House committee warns against Huawei, ZTE expansion

Did you know that the world’s largest telecom equipment maker is a Chinese company? Huawei Technologies Co. of Shenzhen, China, was founded in 1987 by an ex-military officer and formed as a private company with over 140,000 employees around the globe. It’s only natural that Huawei is looking to enter the American market place. The same goes for fifth largest ZTE, also based in Shenzhen.

But the House intelligence committee came out with a report warning against having these Chinese telecom equipment dotting the U.S. infrastructure:

The House Permanent Select Committee on Intelligence (herein referred to as “the Committee”) initiated this investigation in November 2011 to inquire into the counterintelligence and security threat posed by Chinese telecommunications companies doing business in the United States. Prior to initiating the formal investigation, the Committee performed a preliminary review of the issue, which confirmed significant gaps in available information about the Chinese telecommunications sector, the histories and operations of specific companies operating in the United States, and those companies’ potential ties to the Chinese state. Most importantly, that preliminary review highlighted the potential security threat posed by Chinese telecommunications companies with potential ties to the Chinese government or military. In particular, to the extent these companies are influenced by the state, or provide Chinese intelligence services access to telecommunication networks, the opportunity exists for further economic and foreign espionage by a foreign nation-state already known to be a major perpetrator of cyber espionage.

Ultimately, the Committee was not satisfied in terms of Huawei and ZTE’s cooperation to be as transparent as possible:

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.

The geo/eco/political relationship between the West and communist China is a complicated one. The gadgets we hold with an Apple, HP, or Dell logo are made in China. The number of Internet users in China far exceeds that of Western nations, but the Chinese population surf  a state-censored Web without Facebook or Twitter; instead they use “homegrown” sites like Weibo. With open arms China invited Western tech companies to enters its market, and these days just about all major Western corporations have an office or R&D facility in the Middle Kingdom.

But as friendly as Beijing may appear with its capitalistic market and willingness to lend money to Washington, there’s also a flip side to this dynamic relationship: China wants to rise as a world superpower to compete with America. Official military spending is about $106 billion for 2012, but many unofficial estimates peg it much higher. Its space and military capabilities have leapfrogged to including sending a human into orbit (the third nation to do so), unmanned drones, an aircraft carrier, and a shadowy cyberwarfare organization.

It’s no wonder that the U.S. Congress has its suspicions and reservations about Huawei and ZTE, especially when these companies couldn’t provide enough evidence to gain trust. Keep in mind that the U.S. government isn’t the only nation with such concerns: Australia, the United Kingdom, and India have had dealings with Huawei regarding security issues.

It doesn’t help either that Huawei has been accused of IP theft in the past, most notably by Cisco and Motorola.

Huawei has publicly responded to the House report defending its methods during the investigation and voicing displeasure in the Committee:

However, despite our best effort, the Committee appears to have been committed to a predetermined outcome.

The ranking member of the Committee stated at the hearing that the investigation by the committee “is not political jousting or trade protectionism masquerading as national security”. Unfortunately, the Committee’s report not only ignored our proven track record of network security in the United States and globally, but also paid no attention to the large amount of facts that we have provided. Even before the investigation began, the Chairman of the committee advocated to media that “I stand by my caution to the American business community about engaging Huawei technology until we can fully determine their motives”.

The report released by the Committee today employs many rumors and speculations to prove non-existent accusations. This report does not address the challenges faced by the ICT industry. Almost every ICT firm is conducting R&D, software coding and production activities globally; they share the same supply chain, and the challenges on network security is beyond a company or a country. The Committee’s report completely ignored this fact. We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market.

To Congress – That’s what happens when we deal with a frenemy like China. To Huawei – Get used to it, Google got kicked out for not playing by Chinese rules, and the same will happen if you fail to play by American rules.


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