Hidden Huaweis

For 70 minutes on September 3^rd, China paraded its military forces along Beijing’s Chang’an Avenue – exhibiting everything from stealth UAVs to long-range missiles, laser weapons to robot dogs. The display sent a clear message. Beijing is a global military force and has no intention of hiding it. That is concerning and potentially destabilizing. But it also obscures the real Chinese threat, and arsenal. The military hardware that Beijing celebrated are shiny accessories to the country’s already deployed force: China’s globally proliferated Hidden Huaweis.

Over the past decade, China has leveraged State-led industrial policy, a strategy of military-civil fusion, and the country’s advantages of scale and industrial capacity to dominate the upstream of information and communication technologies – including critical materials, modules, and components. Despite growing recognition of China as a strategic adversary, the United States has not grasped the extent of this threat. Trying to fight Huawei, Washington has missed a global arsenal of Hidden Huaweis. And focused on traditional security frameworks, Washington has failed to recognize the strategic effect those Hidden Huaweis deliver. They promise Beijing the power to shape tomorrow’s data flows – and the resources, ideas, and movements that depend on them. Until the United States engages seriously in the contest for the upstream hardware of information and communication technologies, Hidden Huaweis promise Beijing global control.

Chinese State-backed and -directed companies sit at the core of every information technology component, and therefore every foundational infrastructure, of the connected world. China’s Quectel and Fibocom control the majority of the cellular IoT module, mobile hotspot device, and fixed wireless access equipment: Anywhere you connect to WiFi, they are positioned to collect. Hesai, Robosense, and other Chinese companies account for 89 percent of the global LiDAR market, and therefore have veto power over the ability of self-driving vehicles to operate. Chinese champions, including Sungrow, make most of the world’s power inverters, the smart components that connect power sources to the grid – unless they decide to disconnect them. In data center optical transceivers, Innolight alone accounts for more than 10 percent of global market share, and is increasingly present across the U.S. artificial intelligence ecosystem.

These companies owe their global rise to the Chinese Communist Party’s non-market backing and guidance. They boast ties to the Chinese state and military. Thanks to Beijing’s regulatory environment, these Hidden Huaweis also feed data back to the government – and ultimately operate at its direction.

Yet the component and overlooked levels at which these companies operate allows them to evade U.S. defenses and scrutiny. Hidden Huaweis sell into the U.S. market through supply relationships with original equipment manufacturers – and therefore can be presented to consumers under a trusted brand. Hidden Huaweis also “localize” their production via joint ventures, licensing, and spin-offs in the United States that evade national security protections against foreign investment into critical sectors. And, across the board, Hidden Huaweis benefit from the reality that tactical, reactive U.S. policy is no match for the scope of China’s industrial arsenal. There are simply too many of them to find or monitor, let alone fight one-by-one. But American defenses – cobbled together from pre-globalization and then counter-terrorism eras – are designed to do precisely that.

Washington must change its game. The United States must move from whac-a-mole reaction to strategic action. Instead of trying to tag and monitor every bad actor, the United States should implement broad market restrictions on Chinese entities capturing critical markets and seeding threats into critical U.S. systems; should enforce a dividing line that keeps Chinese, Chinese-invested, and Chinese-partnered OEM and component companies out of critical infrastructures entirely. And because Beijing’s offensive begins at the upstream of supply chains and networks, the United States must place its emphasis there. Otherwise, America will be building on China’s foundation.

These are policy responses. But the market will respond to them if Washington creates the incentives. If downstream companies can’t buy Chinese components, they will partner with trusted entities. And even in sectors where Beijing’s non-market approach has decimated them, trusted entities will emerge, because there will be market opportunity available to fuel renewal and reindustrialization.

The world is marching toward an intelligent era. But it is doing so on a foundation controlled by China. Hidden Huaweis are securing strangleholds over international technological architecture. That is a parade America cannot afford to ignore.

Nathan Picarsic and Emily de La Bruyere, senior fellows Foundation for Defense of Democracies; co-founders, Horizon Advisory.