This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
One of the arguments and counter-arguments brought up in the Huawei debate is Beijing's ability to compel Huawei to install a backdoor in its hardware for cyber-espionage. Those that want Washington to block Huawei from participating in the US' 5G infrastructure rollout cite China's National Intelligence Law which they say gives the company a legal requirement to assist Beijing to do its bidding. On the other hand, Huawei cites the opinion of multinational law firm Zhong Lun Law Firm, which had two of its lawyers testify before the FCC to claim that this law wouldn't apply to Huawei, and, in fact, Huawei's international offices have a legal obligation to follow the rules of their host nations -- including the protection of data.
Huawei would certainly like the answer to the question of its legal obligations to be an arm of China's cyber New World Order to be a firm and definite "NO". After all, the brand image of being an electronic Trojan Horse isn't good for business. To reinforce Zhong Lun's opinion that Huawei has legal protections to shield data and prevent it from being a tool of state-sponsored hacking, Huawei hired the services of Clifford Chance, a leading London-based law firm, to review Zhong Lun's work. While the document hasn't been made publicly available, according to a legal opinion prepared by Donald Clarke, a Professor of Law at George Washington University who has reviewed the document, Clifford Chance's opinion generally agrees with Zhong Lun's work.
But Clarke (who co-authored a recent report on Huawei's true ownership) believes that both assessments are flawed because they assume that courts in China are inherently independent. Rather, as Clarke explains, in an inherently Leninist legal system like China's there isn't an independent judiciary. While Huawei and its hired lawyers might be correct in pointing to the letter of the law as a protection against the state, Clarke argues in actuality the state is not constrained by the law.
"Chinese courts do not operate as a check on the state. They are an arm of the state," Clarke told Wccftech in an email. "They are not, and are not intended to be, an independent branch of government. The Chinese state very openly does not accept the idea of separation of powers. There can be no institutions independent of Party leadership."
Huawei would also argue that its overseas subsidiaries are organized under the law of their host country and follow these countries' -- and not China's -- laws. There are parallels in this regard to some Western firms, that will ensure that certain servers are located outside of the US in order not to be required to turn over data to American authorities as per the US PATRIOT Act. And, of course, there's also a very similar ongoing case with TikTok where the company has promised to firewall the data of US users away from the Chinese side of the company so Beijing doesn't have access to it.
Clarke doesn't agree with this, pointing out that there's still an 'umbilical cord' of ownership.
"The Chinese parent [company] must do as it’s told by Chinese authorities, and if the Chinese authorities tell the parent to cause the subsidiary to act in some way, it will have to do so. The wholly-owned sub is dominated by the parent; by virtue of the ownership relation, it has to do as it’s told," he explained to Wccftech.
Clarke's legal opinion has its critics. In mid-November, Huawei submitted to the FCC a commissioned legal rebuttal to Clarke's piece characterizing his interpretation of Chinese law as "misguided, and unsupported by evidence." Pointing to the People's Republic of China's Administrative Procedure Law, the piece argues that Huawei would have a legal avenue to sue the Chinese government if it forced it to place spyware or backdoors in its hardware. This legal pathway isn't entirely without precedent either, as the authors point to a publicly available court directory that has millions of cases where firms seek judicial relief for administrative acts by the state which have compromised their “legitimate rights and interests”.
The piece also cites Chinese government officials taking a consistent position against cyber-espionage. Amongst other officials, Chinese Premier Li Keqiang is quoted: "the Chinese government did not and will not ask Chinese companies to spy on other countries, such kind of action is not consistent with the Chinese law and is not how China behaves.”
