US-China Relations: The Huawei Problem

UPDATE: Read this summary of the the reaction of Chinese netizens to the report by the US House of Representatives Intelligence Committee.

In the US, the House of Representatives Intelligence Committee released a bipartisan report that concluded that Huawei Technologies and ZTE Inc, two Chinese technology firms, represent a national security threat, noting efforts to obtain sensitive information from American companies and the connections of these enterprises to the Chinese government and military. The full report of the Committee is here. Chinese media have slammed the report, with the state news agency Xinhua calling it “totally groundless”, “based on wild guesses” and motivated by protectionism. “The report laid bare a Cold War mentality as well as protectionism among politicians at Capitol Hill to contain Chinese investments, which could offer new business and job opportunities for the sluggish US economy. Protectionism or anti-market intervention is not a wise choice for Washington.” Huawei and ZTE, which already conduct significant business in the US, also reacted to the report. Huawei’s statement is here, while ZTE’s is here. Read a Wall Street Journal article on their reaction here.

On the eve of the release of the Committee’s report, the US news program 60 Minutes broadcast this report. CBS News posted this additional clip – an interview with Jim Lewis, the director of the Center for Strategic & International Studies (CSIS) Technology and Public Policy Program.

Technology issues have been a major stumbling block in US-China relations. The US maintains restrictions on high-technology exports to China. Beijing has urged Washington to relax the controls to boost trade and address the trade imbalance between the two countries.

Is the House report motivated by election-year politics? Or are there legitimate reasons to be concerned about Chinese enterprises such as Huawei and ZTE because of the limited transparency and their connections to the state? Australia seems to think so. In April, it barred Huawei from investing in the country’s National Broadband Network. Will Huawei and other Chinese companies remain under suspicion, given the corporate governance and disclosure standards in China?

UPDATE: The Obama campaign has wasted no time in using this issue against the President’s election opponent, Mitt Romney:

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4 thoughts on “US-China Relations: The Huawei Problem

  1. ss2012

    An interesting release time for this report as the election debates heat up. This issue, if valid, would involve both trade protectionism and national security. Looks like Joe Biden and Ron Paul will be the first one to shed more light on this in Kentucky this Thursday. It may even open up interesting questions in the town hall-style debate next week.

    Reply
  2. Ida Leung

    There are clearly discrepancies in the understanding of the standard of corporate governance disclosure and transparency between China and the west. This poses a great challenge to companies operating in the west, particularly those that operate high technology business. Ever since China started to grow as a world economic power, there has been concerns that companies like Huawei and ZTE Inc are working for the Chinese government although there is no concrete evidence. This story will go on. One wonders if a higher level of corporate governance disclosure could ease skepticism that these Chinese companies are not working for the Communist Party. It will be many more years before China can truly be integrated into the western system and build up a more trusted image.

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  3. DELIA

    The real interesting part is about Huawei’s response. The company speaks in the tough tone, that is very unusual in its PR history. FYI, for Huawei and ZTE, American market is not as important as people imagine.The total sales of the company didn’t amount to more than 900 million dollars during the whole 2011. On that ground, their reaction sort of surprised me. I believe, the focus is now on what Huawei does next.

    Reply
  4. AM2012

    It is interesting that some countries take a more hardline stance on Huawei and ZTE, and others have opened their markets to these now somewhat ‘controversial’ companies. In my estimation, the controversy is largely wrapped in Huawei’s close ties to the PLA (namely the volume of business they do together, and R&D contracts). This is a logical deterrent given the potential for the integration of weaknesses and security gaps in telecommunications networks, whether sensitive or not.

    However, there is the case of New Zealand, which has cleared Huawei to install NZ’s new ultra-fast broadband network.

    I think that there is legitimate concern when it comes to technology that supports critical infrastructure, and that in this case it is likely a question of ‘better safe than sorry’ that drives the national security concerns associated with Huawei et al. Then again, it is certainly arguable that the prevention of direct competition is in the best interest of US companies like Cisco…

    Reply

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