WCA March 2008

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Wire & Cable ASIA – March/April 2008 34
Telecommunications
Even with American partners,
Chinese telecom Huawei arouses
security concerns in Congress
Already huge, Huawei Technologies has an ambition: to
dominate telecom equipment markets all over the world,
starting with the United States. From its headquarters in
the southern city of Shenzhen, Huawei has made a strong
start. Late last year, it joined Bain Capital Partners (Boston)
in a $2.2 billion takeover bid for another Massachusetts
company, the networking pioneer 3Com Corp (Marlborough),
which makes systems to protect against computer hackers.
In Bain Capital, Huawei has a partner with an impeccable
American pedigree. Bain, a private-equity firm, was
founded in 1984 by Mitt Romney, a former governor of
Massachusetts and now a leading contender for the
Republican presidential nomination. Bain said in a statement
that Huawei – with an initial stake of 16.5% and an option
to go as high as 21.5% – would not have any operational
control over 3Com, which ‘will be firmly controlled by an
American company’. But even with the right connections
giving the right assurances, Huawei may not find it that
easy to find a berth in the US. Foreign access to American
infrastructure has a tendency to set off alarms in Congress.
It will be recalled that lawmakers raised fierce objections
to China’s biggest offshore oil producer CNOOC, which in
2005 was thwarted in its attempt to purchase the California
gas company Unocal for $18.5 billion. Worries about foreign
ownership have derailed other Chinese attempts to buy into
high-value American companies.
With its 70,000 employees and strong backing from the
Chinese government, Huawei makes an unlikely phantom.
But, as noted by Ariana Eunjung Cha, of the Washington
Post Foreign Service, the fact that no one knows exactly
who owns the company contributes to congressional
unease about the Huawei deal. “Technically,” she wrote,
“Huawei is a private venture, not state-owned. But the
company won’t reveal information about its shareholders
except to say it’s ‘100% employee-owned’, with its chief
executive owning one per cent.” (‘Telecom Firm in China
Sets Sights on US Market,’ 6th January)
Predictably, a congressman – Rep Thaddeus McCotter,
of Michigan, chairman of the House Republican Policy
Committee – has called on the Bush administration to block
the deal. The research organisation Rand Corp provided
the rationale, declaring that Huawei has ‘deep ties’ with the
People’s Liberation Army. Not only is the Chinese military
a customer of Huawei’s, Rand said in an analysis prepared
for the US government, but also was a ‘political patron and
research and development partner.’
Huawei officials, in a written response to questions, dispute
those assertions. Moreover, Ms Cha reported, “Xing
Houyuan, dean of the Beijing-based Overseas Investment
Research Center, which is under China’s Ministry of
Commerce, said efforts to block the deal amount to
discrimination — an attempt by the United States to protect
key industries like telecommunications.”
However the action plays out, Huawei seems unlikely
to be driven from the field of battle as readily as, say,
CNOOC. The Washington Post points out that, according
to a 2002 article in CEOCIO, a trade magazine run by
China’s Ministry of Information Industry, as a competitor
Huawei is a ‘violent attacker.’ Its sales force was known
for blowing into a town dominated by a competitor and
winning over contracts ‘by any means necessary.’
One wonders if Rep McCotter oughtn’t to ponder that last
phrase.
Questions are raised about the easing
of export controls on ‘sensitive’
technology slated for China
In marked contrast to the Huawei unpleasantness (see
above), in mid-2007 a conspicuously more trusting
attitude toward China was demonstrated by, of all people,
President George W Bush. Despite tight curbs on sharing
telecommunications and other technology that might lend
itself to military applications, his administration quietly
eased some restrictions on the export of politically delicate
technologies to China. The new approach was intended to
help US companies increase sales of high-tech equipment
to the Chinese.
Now, however, the administration is facing questions about
whether some equipment – newly authorised for export to
Chinese companies deemed trustworthy by Washington
– could aid China in modernising its military.
As reported by Steven R Weisman in the International Herald
Tribune, American weapons experts have also suggested
that China might share the expertise with Iran or Syria, with
both of whom the US has vexed relations. (‘Doubts raised
on sales of US high-tech equipment to China,’ 2nd January)
The technologies in question include telecommunications
equipment, sophisticated composite materials, advanced
aircraft engine parts, and navigation systems. The questions
were to be aired in a report set for mid-January release
by the Wisconsin Project on Nuclear Arms Control, an
independent research foundation that opposes the spread
of arms technologies.
Mr Weisman said that the US government’s new approach
is part of a drive to require licences for an expanded
list of export technologies in fields of interest to China’s
military. But, even as it imposes new requirements for
these transfers, the administration is also validating certain
Chinese companies to import the technologies without
licences. Five such companies were designated in October.
As many as a dozen others are up for possible designation.
Mario Mancuso, Under Secretary of Commerce for Industry
and Security, defended the new system of licensing-cum-
exemptions. “We believe that the system we have set
up ensures that we are protecting our national security
consistent with our goal of promoting legitimate exports for
civilian use,” he told the Herald Tribune.
“We have adopted a consistent, broad-based approach to
hedging against helping China’s military modernisation.”
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Statue of Liberty Image from BigStockPhoto.com
Photographer: Marty