Europe Was Growing Wary of Huawei Even Before CFO's Arrest

The shock arrest of Huawei’s CFO comes at a crunch time in Europe, as governments decide whether to crack down on the Chinese technology giant, according to Bloomberg.

Before Canadian officials detained Wanzhou Meng over potential violations of U.S. sanctions on Iran, officials from the U.K., Germany and France were becoming increasingly wary of the telecom equipment-maker, according to people familiar with the matter. Europe is a key battleground for Huawei as its largest market outside Asia, and where the company has spent more than a decade notching contracts with the likes of Deutsche Telekom and Vodafone Group.

Germany’s coalition government has concerns about letting Huawei supply 5G equipment, according to people familiar with the matter. Officials are looking at potential changes to rules or standards that would affect Huawei, though it’s controversial within government. One German lawmaker, who attended a recent briefing by U.S. officials advocating against Huawei, said any action on the matter should wait until after the country’s 5G airwaves auction finishes in 2019 and licenses have been awarded.

Germany currently has no legal basis to partially or fully exclude Huawei from supplying 5G equipment. “Germany and the EU should not jump on Trump’s campaign against China,“ said Katharina Dröge, Green lawmaker responsible for trade. “Nevertheless, it is in Germany’s own interest to take the concerns about Chinese technology very seriously.“

In France, government departments are rethinking the country’s relationship with Huawei, according to people familiar with the matter. Earlier this year Digital Affairs Minister Mounir Mahjoubi said phone carriers should work with European equipment-makers. The risk for Huawei may be greater in the U.K., where the head of the foreign intelligence agency MI6 said that the government must decide if Huawei should be barred from running 5G networks.

Espionage concerns have long swirled around the closely-held company, run by a former military engineer. Huawei has always maintained that it’s independent and doesn’t give the government access to its equipment. It’s mounted slick lobbying campaigns to assuage political leaders in Europe and opened its operations to monitoring in markets like the U.K.

With equipment seen by telecom executives as superior to that of Nokia and Ericsson, Huawei has managed to topple its European rivals to become the largest mobile gear supplier on the continent. The coming of 5G technology has security and government officials concerned that core networks will be more at risk of being hacked. Phone carriers in Europe already split their equipment supply between the three major suppliers and could shift more of their business to the non-Chinese vendors over time.