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China tech

Huawei finds allies in Russia as Kremlin cuts reliance on West

Companies turn to Chinese telecoms giant for non-US tech

MOSCOW -- Huawei Technologies and Russia have both felt the lash of U.S. sanctions. Now the Chinese telecoms group and Moscow are playing up their resistance to such threats to build an increasingly close relationship as the Kremlin tries to wean itself off Western technology and equipment.

President Vladimir Putin has spent several years promoting a domestic tech industry in a bid to insulate the country from having to rely on Western technological infrastructure. But with Russia still in need of foreign technology, many companies are stepping up cooperation with Huawei -- which has had its own difficulties with Washington -- as an alternative.

This month Huawei announced a partnership with Sberbank, Russia's largest bank, to launch a cloud platform in Russia's fast-growing market for cloud services. Huawei also pledged to "build a digital community with a shared future in Russia," saying that over the next five years it would boost its purchases in Russia from $392 million to $800 million, train 35,000 IT Russian specialists, and build a new research & development center in the country.

At a partnership conference in Moscow, Huawei put reducing technological reliance on the U.S. at the forefront of its pitch to Russian tech executives. Xiao Haijun, the company's head of business operations in Russia, accused the U.S. of being the "world's biggest information stealer" and declared that both Huawei and Russia had shown their resilience in the face of sanctions from Washington.

"We want to share all our technologies with our Russian customers, partners, developers, and everyone in this ecosystem so that nobody will just depend on a single technology supplier," Xiao said. Huawei has also begun sales in Russia of its next-generation Wi-Fi networks (Wi-Fi 6) access points, which the company boasts are produced without using any U.S. components.

For Huawei -- which over the past year has established itself as a major player in developing a fifth-generation mobile network and artificial intelligence in Russia -- the tie-up with Sberbank marks a change of tack. It first attempted to enter the Russian cloud market in February 2019 under its own brand Huawei Cloud, and reportedly spent tens of millions of dollars to rent 500 rack spaces in several Moscow data centers. Now the tech giant is shutting down Huawei Cloud in Russia to pursue its partnership with Sberbank, which is aimed at businesses and will allow access to dozens of integrated services.

The change of approach comes as the Russian cloud services market is rapidly expanding. According to preliminary estimates from the Russian analytical agency iKS-Consulting, the market grew by 20% to reach $1.32 billion in 2019.

Following its estrangement from the West in 2014 over the Ukraine crisis, Moscow moved to lessen its reliance on Western technologies and consolidate control over its digital space. Russia passed a data localization law in 2015 mandating that any company that collects the information of Russian nationals must store that data on Russian servers. Last year Putin signed a "sovereign internet" bill calling for the establishment of a national Domain Name System (DNS) that would enable the Russian internet to continue working even if Russia were cut off from the World Wide Web.

The Kremlin also decreed that state and municipal bodies replace Western software systems with domestic ones. In 2016, the Moscow city government removed Microsoft Office from its computers in favor of a program developed by a Russian company.

But experts contend that despite these efforts by the Russian government, it does not have the capability to fully replace Western equipment and technologies with Russian ones. They say that this conundrum has created an opening for Huawei to grow its influence in the Russian market by offering a combination of technological prowess and political reliability.

"Huawei is one of the largest Chinese companies in the IT field. It is a manufacturer of both hardware and software, it offers complete solutions," said Stanislav Mirin, a senior consultant at iKS-consulting. "I think that a total rejection of Western technologies will not happen and cannot happen, but the diversification of software solutions makes us feel more independent from suppliers from one country."

As Moscow's problems with Washington have mounted, Huawei's fortunes in Russia have surged. The company estimates that its sales to Russia have grown by an average 51% each year since 2014, making Russia its fastest-growing market. Huawei now has 1,100 Russian corporate customers and along with its subsidiary Honor is the leading brand in the Russian smartphone market.

Considerations of technological security played a major role in the Huawei-Sberbank deal, explained Vladimir Rubanov, a board member at the influential software developer association Russoft. He told the Nikkei Asian Review that cooperating with Huawei would allow Sberbank to produce a "sanctions-protected cloud system that Russia controls."

"Russia does not want the United States to be able to turn off some of its important services with the flick of a switch, but it also realizes that it cannot completely do everything on its own," Rubanov said. "The deal between Huawei and Sberbank provides Russia with a certain balance between independence and effectiveness of the used technologies."

But some experts argue that Russia is in danger of simply replacing technological dependence on the West for technological dependence on Huawei.

"Huawei is pursuing its own goals in cooperating with Russia, which could change with global shifts in politics or economics," said Denis Kuskov, general manager of TelecomDaily, a Russian analytical company focused on the IT industry. "Russia is currently able to develop its technological processes, but it does so on imported equipment. Should circumstances change, Russia could discover that it doesn't have anything of its own."

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