Fear-mongering or justified skepticism? How do we begin to parse the US House Intelligence Committee report, released Monday after 11 months in the works, that claims China’s two biggest telecommunications makers “pose a security threat to the United States,” and that the US “should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies”? As the Associated Press bluntly tells it:
The panel says U.S. regulators should block mergers and acquisitions in this country by Huawei Technologies Ltd. and ZTE Corp, among the world’s leading suppliers of telecommunications gear and mobile phones.
Reflecting U.S. concern over cyber-attacks traced to China, the report also recommends that U.S. government computer systems not include any components from the two firms because that could pose an espionage risk.
“China has the means, opportunity, and motive to use telecommunications companies for malicious purposes,” the report says.
That doesn’t sound very nice. And while the tone is slightly paranoid, America takes its security way too seriously to care about offending a couple of Chinese companies — or, for that matter, China.
How would Huawei and ZTE potentially do harm? As The Verge puts it:
Presumably, the fear is that Huawei and ZTE will could somehow build backdoors into their routers and switches, leaking sensitive information to Chinese government and industry. The report also found “credible” reports of immigration violations, bribery, and corruption at the two companies, reports Bloomberg.
Obviously Huawei and ZTE are denying and dismissing. According to The Verge again, “ZTE points out that its US sales are so small ($30 million) as to be insignificant from a security standpoint, and argues that the Committee should broaden the scope of its investigation to include ‘larger Western vendors.’”
Of course, they’ll have a difficult if not downright impossible time convincing anyone. And judging by the report, it seems their major sin was simply not trying hard enough to be convincing:
Despite hours of interviews, extensive and repeated document requests, a review of open-source information, and an open hearing with witnesses from both companies, the Committee remains unsatisfied with the level of cooperation and candor provided by each company. Neither company was willing to provide sufficient evidence to ameliorate the Committee’s concerns. Neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities. Neither company provided specific details about the precise role of each company’s Chinese Communist Party Committee. Furthermore, neither company provided detailed information about its operations in the United States. Huawei, in particular, failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements, or management. Most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to Committee investigators.
So now we wait: for the analysis, the fallout, and the use of the report as election fodder. In the meantime, check out Sunday’s episode of 60 Minutes (transcript here), which attempts to explain, in simple and reductive news magazine terms, what all this means to the American public:
Steve Kroft: How did they get so big and so cheap, so quickly?
Jim Lewis: Two answers. First, steady, extensive support from the Chinese government. If you’re willing to funnel hundreds of millions, maybe even billions of dollars to a company, they’re going to be able to grow. The second reason is industrial espionage. And Huawei was famous in their developing years for taking other people’s technology.
Steve Kroft: You mean stealing?
“Neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities. Neither company provided specific details about the precise role of each company’s Chinese Communist Party Committee. Furthermore, neither company provided detailed information about its operations in the United States. Huawei, in particular, failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements, or management. Most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to Committee investigators.”
Not surprising. All this information is classified as “State Secrets” in the Glorious Middle Kingdom. I did hear that ZTE and Huawei denied the facts about their Party connections saying the Chinese Commie Party had no influence on their operations which is of course a BIG EFFING LIE!
All large Chinese business whether private or state owned are in fact run by the Party. “The Party: The Secret World of China’s Communist Rulers” by Richard McGregor lays this out quite clearly.
The Party has ingrained itself in Chinese business to such an extent that Chinese Business s where its real power lies. In my opinion, no free Western state should allow any Chinese company into it’s market unless under a forced joint venture plan where the government of the Western nation has the majority of the shares and controls the company. essentially what happens when foreign companies set up shop here in China.
Huawei and many Chinese companies are notorious for not being transparent. That is a fault indeed and needs improving and is a valid reason for barring entry if documents aren’t satisfactory. However, to my understanding, the biggest fear is the perceived connection to the Chinese government because of Ren’s PLA background. But who a company’s founder is is something that can’t be changed. You can’t change history or who the founder is and my personal opinion is, Huawei as a company shouldn’t be penalized for this.
This article titled “Military entrepreneurs: not an oxymoron” made me wonder if it would be possible in 20 years time we’d hear of an American company started by former military personnel in “Strategic Industries” being barred from entering other countries for fear of its relationship to the Government. Hmmmm
http://www.csmonitor.com/Business/Growthology/2010/1029/Military-entrepreneurs-not-an-oxymoron
I see more people with background in the military doing an MBA or starting their own companies. If there’s fear that by nature of them operating in an industry that they have expertise but its considered a “national security threat” could it stifle innovation and entrepreneurship?
Given China’s history and is the world’s largest military force, I’m not surprised that there’s going to be at least 1 or 2 people who retire and go on to found global companies.
A country like China who can start/stop the anti-Japanese “destructive” activities like the water tap, cannot be trusted. The Australian government has banned the use of the Huawei equipment because of the risk of their spy activities. BT (British Telecom) in the UK must “cleanse” the Huawei equipment before use for malware/spyware which may be embedded within. Their CEO is ex-People’s Liberation Army. China is a country which everything, absolutely everything is controlled by a few people in the communist government and the military. Where there is such levels of concentration of the power, there always exists huge corruptions at every level of the society.