The charm offensive didn’t pay off. Last month, senior Chinese executives unaccustomed to sharp scrutiny sat in front of a foreign government and tried to explain just what their companies did. But on Oct. 8, after 11 months of study, the House Intelligence Committee recommended that American businesses stay away from computer-network products made by two Chinese firms, Huawei and ZTE, for fear that they may compromise U.S. national security. The world’s second and fifth largest information-and-communications-technology companies have large operations overseas but have failed to expand extensively in the U.S. Now, the U.S. looks like an even more distant destination.
“Based on available classified and unclassified information,” said the U.S. panel’s 52-page report, “Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems … Malicious implants in the components of critical infrastructure, such as power grids or financial networks, would also be a tremendous weapon in China’s arsenal.”
Are ZTE and Huawei victims of the China bashing that has characterized the U.S. presidential campaign? Or is there more going on? The answer is probably a bit of both. President Barack Obama and Republican nominee Mitt Romney seem intent on one-upping each other in showing their tough-on-China street cred. Congress may be simply joining in on the game. But it’s also not hard to believe that these Chinese firms, should they be pressured by their government to do so, may feel compelled to commit a secret, untoward act toward foreign entities in order to protect the growth of their business back home.
Accusing the U.S. panel of engaging in protectionism, Huawei released a statement on Monday:
The United States is a country ruled by law, where all charges and allegations should be based on solid evidence and facts. The [congressional] report failed to provide clear information or evidence to substantiate the legitimacy of the Committee’s concerns … The report released by the Committee today employs many rumors and speculations to prove non-existent accusations.
Chinese analysts have, unsurprisingly, dismissed concerns that the two companies might target the U.S. with cyber-espionage. They point out that Huawei and ZTE have never been caught spying on its global customers or slipping malicious coding into its software. Instead, they counsel more trade and collaboration as the way forward. “If you take China as the enemy, that’s the wrong way of doing things,” says Zeng Jianqiu, a professor at the Beijing University of Posts and Telecommunications, who is also on the Chinese Ministry of Industry and Information Technology’s expert committee for the telecommunications economy. “If America does this, then there’s the possibility that China will do the same thing too.”
Already, Beijing is irked that Obama stopped a Chinese wind-power company from constructing turbines near a naval installation in Oregon. The wind firm — Ralls, which is a subsidiary of a Chinese heavy machinery maker — is now suing the U.S. President and Treasury Secretary Tim Geithner. Could American tech firms operating in China, from Apple to Cisco, face future hassles?
Huawei and ZTE have tried to differentiate between a government that has a complicated relationship with the U.S. and Chinese enterprises they say simply want to compete in the global economy. ZTE is partly owned by the state, but spokesperson David Dai Shu countered: “It is noteworthy that, after a yearlong investigation, the committee rests its conclusions on a finding that ZTE may not be ‘free of state influence.’ This finding would apply to any company operating in China … ZTE recommends that the committee’s investigation be extended to include every company making equipment in China, including the Western vendors.”
For its part, Huawei says it “is no different from any start-up enterprises in Silicon Valley” and is a Fortune 500 company owned by its employees, according to its Oct. 8 press release. “Huawei is Huawei, Huawei is not China,” William Plummer, vice president for external affairs for Huawei, told reporters, according to the Associated Press. “My company should not be held hostage to someone’s political agenda.” But in China, economics can work hand in hand with politics, too, since the Chinese state makes it its business to guide capitalist enterprises. Huawei’s founder, Ren Zhengfei, once served in the People’s Liberation Army (PLA), and the U.S. congressional committee alleges that Huawei provided network services to a PLA-run cyber-warfare army.
In that case, Huawei may not be drastically different from American firms like Cisco, whose routers have been used by repressive regimes. Other U.S. firms have given user information to the Chinese government, most notably Yahoo, which handed over e-mail-account records that, in 2005, resulted in a 10-year jail sentence for a Chinese reporter convicted of “leaking state secrets.” Later, after putting up with constantly censored searches in mainland China, Google relocated many of its Chinese services to Hong Kong, where information channels are free.
Of course, there is a big difference between American firms having to acquiesce to local regulations when operating in a foreign country like China and Chinese firms being accused of implanting gremlins in its products that could be activated during a time of war between the U.S. and China. But even on this count, this may not be completely asymmetrical warfare. In 2002, Beijing bought an American-made Boeing 767 for then Chinese President Jiang Zemin. The plane apparently came with some extras, namely nearly 30 tiny spying devices that were scattered throughout the fuselage. One was in the bathroom, another in the headboard of the bed where Jiang would likely have slept.
The larger issue, in fact, may not be one of national security but of trade equity. Despite the wind and telecoms cases, it is far easier for most Chinese companies to do business in the U.S. than vice versa. Many Chinese industries are still protected, and international companies have become more vocal in criticizing the tilted playing field. No charm offensive is on offer from these frustrated foreign firms trying to make it work in China.
— With reporting by Gu Yongqiang / Beijing