Huawei and Lenovo in Discussions with Russia to Help Implement Domestic Surveillance Program

On August 24, 2016, over a month after Russ­ian Pres­i­dent Vladimir Putin signed a new ‘‘‘anti-ter­ror­ism‘ law designed to increase the elec­tron­ic sur­veil­lance of Russ­ian inter­net users, Huawei and Leno­vo report­ed­ly began nego­ti­a­tions with Russ­ian firm Bulat for tech­nol­o­gy trans­fers relat­ed to serv­er man­u­fac­tur­ing, data stor­age and oth­er infor­ma­tion and com­mu­ni­ca­tions tech­nol­o­gy (ICT) equip­ment.  Bulat was joint­ly formed by Ros­tec, a major Russ­ian mil­i­tary con­trac­tor, and Ros­t­ele­com, the country‘s largest telecom­mu­ni­ca­tions com­pa­ny, in antic­i­pa­tion of the new law.  Ros­tec and Ros­t­ele­com are reach­ing out to for­eign com­pa­nies in order to com­ply with the new leg­is­la­tion requir­ing inter­net ser­vice providers (ISPs) to store records of their cus­tomers‘ traf­fic for six months.

The involve­ment of both Ros­tec and Huawei, a Chi­nese com­pa­ny with ties to the mil­i­tary and intel­li­gence com­mu­ni­ties, rais­es ques­tions regard­ing the poten­tial dual-use of any tech­nol­o­gy trans­ferred or devel­oped under the pend­ing part­ner­ships.  The part­ner­ing con­cept itself illus­trates Rus­si­a’s need for tech­no­log­i­cal assis­tance in meet­ing the Krem­lin’s data stor­age and pro­cess­ing require­ments.  In exchange for its efforts, Huawei will pur­port­ed­ly receive a minor­i­ty stake in Bulat.  More­over, coop­er­a­tion by both Leno­vo and Huawei could pro­vide the com­pa­nies, and any oth­ers will­ing to work with Moscow, sta­tus as ‘‘‘domes­tic pro­duc­er,‘ a boon for future busi­ness in the coun­try, as Rus­sia con­tin­ues to pro­mote import sub­sti­tu­tion.

The involve­ment of Leno­vo in this project has the poten­tial to do the com­pa­ny more rep­u­ta­tion­al harm than Huawei, which already has an estab­lished rep­u­ta­tion as hav­ing links to the Chi­nese mil­i­tary and intel­li­gence ser­vices (only made worse by this ven­ture in Rus­sia).  Leno­vo, on the oth­er hand, has a more entrenched posi­tion in the U.S. con­sumer mar­ket.  Masshtab, a research insti­tute under Ros­tec, and Vestel­com, a sub­sidiary of Ros­t­ele­com, both hold stakes of 37.5% in the Bulat ven­ture, while pri­vate equip­ment man­u­fac­tur­er QTECH holds a 25% stake.