government, with the Chinese Communist Party and with the People's Liberation Army.

Johnson says the military has always played a role in Chinese telecommunications, and that Huawei's reclusive CEO served as an army major in telecommunications research before he retired and founded Huawei, supposedly with a few thousand dollars in savings and no help from the Chinese government.

Steve Kroft: What could you tell me about the guy that runs this company? Ren?

Chris Johnson: Ren Zhengfei, yeah. He's a very mysterious figure. And, you know, there really isn't that much known about him.

Steve Kroft: Has he ever given an interview?

Chris Johnson: Not that I'm aware of. Of course it does generate these concerns about why he won't give an interview and why he won't say something about his role in the company and his philosophy of how the company operates.

Unlike Western companies that are usually regulated and scrutinized, about the only entity privy to the inner-workings of Huawei is a Communist Party Committee, which has offices inside the company's headquarters.

Chris Johnson: You know, at the end of the day, the Communist Party controls the entire economy. They ultimately decide who the winners and losers are. The ultimate leverage that they have over these type of companies is that they can, you know, launch a corruption investigation against the chairman, for example.

Steve Kroft: If the Chinese government told Huawei that they wanted them to spy on the U.S. telecommunication system, and extract information, could Huawei say no?

Chris Johnson: It'd be very difficult for them, given the nature of their system.

Jim Lewis: Here, companies are used to, you know, throwing their weight around and telling the government what to do. In China, a company is a Chia pet. The state tells them what to do, and they do it.

There is no hard evidence that's happened with Huawei, but the Obama administration has been unwilling to take the risk. Two years ago, when it appeared that Huawei might land its first big American deal -- a five billion dollar contract to build Sprint's new 4G wireless network -- the U.S. government stepped in.

Jim Lewis: You had the Secretary of Commerce call the CEO of Sprint and lay out the U.S. concerns. Say that the U.S. was really worried about Huawei. And they would be a lot happier if Sprint didn't do the deal.

Steve Kroft: And Sprint said, "OK."

Jim Lewis: Sprint said, "OK."

Since then, Huawei has blanketed U.S. airways with commercials and hired an army of lobbyists and public relations firms to help it get a foothold into the world's largest telecom market.

Jim Lewis: They're determined. They're in it for the long haul. The line that most people think about is, Mao had a strategy called "Win the countryside, surround the cities, and then the cities will fall." And Huawei seems to be following that Maoist strategy.

In the last couple of years, Huawei has managed to install and maintain a handful of networks in U.S. rural markets, including a vast quadrant of southwestern Kansas. Craig Mock is the president and general manager of United Wireless, based in the historic cowboy town of Dodge City.

Craig Mock: We're trying to reach out as far as we can into rural areas.

Mock told us the new Huawei network delivers some of the fastest Internet speeds in the country. But last spring after the deal had been signed with Huawei, Mock received an unwelcome visit from two federal agents.

Steve Kroft: Who were they? Intelligence people?

Craig Mock: Not gonna say.

Steve Kroft: Why did they come out here?

Craig Mock: I think they would've preferred that we bought equipment from somebody else.

Steve Kroft: What was your reaction? Were you upset that they came out?

Craig Mock: I was not pleased.

Steve Kroft: Because?

Craig Mock: Because I saw it as interference in our operations. If we're not able to buy the very best equipment and deploy it in an efficient manner, then everybody suffers.

Steve Kroft: Were there any American companies that bid on this?

Craig Mock: I don't know of any American companies that makes this equipment.

About the only real U.S. competitor Huawei has left is Cisco, which is still a worldwide player, but doesn't produce all the equipment necessary to construct a 4G network. The only companies that do are all foreign: Huawei, Ericsson, which is Swedish, and the French company Alcatel-Lucent.

Jim Lewis: That's where we've ended up. We now depend entirely on foreign suppliers. Three European, two Chinese. No Americans.

Steve Kroft: The United States used to dominate this field.

Jim Lewis: Yeah it's true. You know, I guess we just were asleep at the switch.

Steve Kroft: What happened?

Jim Lewis: Some of it was just bad planning at the company level. Some of it was a lack of attention by the government. I mean, we would not have let the space industry go out of business. We would not say, "Oh, we'll depend on foreign companies to launch our satellites." But we didn't do that for telecom.

Concerned and suspicious of what it calls continued Chinese penetration of U.S. telecommunications market, the House Intelligence Committee called Huawei executive Charles Ding to answer questions about the company's corporate structure, ownership, finances, and management. The committee seemed to get nowhere.

Mike Rogers: The committee has been disappointed that the companies provided little actual evidence to ameliorate the committee's concerns.

Huawei's Bill Plummer says the company bears some responsibility for the lack of communication.

Bill Plummer: You're right that over the 10 years of explosive growth we were not as good at communicating about ourselves as we could or should have been. But over the last couple of years we've really stepped that up. I mean, you want to know more about us, we're an open book.

Steve Kroft: Really?

Bill Plummer: Yeah.

Steve Kroft: Has Mr. Ren ever given an interview?

Bill Plummer: Mr. Ren is not terribly well-known for his, his, his-- getting out in front of the media.

Steve Kroft: But we requested interviews various points along the way with company officials both in China and here. And we got their most important spokesman and lobbyist here in the United States. But it's not like they swung open the doors and said, you know, "We're an open book."

Bill Plummer: Well I think that--

Steve Kroft: You allowed our camera crews into your facilities in Shenzhen and there was a big banner saying, "Welcome 60 Minutes." But we weren't allowed to talk to anybody. To speak to anybody.

Bill Plummer: The goal of the visit to Shenzhen was to give a really rich and visual impression of the company. It is a company that has experienced a history of not fully balanced treatment by the media. And that's created a sense of wariness.

Huawei is not going to like the treatment it receives from the House Permanent Select Committee on Intelligence any better. Its final report is due tomorrow.