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University of Technology Sydney Law Research Series |
Last Updated: 10 April 2017
‘Framing’ Chinese Hi-Tech Firms: A
Political and Legal Critique
Colin Hawes, Faculty of Law, University of Technology Sydney
Accepted for publication in Australian Journal of Corporate
Law 30.1 (April 2015): 34-57
Abstract:
Governments in many
countries, including the U.S., Australia and Canada, have been highly suspicious
of the political motives of Chinese
business firms seeking to invest in resource
industries and infrastructure development overseas. This paper uses the case of
the
Chinese hi-tech firm, Huawei Technologies, to demonstrate the tendency of
the U.S. and other governments to frame their analysis
based on unreliable or
biased sources and outdated understanding of the Chinese legal and corporate
environment. The inevitable results
of such misguided framing will be
schizophrenic foreign policy decisions, increased international tensions, higher
costs for consumers,
and retaliation by the Chinese government against
international firms doing business in China.
‘Framing’ Chinese Hi-Tech Firms: A Political and Legal
Critique
In October 2012, the Permanent Select Committee on
Intelligence of the U.S. Congress (the “Committee”) held hearings
about
two Chinese hi-tech companies, Huawei Technologies and ZTE, and produced a
scathing report (the “PSC Report”), which
concluded: “Based on
available classified and unclassified information, 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.”[1] The report
recommended that the U.S. government should block acquisitions, takeovers, or
mergers involving Huawei and ZTE, that U.S.
government contractors should not
use Huawei’s or ZTE’s equipment, including in component parts, and
private-sector U.S.
telecom firms should be strongly discouraged from buying
products from these two
companies.[2]
The problem is,
virtually all the evidence that the Committee relied on to come to this
conclusion is either incorrect, misleading,
or exaggerated. This paper gives
just a few examples of these errors: more detailed accounts can be found
elsewhere.[3] Our main focus is on
Huawei Technologies because it is the most successful Chinese hi-tech firm to
develop an international market,
and it has faced the most serious political and
media criticism. But the problems faced by Huawei are shared by its Chinese
competitor
ZTE, and will stymie any Chinese firm if its business directly or
indirectly touches on national security issues.
To point out the
inaccuracies in the PSC Report is not to downplay the harmful impacts of
cyber-spying or the emerging risks of cyber-warfare.
Rather, it is to question
the tendency of the U.S. and other governments to “frame” their
analysis based on unreliable
or biased sources and outdated understanding of the
Chinese legal and corporate environment, thereby drawing simplistic and
erroneous
conclusions about Chinese business enterprises. The inevitable result
of such framing will be increased international tensions, higher
costs for
consumers, and retaliation by the Chinese government against American and other
international firms doing business in China.
Before offering a critique
of the PSC Report’s findings about Huawei, the paper will first define the
concept of framing and
briefly introduce some of the typical frames of reference
that have been constructed by China commentators, opinion leaders and academics
to interpret Chinese government and corporate behavior, exerting a strong
influence on U.S. and other Western government policymakers.
We will also note
some actions of the Chinese government and military that may have reinforced
negative attitudes to Chinese hi-tech
firms. In the concluding analysis, the
paper will argue that negative views of Chinese hi-tech firms represented by the
PSC Report
and associated academic and media commentary are the inevitable
result of a vicious cycle of counter-responses rooted in the very
human tendency
to frame the “other” as an actual or potential
enemy.
Frames for Interpreting China to the West
The concept of
framing is a well-known one in the field of communication and media studies. Jim
A. Kuypers provides a clear definition:
“Framing ... is the process
whereby communicators act – consciously or not – to construct a
particular point of
view that encourages the facts of a given situation to be
viewed in a particular manner, with some facts made more or less noticeable
(even ignored) than others ... [Frames] induce us to filter our perceptions of
the world in particular
ways.”[4] In their public
announcements, politicians frequently seek to “frame” statements to
focus on positive results, whereas
their opponents and hostile media
commentators will find ways to “reframe” the analysis to point out
the negative impacts
of government policies and decisions. Sometimes framing is
more sinister, an attempt by law enforcement officials or unprincipled
competitors to cook up false evidence that ensures their opponents will face a
guilty verdict or at least be put on the
defensive.[5]
But the frames
through which people view the world may be adopted unconsciously, resulting from
years of acculturation in a specific
environment rather than from intentional
rhetorical strategies or corrupt practices. As the cultural anthropologist
Gregory Bateson
put it: “There may be no explicit verbal reference to the
frame, and the subject may have no consciousness of
it.”[6] And sociologist Erving
Goffman noted the impossibility of doing away with frames altogether: “It
seems we can hardly glance
at anything without applying a primary framework,
thereby forming conjectures as to what occurred before and expectations of what
is likely to happen
now.”[7]
All these
meanings of framing are relevant for explaining U.S. and other Western
governments’ publicly stated attitudes towards
Chinese hi-tech firms, as
we will demonstrate in detail below. Indeed, one of the most influential frames
of reference through which
foreign governments tend to view China is as a
military, economic or sociocultural “threat.” A brief introduction
to
the diverse sources of this “China threat” frame will help to
contextualize the case of Huawei Technologies within the
broader political
discourse.
(1) The “China threat” Frame
Chengxin Pan has
provided a detailed analysis of recent representations of the “China
threat,” demonstrating the broad
range of sources – from scholarly
works and government documents to popular culture and mass media – that
have viewed
China’s “rise” over the past three decades as a
precursor to conflict with Western powers, especially with the
U.S..[8] Pan cites typical
headline-grabbing book titles, including Bernstein and Munro’s The
Coming Conflict with China and Peter Navarro’s The Coming China
Wars; and numerous media headlines painting an overwhelmingly negative
picture of China. “Job Losses: Made in China,” and
“Tracing a
Poison’s Global Path Back to China” are standard
examples.[9] Even academics with less
inflammatory views often make statements such as: “China would almost
certainly use its wealth to
build a mighty military
machine,”[10] and “China
[is] a gathering multi-dimensional
threat.”[11]
Pan notes
that there are often links between the more hawkish “China threat”
advocates and the American “military
industrial complex,” with some
key U.S. foreign policy think tanks either funded by the military or headed by
former military
personnel.[12] Pan
and others have argued that the U.S. military has a vested interest in talking
up the potential military challenge from China
in order to justify increased
investment in major weapons systems and defence contracts, especially since the
previous threat from
the Soviet Union has
diminished.[13] Likewise, many U.S.
congressmen and senators represent districts where defence industry contracts
are vital to the local economy
(and to political candidates’ re-election
efforts). They will have an in-built tendency to support any perspective on
China
that sees increased defence spending as vital to the U.S. national
interest.[14]
Added to the
potential military “threat” are equally powerful fears about
China’s growing economic might, and resentment
about the perceived loss of
jobs to “China” due to unfair competition and alleged currency
manipulation. One estimate
by a group of U.S. senators claimed that
China’s “undervalued currency” had contributed to the loss of
“2.6
million [American] manufacturing
jobs.”[15]
Finally,
one should not underestimate the longstanding hostility towards Communism and
authoritarian governments that drove the U.S.
and its allies into the Cold War
and still provokes the ire of many politicians, especially in the U.S. Any
direct or indirect involvement
of the Chinese Communist Party (CCP) in
commercial investment overseas would raise “red flags” with such
politicians,
who are constantly vigilant about Communist attempts to infiltrate
and undermine societies in the “free
world.”[16]
In
Australia, similar fears have been expressed about China’s rise,
especially the risks of Australia being drawn into a regional
conflict between
China and its Asian neighbours. Influential think tanks like the Australian
Strategic Policy Institute have called
for greater military spending and closer
co-operation with the U.S. to prepare for this
“threat.”[17] There is
also frequent media commentary about Chinese corporations buying up Australian
agricultural land, pushing up food prices
for consumers and potentially
threatening Australia’s food security; and claims that Chinese property
investors are inflating
house prices to unaffordable levels in Sydney and
Melbourne.[18]
Part of this
discourse may be based on fear of the unknown or anti-Asian bias, as occurred
when Japanese investors bought up great
swathes of Australian real estate during
the 1980s.[19] But it may also
result from U.S. pressure. In the telecommunications industry, for example, the
Singaporean-controlled company SingTel
was temporarily blocked from taking over
Optus in 2001, as U.S. regulators were concerned about military technology on
satellites
owned by Optus getting into foreign (i.e. Singaporean) hands. Because
the technology was manufactured in the U.S., it required approval
from the U.S.
State Department to “export” it to another country. Eventually the
approval was given after SingTel gave
undertakings to safeguard any sensitive
military information carried on the Optus
satellites.[20]
With this
combination of popular fears about China’s rise and external pressure not
to jeopardize the key U.S. strategic relationship,
it is no surprise that the
Australian government would prevent Chinese firms like Huawei from bidding to
supply the Australian National
Broadband
Network.[21]
Of course, these
fears about the rise of China are not entirely groundless. Double digit annual
increases in China’s military
spending budget have been frequent over the
past decade, even if the total amount still falls far short of U.S. military
budget levels;
and there are plenty of “hawks” in the Chinese
defence establishment who openly declare that the U.S. and its Asian allies
are
China’s main adversaries.[22]
China has territorial disputes with most of those allies, including especially
Japan, Taiwan and the Phillipines, and these disputes
frequently erupt into
political rows and threatening
gestures.[23] There is certainly an
element of what Pan calls “mutual responsiveness,” with
China’s military build-up resulting
from its fear of U.S.
“containment,” and correspondingly inflamed U.S. suspicion of
China’s motives.[24]
Whatever the fundamental causes of this increased mutual suspicion, it
has led to a situation where the U.S. government’s own
official defence
reports have concluded: “Of the major and emerging powers, China has the
greatest potential to compete militarily
with the United
States.”[25] The congressmen
on the Permanent Select Committee on Intelligence would surely have consciously
or unconsciously been influenced
by these widespread negative perceptions of
China when they were asked to investigate the expansion of Chinese hi-tech firms
overseas.
(2) Other Frames: “China Opportunity” and Ambivalence
Contrasted with the “China threat”
discourse is what Pan calls the “China opportunity” paradigm. This
perspective
combines an optimistic expectation that China will open access to
its enormous consumer market, with the hope that opening up will
lead to closer
integration with the international community, and ultimately perhaps democratic
political reform.[26] For those who
adopt this frame, the accession of China to the WTO in 2001 and its greater
involvement in global institutions are
important milestones on the way to China
becoming a “responsible stakeholder on the world
stage.”[27] Clearly advocates
of this perspective would also strongly support free trade and globalization.
Samuel Berger, the national security
adviser under Bill Clinton, expressed this
point clearly: “Just as North American Free Trade Agreement membership
eroded the
economic base of one-party rule in Mexico, WTO membership ... can
help do the same in
China.”[28]
Seen from
today’s perspective, with one-party rule still firmly ensconced in China,
such optimism about political reform may
appear misguided. But the economic
argument for promoting open trade with China is still very influential in
government and business
circles. The more sophisticated observers of China
therefore tend to adopt an ambivalent attitude, or “bifocal lens,”
that remains wary of the potential Chinese “threat” while
simultaneously promoting economic engagement and hoping for
continuing reform
and even “regime change” in the
future.[29] Difficulties emerge,
however, when these various frames are brought into conflict with each other, as
when a Chinese hi-tech firm
seeks to sell its products to U.S. telecom firms or
foreign governments, or to acquire technology from
overseas.
Deconstructing the PSC Report: The Case of
Huawei
Huawei is a highly successful communications technology firm,
with its core business focused on internet and telephone network hardware.
It
has business operations or sales in over 170 countries, supplying some of the
world’s largest telecom and internet service
providers, and over half of
its revenues come from outside
China.[30] The main challenge Huawei
faces is that it has effectively been excluded from much of the U.S. telecom
market, one of the largest
in the world. Other nations like Australia, India and
Canada have also prevented Huawei from bidding on major government contracts
including the Australian National Broadband Network, or selling equipment to
state-controlled telecom firms, citing “national
security”
concerns.[31] But are these concerns
justified based on the available evidence?
Assisting America’s
Enemies? Huawei or Hua-Mei?
The most serious allegation that
emerged in the controversy leading up to the PSC Report was that Huawei assisted
America’s
enemies by providing them with sophisticated communications
hardware that can be used in defensive weapons systems. Since 2010, U.S.
senators have publicly accused Huawei of supplying Saddam Hussein’s regime
in Iraq in the late 1990s, and the Taliban in
Afghanistan.[32] These allegations
are untrue.
After the Americans started enforcing a no-fly zone in Iraq
in the 1990s, there were several media reports claiming that Huawei’s
communications equipment had been installed as part of the Iraqi air defense
network, thereby threatening American
lives.[33] But those reports were
incorrect, because the actual name of the company involved was Hua-Mei (which
translates as China-America).
This was a joint venture between an American firm
and a company controlled by Chinese military personnel called Galaxy New
Technology.[34] Huawei had nothing
to do with this joint venture or its equipment at all: it was just a misreading
of the name Hua-Mei by some careless
reporters! Unfortunately, the same mistake
was still being repeated 10 years later in a letter by U.S. senators to the U.S.
Congress,
demanding that Huawei be blocked from the U.S. market due to its
alleged “collaboration” with America’s
enemies.[35] As for Huawei
supposedly supplying equipment to the Taliban in Afghanistan, that turned out to
be pure speculation as well.[36]
Because the allegations about Huawei in Iraq and Afghanistan were
clearly false, the PSC Report itself did not include them, but neither
did it
correct the errors that had been publicly aired by U.S. Senators. Instead, the
PSC Report implies that other abuses may have
occurred, concluding that Huawei
“did not provide evidence to support its claims that it complies with all
international sanctions
regimes.”[37]
The only
evidence of Huawei’s “collusion” with America’s
“enemies” in the PSC Report related to
Iran. The Congressional
Committee expressed doubts about Huawei’s claim that it had voluntarily
suspended signing new contracts
in Iran to comply with international sanctions
imposed since 2010.[38] Huawei
certainly has been a major player in Iran in the past, selling its hardware to
upgrade the country’s phone and internet
networks.[39] But Huawei’s
competitors like Ericsson and Nokia Siemens Networks have been just as active in
Iran, selling similar kinds of
equipment. Does that make these European
multinationals a threat to U.S. national security
too?[40] The PSC Report fails to
note that Huawei was only one of several multinational firms helping to upgrade
Iran’s telephone and
internet networks over the past decade.
This
kind of “framing” – attempting to cast Huawei in the most
negative light through selective presentation of
evidence and failure to correct
prior misinformation – is a feature that runs through the entire PSC
Report. It is particularly
evident in the discussion of Huawei’s alleged
ties to the Chinese military and government.
Military
Ties?
The claim that Huawei has close ties to the military, repeated
several times in the PSC Report, also turns out to be speculation based
on very
shaky foundations.[41] It is true
that Huawei’s CEO Ren Zhengfei was once a relatively low-ranking officer
in the Chinese military engineering
corps.[42] But he left the army in
1983, and a few years later in 1987 set up a private business selling simple
telephone exchange switches
imported from Hong Kong, which later grew into
Huawei.[43] There is no convincing
evidence that Ren Zhengfei maintained any close connections with the Chinese
military or that the military
has been involved in or exercised any influence
over Huawei’s business.
The story about Huawei’s military
ties appears to have been sparked by a reporter from the news weekly Far
Eastern Economic Review, who visited Huawei’s Shenzhen manufacturing
facility back in 2000. He claimed to have come across three large telephone
exchange
switches in Huawei’s shipping warehouse addressed to the telecom
bureau of the People’s Liberation Army
(PLA).[44] Unfortunately the article
did not provide any photographic evidence to back up this arresting claim, or
any details of the equipment’s
specifications. The only other hard
evidence was a comment by Huawei’s Senior Vice President Fei Min that the
company did sell
some standardized equipment to the Chinese military, but it
made up less than 1% of the company’s overall
sales.[45] From this, the reporter
concluded that Huawei was a “military-backed
company.”[46]
Such a
speculative news article would normally have disappeared quickly, but it gained
a new lease of life in an influential 2005
report by the RAND Corporation with
the imposing title “A New Direction for China’s Defense
Industry.”[47] The RAND report
claimed that Huawei was part of a new “digital triangle” between the
Chinese state, military and commercial
IT industry, and that “Huawei
maintains deep ties with the Chinese military, which serves a multi-faceted role
as an important
customer, as well as Huawei’s political patron and
research and development
partner.”[48] Unfortunately,
the only named source cited for these assertions is the same Far Eastern
Economic Review article from 2000 – which even at face value does not
support such wide-ranging conclusions about “deep ties,” military
patronage or R&D
partnerships.[49]
Many of the
media reports and government committees that continue to raise these allegations
about Huawei’s “military
ties” cite this RAND Report without
questioning the paucity of its source
material.[50] It is even relied on
in the PSC Report as the main “evidence” by “many
analysts” of Ren Zhengfei’s
continuing military
connections.[51] The case for
Huawei’s military ties must be extremely weak if this is the best evidence
that a well-funded U.S. government
committee can dig
out.[52]
Government
Ties?
What about ties to the Chinese government? The PSC Report
expressed grave concern about the fact that Huawei has a Chinese Communist
Party
(CCP) Branch within the firm, and that Huawei’s ownership is not clear.
They also pointed out that Ren Zhengfei has been
a CCP member since the early
1980s and once attended a meeting of the CCP’s National Party Congress in
1982, when he was still
in the
PLA.[53] They treated this as
evidence that Huawei is being controlled and influenced by the Chinese
government behind the scenes.[54]
One major problem with this argument is that there are over 80 million
CCP members in China, and every large business firm registered
in China must set
up a CCP Branch if requested by employees, as stated in the PRC Company
Law.[55] Even American
corporations like Walmart and Motorola have set up CCP Branches in their Chinese
subsidiaries. Does this mean that
Walmart and Motorola are being controlled by
the Chinese
government?[56]
Moreover, the
CCP’s Charter makes it clear that the main role of the CCP within
non-state controlled business firms is to “provide guidance to the
enterprise
in observing the laws and regulations of the state, exercise
leadership over the trade union, ... rally the workers and office staff,
safeguard the legitimate rights and interests of all stakeholders and stimulate
the healthy development of the
enterprise.”[57] The CCP
Charter also specifically distinguishes between the role of the Party in
state-controlled enterprises and “non-public” (i.e.
private)
enterprises. In state-controlled enterprises, the CCP Committees should
“participate in making final decisions on
major questions in the
enterprise,” but that is not part of their function in non-public
enterprises.[58]
One Walmart
employee and CCP branch member explained: “Our Branch Party Secretary told
me that a major criterion for evaluating
Party members’ progress is
whether we have helped to increase sales at the Walmart stores where we
work.”[59] Ren Zhengfei made a
similar remark in a 2008 speech to Huawei’s CCP branch members: “You
are extremely important mentors
within our company ... and your role is to help
your colleagues to realize that ... they chose a life of hard work and struggle,
because firms like ours without any established history can only survive if we
work a bit harder than everyone
else.”[60] While Huawei does
not spell out the role of its CCP Committee in detail, published statements by
other privately controlled firms
have made it clear that the CCP supports rather
than controls the management. For example, Mme. Lu Jun, the first Party
Secretary
of the privately controlled Mengniu Dairy Group, stated that the Party
organization within Mengniu has three main tasks: (1) to motivate
the employees
so that they become more productive; (2) to regularly survey employees to find
out what issues they are concerned with
and to seek their rational suggestions
for improvements to the firm’s processes; and (3) to investigate and root
out corruption
among the firm’s
employees.[61] Clearly the CCP
branches within privately controlled Chinese firms today are more like employee
motivation associations assisting
the management to improve firm performance
rather than the overtly political organizations of the
past.[62]
Setting aside
Huawei’s Communist Party Committee for the moment, does the firm’s
ownership structure itself conceal Chinese
government control? It’s true
that Huawei’s structure is somewhat complicated, but a careful examination
shows that the
firm is owned by its employees and controlled by its
management.
Ownership Questions
Part of the complexity
stems from Huawei’s history as a private business in China, where private
enterprises faced discrimination
until very
recently.[63] Back in the 1980s and
early-1990s, Huawei’s only customers were the big Chinese state-owned
telecom firms (in fact there was
only one firm, China Telecom, until the
industry was partly deregulated in the
late-1990s).[64] Huawei had to do
business with the local branches of China Telecom all over China, and the only
way to compete with state-owned equipment
manufacturers was by giving long-term
incentives to China Telecom officials and employees. Huawei set up a whole
series of joint
venture subsidiaries with local telecom branches where the China
Telecom branch would agree to buy Huawei’s equipment, but
it would be sold
through the joint ventures, and the profits would be shared with China Telecom
officials and employees.[65] This
was not illegal at the time, though certainly a legal grey
area.[66] But in the late 1990s, the
government restructured the telecom service providers to remove China
Telecom’s monopoly and create
a market-oriented system, so Huawei bought
out all the joint ventures and adopted more orthodox marketing and sales methods
instead.[67]
China Telecom
staff and officials never owned shares in Huawei Technologies itself; they only
had ownership interests in Huawei’s
joint venture subsidiaries. Instead,
Huawei’s shares were initially owned directly by its employees, with the
company’s
senior managers holding the majority of
shares.[68] This was a clever way of
retaining employees, because most of their salary came from the profits on their
shares, and if they left
the firm, they would forfeit their shares. Many
employees called these shares “golden handcuffs,” as they were worth
a lot, but they tied people to the
firm.[69] The problem was, once
Huawei expanded very quickly and hired thousands more employees, it became
impossible for senior management
to retain control with their regular shares.
This is because the PRC Company Law requires a company with more than 50
shareholders to give each shareholder one vote per
share.[70]
So as part of
Huawei’s restructuring in the late 1990s, the firm set up an employee
investment fund to acquire Huawei’s
shares from its employees. In return,
the employees were allotted units in the fund instead of shares, which did not
give them direct
voting power but allowed them to share in the company’s
profits.[71] The investment fund was
controlled by an employees’ representative commission, which cast votes in
shareholder meetings on
behalf of the employees, but the CEO Ren Zhengfei had a
veto over any decisions made by the fund, including who would be appointed
to
Huawei’s Board.[72] The
employees’ representative commission currently consists of 51 members, the
majority of whom are senior managers of the
firm. This means that even though
there are currently about 84,000 Huawei employees who hold units in the
investment fund that owns
Huawei’s shares, the firm is still effectively
controlled by its senior
management.[73]
This
ownership structure is certainly unorthodox, but was designed to get around the
inflexible rules on share voting in the Company
Law.[74] It wasn’t done to
hide the “true” owners of Huawei. But the PSC Report seems to think
that somewhere in this structure
government control is
lurking.[75] In the end, however,
the PSC Report was only able to make a weak finding that Huawei was not
completely forthcoming about its relationship
networks with Chinese government
ministries, which is a long way from establishing Chinese government influence
over the firm.[76]
Intellectual Property infringements?
Finally, the PSC
Committee was clearly seeking to frame Huawei in the worst possible light when
they alleged that the firm was a serial
I.P. infringer, stealing ideas from its
U.S. competitors.[77] Why was this
relevant to U.S. national security? Because, they said, it tested whether Huawei
was a “good corporate actor”
and could be trusted with sensitive
U.S. communications infrastructure
contracts.[78] This is another
problematic argument, as it ignores the fact that the two main I.P. lawsuits
brought against Huawei by Cisco and
Motorola were both settled out of
court.[79] While the Cisco suit
appears to have had merit, the Motorola suit was much less clear-cut, and a
single example of infringement dating
from 2003 is hardly evidence of
“serial” infringement.
Moreover, virtually all multinational
hi-tech firms have been sued for I.P. infringement or unfair competition by
their competitors
or by governments, including Apple, Samsung, Microsoft, Intel
and others. Some have even been found liable in I.P. or anti-trust
lawsuits in
international and U.S. courts.[80]
Does that mean these firms are also too dishonest to be permitted to bid on U.S.
government
contracts?[81]
Fear of
Technological “Back Doors”
Despite the lack of hard
evidence against Huawei and ZTE, the PSC Report’s main concern is that
somehow the Chinese government
or military will persuade or force these two
companies to insert “malicious hardware or software implants” into
telecom
components or systems sold in the U.S., resulting in potential
disruption of critical communications systems, loss or theft of confidential
data, and foreign government control over U.S. critical
infrastructure.[82] But this fear
ignores the complexity of the supply chain for these multinational hi-tech
firms, whose products typically contain
advanced technological components
assembled in over twenty different countries, all of which would require
adjusting to be compatible
with any “malicious”
implants.[83] Due to these
insurmountable technical challenges, Chinese and other foreign cyber-hackers
have found it easier to infiltrate foreign
government and corporate networks at
the user end rather than the manufacturing end, and this has occurred despite
the fact that
most of the victims were not using Huawei’s or ZTE’s
equipment.[84] There is no evidence
that excluding these two Chinese firms from the U.S. and other markets will help
to prevent such cyber attacks
from occurring in the future. Doing so will only
give a false sense of security to American and international
consumers.
Reasons for Suspicion? Locating the Huawei Investigation
Within the Broader Geopolitical and Theoretical Framework
If the
evidence against Huawei is so thin, why are the U.S. government and some of its
allies so suspicious of this company? Why are
they not celebrating the great
success of this Chinese private enterprise that has proved it can compete with
the best in the world?
There are several factors, which we can divide into two
main categories: (1) the impact of Huawei’s own behavior and that of
the
Chinese military and government; (2) distorted frames adopted by the U.S.
government and the international media when viewing
Huawei’s
behaviour.
(1) Contextualizing Chinese Private Hi-Tech Firm Behaviour
Looking at Huawei’s actions first, the only
way to succeed as a private telecom equipment firm in China during the 1980s and
‘90s was to build business alliances with local state-owned telecom
officials, and even though these joint ventures were sold
off in the late 1990s,
Huawei’s restructuring into an employee investment fund ownership system
then created a kind of black
box, allowing outsiders to speculate that it was
hiding something about its ownership. While the structure was adopted to allow
Huawei’s
senior management to maintain control while complying with the
PRC Company Law, it has created the perception that Huawei is not
transparent, which plays into fears that the firm may be engaged in covert
activities.
Huawei also downplayed the fact that the firm has a
Communist Party branch, saying that the Party has no influence over management
decisions.[85] Depending how
“management” is defined, this may be true, but Huawei should explain
more clearly what the CCP does in
the firm, who Huawei’s leading CCP
representatives are, and how they interact with the firm’s senior
management. It is
not difficult to find out from a brief web search that
Huawei’s CCP Branch Secretary is Zhou Daiqi, who is listed in the
firm’s
2013 Annual Report as Chief Ethics and Compliance Officer
and a member of the Audit
Committee.[86] Neither his CCP role
nor that of Huawei’s CCP Committee are mentioned in the firm’s
Annual Reports and it is not clear how Zhou’s role as CCP Secretary
interacts with his other executive responsibilities. Other large private
Chinese
business firms include information about their CCP branches on their
Chinese-language websites or in published profiles,
including detailed
descriptions of the CCP Committee’s activities within the firm, and there
is no reason why Huawei should
not do
likewise.[87] Having said this, the
PRC Company Law and associated corporate governance principles do not
provide any rules about how to disclose the CCP’s presence within
Chinese-registered
corporations, and firms are essentially left to judge for
themselves whether or not they should publicize the work of their CCP
Committees.
Not surprisingly, most choose to say very little, in case they
unwittingly breach laws about revealing “state
secrets.”[88] The Chinese
government needs to provide more guidance to privately controlled business firms
on what they can disclose about their
CCP Committees so that their opaqueness is
not seen as suspicious evasiveness.
Huawei has also been so desperate to
expand internationally that it has sold its equipment in several countries that
may not be enemies
of the U.S. but are certainly not allies, such as Sudan and
Yemen.[89] Though Huawei’s
interests are purely commercial, they should have realized the U.S. government
would be suspicious about what
they are doing there. This is especially true
because Huawei’s commercial interests have often coincided with Chinese
government
interests in promoting overseas investment and building alliances to
secure access to natural resources. Indeed, having discriminated
against Huawei
for many years,[90] once the firm
started expanding overseas and became highly profitable, the Chinese government
wanted to share in the glow of its
success as a world-leading Chinese business.
They started assisting Huawei by granting its foreign customers access to
Chinese state
bank loans and guarantees – a practice that the U.S. frowns
on but is common in many other countries that have export development
banks,
such as Canada and Australia.[91]
Huawei’s CEO was also invited to join other leading Chinese business
executives on several “team China” overseas
trade
missions.[92] This gave Huawei
market leverage in many developing countries, but redoubled suspicion in the
minds of U.S. Congressmen that the
company was just a tool of the Chinese
government.[93]
More
importantly, there is little doubt that elements of the Chinese military have
engaged in extensive cyber-spying against the U.S.
and other governments and
against many multinational companies. For example, the U.S. Attorney General
recently brought criminal
charges against five Chinese military personnel
involved in a special unit within the People’s Liberation Army which,
according
to the indictment, hacked into foreign firms’ computer systems
and stole huge amounts of sensitive commercial and technical
information that
would benefit Chinese
competitors.[94]
Private
Chinese companies like Huawei and ZTE are not involved in these activities, and
despite the extensive U.S. Congressional Committee
investigation, no evidence
was uncovered to suggest that they have taken part in any hacking activities
whatsoever. The most that
the PSC Report could say was: “It appears that
under Chinese law, ZTE and Huawei would be obligated to co-operate with any
request by the Chinese government to use their systems or access them for
malicious purposes under the guise of state
security.”[95] In other words,
they are potentially, rather than actually, guilty.
Finally, according to
the PSC Report, Huawei has consistently acted in an evasive manner, failing to
fully answer questions or provide
sufficient documentation to back up its
assertions about the independence of its business, and many of the documents it
did provide
were “unsigned copies” or otherwise
incomplete.[96] Here Huawei was well
and truly “framed” by the Congressional Committee, in the sense of
setting a trap to ensure the
firm would appear suspicious. After several lengthy
meetings between Huawei executives and Committee staff in 2011-12, at which
Huawei
responded to numerous questions about its business and provided various
documents, the Committee followed up with a letter to Ren
Zhengfei in June 2012
asking for “clarifications” along with supporting documentation.
For example, the Committee asked for details of “every contract
for goods and services” that Huawei or its subsidiaries
had been a party
to in the U.S., including details of the type of goods, price, quantity and
location; and copies of all recommendations
provided to Huawei by international
management consultants in the past 15
years.[97] Also, details of all
Huawei’s meetings or interactions with ten different Chinese government
ministries over the past five
years, plus details of a tax investigation of
Huawei by the Chinese government that occurred in 1999 (thirteen years
earlier!), including
the “date, time and location of all meetings between
government officials and Huawei officials during the course of the
investigation.”[98] Several
other requests for clarifications were impossibly vague, such as: “Has
Huawei ever been ordered by the Chinese government
to perform a task or seek
information on behalf of the government?” and “Has a Huawei
employee, whether with the consent
of supervisors or not, ever attempted to
obtain private information from an individual, company or government through
Huawei’s
network or equipment? ... Please provide all documents relating
to these incidents.”[99]
All responses and documents had to be submitted along with English
translations within three
weeks.[100] For Huawei to have
responded fully to this request would have meant providing thousands of pages of
documents, most of which would
need to be translated from Chinese, many
involving commercially sensitive issues that no company would publicly disclose.
Having placed this immense disclosure burden on Huawei with its
improbably tight deadline and vague parameters, the Committee could
easily
conclude that Huawei was “evasive” and “unresponsive” to
some of its questions, and this “lack
of cooperation” by Huawei is a
major theme repeated throughout the PSC
Report.[101]
Distorting Frames for Viewing Huawei: Preconceived
Perceptions Among Foreign Governments and International
Commentators
While certainly Huawei’s behaviour and that of the
Chinese government/military may have contributed to foreign government suspicion
of the firm, there is no doubt that many U.S. and Australian policymakers have
general perceptions about China that are influenced
by the “China
threat” discourse. They will tend to interpret any evidence about Chinese
hi-tech firms in the most negative
light, and downplay evidence that contradicts
their preconceived notions. We showed how the “China threat”
discourse
has been strongly advocated by high profile think tanks with ties to
the U.S. “military industrial complex,” and supported
by politicians
with a vested interest in sustaining defence industry jobs in their electoral
districts. A typical example directly
relevant to Huawei’s case is the
RAND report, on which many of the conclusions about Huawei’s and
ZTE’s “military
and government ties” were based. This Report
was commissioned by the U.S. Air
Force,[102] and in writing it the
RAND Corporation would be especially keen to adopt a hard line stance on China,
as one of their previous reports
for the U.S. National Intelligence Council was
rejected by then CIA Director George Tenet for failing to depict China as a
“clear
and present
danger.”[103]
The
members of the Permanent Select Committee on Intelligence, who passed judgment
on Huawei and ZTE, would also have been influenced
by the CIA’s long
history of covert collaboration with U.S. hi-tech business corporations. An
early example was ITEK Corporation,
which produced the first high resolution
camera for use in the CIA’s top secret spy satellite program in the early
1960s. Jonathan
Lewis describes how ITEK had to create various front businesses
to justify raising capital from investors for their secret research
and
development work on the satellite camera.
[104] More recently, the CIA has funded
a venture capital firm, In-Q-Tel, whose mission is clearly stated on the
firm’s website:
“We identify, adapt, and deliver innovative
technology solutions to support the missions of the Central Intelligence Agency
and broader U.S. Intelligence
Community.”[105] Several of
In-Q-Tel’s leadership team have links to Silicon Valley, including its CEO
Christopher Darby, and trustee James
L. Barksdale, a former CEO of Netscape
Communications and AT&T
Wireless.[106] In-Q-Tel claims to
receive 10% of its funding from U.S. government agencies and 90% from private
investors, and it has already provided
capital to around ninety seven hi-tech
businesses in areas such as cyber and mobile security, data analytics, and video
and imaging.[107]
While
the CIA is quite open about its involvement in In-Q-Tel, presumably there are
other classified projects involving U.S. hi-tech
firms that remain under the
public radar. The leaks by Edward Snowden in 2013 showed that the U.S. National
Security Agency (NSA)
had been tapping into the trunk lines of U.S. telecom and
internet firms for many years, often with the secret co-operation of those
firms; and internationally, the NSA had managed to infiltrate the online and
mobile communications of numerous foreign governments
and
corporations.[108] While these
revelations were not made public until after the PSC Report on Huawei and ZTE
was published, one can assume that the
Permanent Select Committee’s
members were aware in broad terms of U.S. cyber intelligence gathering
capabilities, and U.S.
government agencies’ active collaboration with
hi-tech firms. They would naturally assume a similar level of covert collusion
between Chinese hi-tech firms and the Chinese government or military.
The
Snowden leaks made it very clear that if China is involved in similar kinds of
cyber espionage, either through the equipment of
private firms like Huawei and
ZTE or through specialized military intelligence units, it may simply be
adopting standard international
practice. After the leaks were published, a U.S.
government spokesperson tried to distinguish the NSA’s conduct from
“Chinese”
practices, claiming: “The NSA breaks into foreign
networks only for legitimate national security
purposes.”[109] Other
reports suggest, however, that the U.S. government and its allies have not been
so circumspect, especially in the context of
major commercial negotiations. For
example, the German chancellor Andrea Merkel protested strongly when leaks
revealed that the
U.S. had tapped her personal cellphone during trade talks; and
Canada’s security agency allegedly hacked into the communications
networks
of Brazil’s mining and energy ministry for commercial reasons relating to
oil exploration contracts
.[110] The Australian
government also caused a major diplomatic row with Indonesia when it emerged
that Australia’s intelligence agency
had hacked into phone calls made by
the Indonesian president and used the Australian embassy in Jakarta to collect
both political
and economic
intelligence.[111] Expert
commentators noted that Australia “is part of the Five Eyes intelligence
gathering agreement between Australia, the
UK, the U.S., Canada and New
Zealand,” and “there’s an expectation that most embassies in
foreign countries probably
indulge in some form of intelligence
gathering.”[112]
In
stark contrast with the Permanent Select Committee’s keen focus on
intelligence gathering programs was its rudimentary knowledge
of Chinese
economic reforms over the past three decades. In particular, the Committee
seemed to assume that all Chinese businesses
must be state-controlled, either
directly or indirectly; and that a Communist government would not allow a
private business to become
nationally successful. This attitude is apparent
throughout the PSC Report.[113]
But it overlooks the massive privatization of the Chinese economy that has been
ongoing since the 1980s, involving millions of business
enterprises, to the
extent that around 70% of Chinese industrial output is now produced by non-state
controlled business firms, and
over 80% of the industrial workforce in China is
now employed in the private
sector.[114] The Committee was
also blissfully unaware of the exponential growth of mobile phone and internet
use in China since the 1990s. In
fact, the number of mobile phone users in China
grew from around 47,000 in 1991 to over 1.2 billion by late 2013; and the number
of internet users grew from effectively zero in the early 1990s to around 632
million by 2014,[115] which
provides a perfectly rational explanation for the expansion of firms that
service this market with their equipment like Huawei.
Instead, however, the
Committee assumed that Huawei and ZTE’s growth must have been subsidized
by the Chinese government for
its own covert
purposes.[116] And the Committee
wrongly stated: “Huawei operates in ... one of seven ‘strategic
sectors’ [i.e. the telecom industry]
... considered as core to the
national and security interests of the
state.”[117] This statement
ignores the longstanding distinction between Chinese telecom services, which is
indeed a “strategic sector”
strictly controlled by the state, and
telecom equipment manufacturing, which has been opened up to private enterprises
since the
1980s. The fact that U.S. competitors of Huawei such as Cisco Systems
have been able to sell large amounts of network equipment to
Chinese state
telecom enterprises and government institutions for over two decades underscores
the relative openness of this industry
sector to private
firms.[118] In other words, there
is nothing sinister about Huawei’s and ZTE’s rapid growth when
placed within the broader context
of Chinese economic reforms, the massive
expansion of the consumer market, and the privatization of large swathes of the
economy.
Whether or not these omissions and distortions resulted from
lack of knowledge or consciously biased selection, they certainly contributed
to
narrowing the frame through which the Committee interpreted Huawei’s and
ZTE’s behaviour and responses.
To be fair, such a one-dimensional
view of Chinese industrial development and corporate governance reform is not
confined to U.S.
politicians. Many popular accounts of the Chinese political
system give the impression that all corporations are controlled by the
CCP.
Richard McGregor, for example, argues that all Chinese business enterprises work
to mobilize the population collectively towards
CCP-designated goals, a system
he calls “China Inc.,” and cites research suggesting that the
“pure private sector”
in China is
“minuscule.”[119]
Rowan Callick states that the CCP has “ultimate approval over every
investment, and branches in all state-owned enterprises
and 85% of private
enterprises.”[120] He also
quotes Cheng Li, an American expert on Chinese politics, as saying: “All
the state’s assets are the Party’s
in reality, if not in
theory.”[121] And Martin
Jacques declares that the Chinese government is a “hyperactive and
omnipresent state, which enjoys a close relationship
with a powerful body of
State Owned Enterprises, a web of connections with the major firms in the
private sector, and has masterminded
China’s economic
transformation.”[122] The
problem with this kind of analysis is that it downplays the very real
differences between the structures and management practices
of state-controlled
and private firms. Certainly, the Chinese government is still conflicted about
the extent to which private enterprises
should be allowed to develop within a
socialist economy – and rather than using the controversial term siying
qiye (privately-operated enterprises), the government prefers to call them
minying qiye (enterprises operated by the people), or fei gongyouzhi
qiye (non-state-owned
enterprises).[123] Yet as we noted
earlier, there is still a major distinction between state-controlled
enterprises, where the CCP plays a leading role
in management decisions and
hiring of executives, and private firms, where the CCP is separate from the
management and not directly
involved in the executive hiring process.
Interestingly, McGregor does also cite a comprehensive survey of Chinese
private entrepreneurs by Bruce Dickson, which suggests that
the influence may be
working in the other direction. Dickson concluded: “Party building in the
private sector has been more
successful at promoting the firms’ interests
than exerting Party
leadership.”[124] But when
the PSC Report cites McGregor’s book, it only uses those parts that fit
within the Committee’s own frame of
reference. For example, “experts
in Chinese political economy agree that it is through these [CCP] Committees
that the Party
exerts influence, pressure, and monitoring of corporate
activities. It is therefore suspicious that Huawei refuses to discuss or
describe that Party Committee’s
membership.”[125]
Likewise,
the international media has perpetuated negative stereotypes about Chinese
hi-tech firms by repeating inaccurate stories
long after they were shown to be
false. Virtually every article about Huawei in the mainstream English-language
media parrots the
firm’s supposed “close ties” to the Chinese
military and government without providing any new evidence to support
the
assertions.[126] Perhaps news
editors find it more exciting to write about cyber-spying rather than a highly
successful private Chinese business selling
telephone and internet hardware, but
this is negligent reporting and merely reinforces the distorted frame of
reference. Interestingly,
the few reporters who carefully read the PSC Report
expressed strong doubts about the Committee’s cyber spying allegations
against Huawei, and suggested the underlying issue was more likely U.S. trade
protectionism.[127]
Conclusion:
Privately controlled Chinese hi-tech firms are easy
targets for governments who want to show they are doing something about
countering
the “Chinese cyber-threat,” even if excluding their
products will have little impact on stopping the hackers. U.S. Congressmen
and
Australian/Canadian/Indian politicians alike are clearly playing to their
domestic voters. They think they have nothing to lose
and everything to gain by
attacking Chinese firms selling mysterious internet technology and competing
with U.S. and other Western
corporations, especially if they can somehow link
the issue to China’s human rights
record.[128] Yet taxpayers
certainly lose out when projects like the National Broadband Network become
significantly more expensive, as the most
cost-effective bidders are excluded
from the competition.[129] And
just as seriously, it appears that the Chinese government has started to
retaliate against Apple, Microsoft and other international
hi-tech firms,
restricting purchase of their products by Chinese government officials due to
“security concerns” about
foreign infiltration of Chinese
networks.[130] Though not a direct
response to the PSC Report, these measures occurred soon after the revelations
by Edward Snowden that U.S. hi-tech
firms had co-operated with the NSA in its
cyber espionage programs, and that targets had included Chinese servers and
networks.[131] There were even NSA
documents revealing a plan to “exploit Huawei’s technology so that
when the company sold equipment
to other countries — including both allies
and nations that avoid buying American products — the NSA could roam
through
their computer and telephone networks to conduct surveillance and, if
ordered by the president, offensive
cyber-operations.”[132] It
is not clear whether this nefarious plan succeeded, but it reveals how ludicrous
the situation has become, when the Chinese firm
being accused of (potential)
cyber espionage by one arm of the U.S. government is the target of cyber
espionage by another arm of
the U.S. government.
Huawei has gone to great
lengths to assure foreign governments that its products are secure, and some
countries like the U.K. have
welcomed the firm’s business after special
monitoring safeguards were put in
place.[133] But one can predict
that whatever Chinese hi-tech firms like Huawei do will be inadequate to
convince the U.S. to welcome them with
open arms. Of course it is impossible to
have a completely objective view of the “other,” particularly when
dealing with
very different cultures and political
systems.[134] But it should be
possible to reduce the distortion in the frames through more careful and
open-minded investigation. At the root
of the problem is the deeply embedded
psychological framework of mutual suspicion between opinion leaders and
policymakers in the
U.S. and China, and their consequent unwillingness to make
the effort to reframe their perspectives and gain a more nuanced and
sophisticated
understanding of each other’s behaviour.
[1] M. Rogers & D.
Ruppersberger, “Investigative Report on the U.S. National Security Issues
Posed by Chinese Telecommunications
Companies Huawei and ZTE,” (8 October
2012), pp. vi-vii, available online at http://intelligence.house.gov/legislation/committee-reports
(hereafter, “PSC Report”). See also videos and transcripts of
testimony given at the hearings into this matter at http://intelligence.house.gov/hearing/investigation-security-threat-posed-chinese-telecommunications-companies-huawei-and-zte-0
[2] PSC Report, p.
vi.
[3] The most detailed critical
analysis of the PSC Report can be found in Eric Anderson, Sinophobia: The
Huawei Story (Kindle Books, 2013), ch.4. Anderson also collects many of the
relevant English-language sources on Huawei’s political challenges,
and
concludes that there is no convincing evidence of Huawei’s connections
with the Chinese military or involvement in any
kind of activities that would
threaten U.S. national security. For a detailed account of Huawei’s
corporate culture, see C.
Hawes, The Chinese Transformation of Corporate
Culture (Abingdon, UK: Routledge, 2012), pp.37-43 & 117-128. And for
balanced accounts in Chinese about the company, see Cheng, D. and
Liu L.
Huawei zhenxiang [The Truth about Huawei] (Beijing: Dangdai zhongguo
chubanshe, 2004); and Zhang, G. Huawei si zhang lian [The four faces of
Huawei] (Guangdong: Jingji chubanshe,
2007).
[4] See "Framing Analysis"
in J.A. Kuypers, ed., The Art of Rhetorical Criticism (Boston: Pearson,
2005) p. 187.
[5] See
Merriam-Webster Dictionary, “frame,” http://www.merriam-webster.com/dictionary/frame
.
[6] Gregory Bateson, Steps to
an Ecology of Mind (London: Intertext Books, 1972),
p.187.
[7] Erving Goffman, Frame
Analysis: An Essay on the Organization of Experience (Cambridge: Harvard
University Press, 1974), p.38.
[8]
Chengxin Pan, Knowledge, Desire and Power in Global Politics: Western
Representations of China’s Rise (Cheltenham, UK: Edward Elgar,
2012).
[9] Pan,
p.24.
[10] John J. Mearsheimer,
The Tragedy of Great Power Politics (New York: WW Norton, 2001), cited in
Pan, p.28.
[11] Stefan Halper,
“Wrongly Mistaking China,” The American Spectator 40(1)
(2007), p.20, cited in ibid.
[12]
Pan, p.72-6.
[13] Pan, p.74-5;
and for a historical analysis of “invented” justifications for U.S.
military spending, cf. Ismael Hossein-Zadah,
The Political Economy of U.S.
Militarism (New York: Palgrave Macmillan,
2006).
[14] Pan,
p.71-2.
[15] Pan
p.27
[16] See, for example,
comments about Huawei and “Communist China” by Congressman Thaddeus
McCotter, “Communist China
and CFIUS: ‘Dropping the
Shark’” (3 October 2007): http://archive.redstate.com/blogs/rep_thaddeus_mccotter/2007/oct/18/communist_china_and_cifus_dropping_the_shark
[17] See Catherine McGrath,
“Australia urged to up defence spending to meet threat from rising power
China,” ABC News (11 June 2014): http://www.abc.net.au/news/2014-05-30/call-for-review-of-australian-defence-spending/5487968
; and Matthew Dal Santo, “Is a powerful China a threat to
Australia?” The Drum (27 May 2014): http://www.abc.net.au/news/2014-05-27/dal-santo-us-alliance-could-be-our-china-fail-safe/5477528
[18] See Andrew White,
“China land grab hidden by ‘corporate veil,’” The
Australian (29 October 2013); and Michael Janda, “Chinese buyers to
invest $44b in Australian real estate: analysts” ABC News (5 March
2014): http://www.abc.net.au/news/2014-03-05/chinese-buyers-to-invest-44-billion-dollars-in-australian-real-/5300494
[19] See a historical account by
Alan Rix, The Australia-Japan Political Alignment: 1952 to the
Present
(London: Routledge, 1999), p.108. For a critique of the similar
U.S. perspective on Japanese investment, see David Boaz, “Yellow
Peril
Reinfects America,” CATO Institute Commentary (7 April 1989): http://www.cato.org/publications/commentary/yellow-peril-reinfects-america
[20] Kevin Morrison, “U.S.
Spies in the Sky Stall Bid for Optus,” Sydney Morning Herald (15
June 2001); and Anne Hyland, “Optus Stoush Leaves Singapore
Smarting,” Australian Financial Review (2 August
2003).
[21] See Stephen McDonell,
“China criticises Government's decision to uphold NBN ban on telco
Huawei,” ABC Lateline (30 Oct
2013), available at: http://www.abc.net.au/news/2013-10-29/china-angered-by-decision-uphold-nbn-ban-on-huawei/5056588.
Ironically, one of the main beneficiaries of this decision has been SingTel
Optus, which has received the contracts to operate the
Network’s two
satellites: see National Broadband Network Co, 2013-14 Annual Report,
p.38.
[22] Dal Santo,
op.cit.
[23] Nick Bisley and
Brendon Taylor, “Conflict in the East China Sea: Would ANZUS Apply?”
UTS Australia-China Relations Institute
Research Paper (Nov. 2014),
pp.12-15.
[24] Pan
p.17-18.
[25] U.S. Department of
Defense, Quadrennial Defense Review Report (Washington DC, 6 February
2006) p.29; cited in Pan,
p.26.
[26] Pan,
p.31-8.
[27] Pan,
p.37.
[28] Pan,
p.37.
[29] Pan,
p.38-9.
[30] See information
about the company on Huawei’s website at: http://www.huawei.com/en/about-huawei/corporate-info/index.htm
.
[31] For Australia, see
McDonell, op.cit.; for India, see Mehal Srivastava & Mark Lee, “India
Said to Block Orders for ZTE,
Huawei Technologies Telecom Equipment”
Bloomberg (30 April 2010), at: http://www.bloomberg.com/news/2010-04-30/india-said-to-block-china-s-huawei-zte-from-selling-phone-network-gear.html
; and for Canada, see Steven Chase, “Ottawa set to ban Chinese firm from
telecommunications bid,” The Globe and Mail (10 October 2012), at:
http://www.theglobeandmail.com/news/politics/ottawa-set-to-ban-chinese-firm-from-telecommunications-bid/article4600199/
[32] Iraq and Afghanistan are
not mentioned in the PSC Report, doubtless because the evidence of
Huawei’s alleged wrongdoing in
those countries cannot stand up to
scrutiny, but several U.S. government officials have publicly made
unsubstantiated allegations,
for example, eight Republican Senators sent an open
letter to various government departments and media organizations in 2010
claiming
that “Huawei sold communications technology to Saddam
Hussein’s regime ... and it also supplied the Taliban before its
fall.” See Sen. John Kyl et al, “Letter Requesting Information on
Huawei” (18 August 2010) United States Senate,
Washington, available at:
http://www.docstoc.com/docs/51224083/20100818-letter-to-Geithner_-Locke_-Clapper_-and-Johnson
.
[33] Anderson, 991-1000. See,
for example, Kelly Motz and Jordan Richie, “Technology Two-Timing,”
The Asian Wall Street Journal (March 19, 2001), at: http://www.iraqwatch.org/suppliers/techno-2time.htm
[34] The involvement of HuaMei
is described in a report by the U.S. Government Accountability Office,
“Export Controls: Sale of
Telecommunications Equipment to China,”
NSIAD-97-5 (13 November 1996), available at: http://www.gao.gov/products/NSIAD-97-5.
The American firm claimed it had no idea its Chinese partner was connected to
the military, but it should have known because the
CEO of the company was an
officer in the People’s Liberation Army and her husband was a Chinese
general! Anderson, 1184-1230,
gives a detailed account of this
debacle.
[35] Kyl,
op.cit.
[36] Anderson,
1232-50.
[37] PSC Report,
p.32.
[38] For references to
Iran, see the PSC Report,
p.32-3.
[39] For contrasting
reports on Huawei’s operations in Iran, see Steve Stecklow, Farnaz
Fassihi and Loretta Chao, “Chinese
Tech Giant Aids Iran,” The
Wall Street Journal (27 October 2011) at: http://online.wsj.com/news/articles/SB10001424052970204644504576651503577823210
; and Huawei Technologies, “Statement Regarding Inaccurate and Misleading
Claims about Huawei's Commercial Operations in Iran”
(4 November 2011),
at: http://pr.huawei.com/en/news/hw-104191.htm#.U-xfk02KCM8
[40] For Nokia Siemens Networks,
see Christopher Rhoads and Loretta Chao, “Iran's Web Spying Aided By
Western Technology,”
Wall Street Journal (22 June 2009); for
Ericsson, see Steve Stecklow, “Exclusive: Ericsson helps Iran telecoms,
letter reveals long-term deal”
Reuters, 20 November 2012, at: http://www.reuters.com/article/2012/11/20/us-iran-ericsson-idUSBRE8AJ0IY20121120
.
[41] PSC Report, pp.13-14,
21-2, 24-5.
[42] PSC Report,
p.24.
[43] See Zhang (2007),
pp.23-4, 135, 223-4.
[44] B.
Gilley, “Huawei’s Fixed Line to Beijing,” Far Eastern
Economic Review (28 Dec. 2000), pp.94-8 at
94.
[45] Ibid. p.96. The reporter
also cited unnamed “foreign analysts” and a Russian assistant
manager at Huawei’s Moscow
office to back up his claims of Huawei’s
“military ties”! Huawei has never denied that one of its customers
is
the Chinese military, but has consistently maintained that such military
sales have never made up more than 1% of its overall sales.
With the growth of
its overall business, sales to the Chinese military now make up only 0.1% of its
overall sales, according to statements
provided by Huawei to the PSC: see PSC
Report, p.34.
[46] Ibid.
p.94.
[47] Evan S. Medeiros,
Roger Cliff, Keith Crane, James C. Mulvenon, “A New Direction for
China’s Defense Industry” (Arlington,
VA.: RAND Corporation, 2005),
hereafter “RAND
Report.”
[48] RAND Report,
p.218.
[49] RAND Report,
pp.219-221, nn.17-20. The Report also refers to some unnamed
“interviewees” in Beijing, which is a long
distance from
Huawei’s headquarters in
Shenzhen.
[50] For example, J.
Dean, “Outside of U.S., Few Fear Huawei,” Wall Street Journal
(Asian edition), 22 February 2008, online at: http://online.wsj.com/news/articles/SB120359554277582713
; and Tech Law Journal, “3Com Huawei transaction to be reviewed by
CFIUS,” Tech Law Journal (9 October 2007). Online:
<http://www.techlawjournal.com/topstories/2007/20071009b.asp>
.
[51] PSC Report, p.13 & 48,
nn.40-41.
[52] The PSC Report (at
p.10) also refers to a “classified annex” that the writers claim
contains much more evidence against
Huawei, but this (conveniently?) cannot be
published due to “national security
concerns.”
[53] PSC Report,
p.23.
[54] PSC Report, pp.13,
22-4.
[55] See PRC Company
Law, Art.19.
[56] For more
details on the role of the Communist Party Committees in corporations in China,
including foreign corporations like Walmart,
see C. Hawes, “Interpreting
the PRC Company Law through the Lens of Chinese Political and Corporate
Culture,” UNSW Law Journal 30.3 (2007): 813-23 at
816-19.
[57] CCP Charter,
Art 32, available at http://www.idcpc.org.cn/english/cpcbrief/constitution.htm
.
[58] CCP Charter, Art.
32.
[59] Jiang Min, Wu Zheng and
Zhang Jianhua, “Zhonggong shouci zai woermafendianjianli dang zuzhi”
[CCP sets up Party organisations
within Walmart for the first time], Xinhua News
Agency, 26 August 2006, at: http://www.ln.xinhuanet.com/ztjnl2007-08/26/content_11295101.htm.
Hawes, above n 29, p.818-9.
[60]
Ren, Z. (2008) “Jinqi zai canjia gongsi youxiu dangyuan zuotanhui shi
fayan” [Speech given while participating in a recent
symposium for
Huawei’s outstanding Party members]. Copy on file with
author.
[61] Sun, X. and Zhang Z.
(2008) Mengniu neimu (Mengniu: the inside story), 3rd edn,
Beijing: Peking University Press,
pp.263-4.
[62] Hawes, op.cit.,
pp.816-9.
[63] For discrimination
against private enterprises in China, see Shuanglin Lin & Shunfeng Song,
eds., The Revival of Private Enterprise in China (Aldershot, UK: Ashgate,
2007), p.36; and Jin Zeng, State-Led Privatization in China (Abingdon,
UK: Routledge, 2013), p.133-4. A more nuanced account is provided in Yingfeng
Xu, “Financing of Private Enterprises
and Deepening Financial
Reform,” in Shuanglin Lin & Xiaodong Zhu, eds., Private Enterprises
and China’s Economic Development (Abingdon, UK: Routledge, 2007),
pp.51-73.
[64] Guan, S. Y.
China’s Telecommunications Reforms: From Monopoly towards
Competition (New York: Nova Science Publishers, 2003),
pp.18-39.
[65] Cheng and Liu
(2004), 76-8, 104-9; and for further details, see Yongde Wang, Langxing
guanli zai Huawei [Wolf-style management at Huawei] (Hubei: Wuhan University
Press, 2007), pp.283-6.
[66] Jin,
op.cit., p.27.
[67] Li, G.
“Can the PRC’s New Anti-Monopoly Law Stop Monopolistic Activities?
Let the PRC’s Telecommunications Industry
Tell You the Answer,”
Telecommunications Policy 33.7 (2009), p.361; G. Zhang, pp.8, 38,
55.
[68] Yongde Wang, pp.101-2;
Cheng and Liu, p.110.
[69] Cheng
and Liu, 116.
[70] With more than
50 shareholders, a company must normally be formed into a joint stock company,
which stipulates one vote per share:
see PRC Company Law, Arts 79 &
104. With less than 50 shareholders, a company can be formed as a limited
liability company (LLC), which allows flexibility
in the way voting rights are
divided up among shareholders: PRC Company Law, Arts 24 & 43. The
PRC Company Law was first introduced in 1994, and Huawei was restructured
from an employee-owned collective to a registered limited liability company
in
1997: see PSC Report,
p.15-16.
[71] The PSC Report
gives a very useful detailed summary of Huawei’s employee share ownership
program based on information provided
by the firm: PSC Report,
pp.15-20.
[72] Ren’s veto
will last until 31 December 2018: PSC Report, p.20.
[73] Information about the
employees’ representative commission and the number of employee unit
holders is taken from Huawei’s
2013 Annual Report, pp.108-9.
[74] Huawei gave this
explanation in materials cited in the PSC Report,
p.15-16.
[75] PSC Report, p.14,
21-2. The only solid criticism that the PSC Report could make was that Huawei is
not controlled by its shareholders
but by its senior executives, but this is no
secret and does not prove any government control over the
firm.
[76] PSC Report,
p.22.
[77] PSC Report,
p.31-2.
[78] PSC Report,
p.11.
[79] See the detailed
analysis of these disputes in Anderson, op.cit., at
1320-1585.
[80] See, for example,
Anon., “Samsung ordered to pay Apple $120m for patent violation,”
The Guardian 3 May 2014; Charles Arthur, “Microsoft loses EU
anti-trust fine appeal,” The Guardian 28 June 2012;
[81] Some scholars have also
noted that most countries go through a period of development when they feel the
need to breach intellectual
property rights in order to catch up with more
developed nations. Only after reaching a certain stage of prosperity and
technological
advancement do they then seek to enforce intellectual property
laws vigorously. This occurred in both the U.S. and Japan, for example.
See
Doron S. Ben-Atar, Trade Secrets: Intellectual Piracy and the Origins of
American Industrial Power (Yale University Press, 2004).
[82] PSC Report,
pp.2-3.
[83] Peter Rossi,
“Huawei’s End-to-end Assurance System,” talk given at a
University of Technology Sydney workshop on
“Cloud Computing, Cyber
Security and Privacy Protection in China: Legal and Political Issues,” 12
June 2014. Note also
that U.S. firms producing internet equipment for the U.S.
market, such as Cisco Systems, also manufacture some of their products
and
components in China: see Cisco Systems, “Gongsi jieshao”
(Introducing the Company): http://www.cisco.com/web/CN/aboutcisco/company_overview/about_company_overview_overview.html
.
[84] For details of some of
these cyber attacks, see n.94
below.
[85] PSC Report,
p.14.
[86] See “Huawei
dangwei shuji Zhou Daiqi: guojihua tui Shenqi tisheng jingzhengli”
(Huawei’s Party Secretary Zhou Daiqi
declares: Internationalization has
pushed Shenzhen’s business firms to increase their competitiveness),
Shenzhen tequ bao 23 November 2011, at http://tech.southcn.com/t/2011-11/23/content_33696313.htm
(accessed 16 January 2015). Zhou’s role as Communist Branch Secretary is
not mentioned in Huawei’s Annual Reports or
on its Chinese or
English-language websites.
[87]
See, for example, the website of the electrical instrument manufacturer Zhengtai
Group (CHINT), “Dangjian gongzuo” (Party Building Work), at:
http://www.chint.com/partybuilding?sitePageId=49;
and the Tengen (Tianzheng) Group, “Wenming chuangjian”
(Building a Civilized Firm), at http://www.tengen.com.cn/sm2111111250.asp.
Cf., the description of Mengniu Dairy Group’s Party Committee in Sun &
Zhang, op.cit., p.263-4.
[88]
This was the reason given by ZTE to the Permanent Select Committee on
Intelligence for requesting that the list of ZTE’s CCP
Committee members
be kept classified: see PSC Report,
p.40.
[89] See Huawei’s
website at: http://www.huawei.com/worldwide/index.htm
and http://www.huawei.com/en/about-huawei/publications/communicate/hw-087875.htm.
We also mentioned Iran, but as noted, Huawei was only one of several
multinationals doing business in
Iran.
[90] Zhang (2007), ch.7,
gives a detailed account of Huawei’s difficult struggle to compete with
heavily subsidized state-owned
Chinese telecom equipment manufacturers in the
early 1990s.
[91] Cheng &
Liu, 103, 284-7; see also Huawei’s evidence as recorded in the PSC Report,
p.28. For typical examples of how government
export development banks assist
corporations in other countries, see the websites of Canada’s Export
Development Corporation
at http://www.edc.ca/EN/About-Exporting/Trade-Links/Pages/financing.aspx
; and Efic in Australia: http://www.efic.gov.au/export-community/Pages/bankingandfinance.aspx
.
[92] Cheng & Liu,
285.
[93] PSC Report,
p.29.
[94] See Department of
Justice, “U.S. Charges Five Chinese Military Hackers for Cyber Espionage
Against U.S. Corporations and a
Labor Organization for Commercial
Advantage” (19 May 2014), at: http://www.justice.gov/opa/pr/2014/May/14-ag-528.html
[95] PSC Report,
p.3.
[96] PSC Report, p.v, 9,
12-13, 14-15.
[97] For the letter
requesting clarification and documents, see http://intelligence.house.gov/sites/intelligence.house.gov/files/documents/HuaweiRenZhengfe12JUNE2012.pdf
[98]
Ibid.
[99]
Ibid.
[100]
Ibid.
[101] PSC Report, p.v, 9,
12-13, 14-15.
[102] See RAND
Report, front matter.
[103]
Pan, p.81.
[104] Jonathan E.
Lewis, Spy Capitalism: ITEK and the CIA (New Haven: Yale University
Press, 2002); reviewed on the CIA’s website at: https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/csi-studies/studies/vol47no1/article08.html
.
[105] See In-Q-Tel’s
website: https://www.iqt.org/
[106] “About In-Q-Tel:
Team”: https://www.iqt.org/about-iqt/
[107] “In-Q-Tel
Portfolio”: https://www.iqt.org/portfolio/ and
“About In-Q-Tel,”
op.cit.
[108] See the useful
archive of articles on the Snowden leaks published by the Washington Post:
Kennedy Elliott and Terri Rupar, “Six
months of revelations on NSA,”
Washington Post (Dec. 23, 2013): http://www.washingtonpost.com/wp-srv/special/national/nsa-timeline/
[109] Quoted in Sanger and
Perlroth, op.cit.
[110] See
Michael Birnbaum, “Germans launch probe into allegations of U.S.
spying,” Washington Post (24 October 2013): http://www.washingtonpost.com/world/uproar-in-germany-continues-over-accusations-that-us-tapped-merkels-phone/2013/10/24/39e4c618-3c96-11e3-b0e7-716179a2c2c7_story.html
; and Susan Ormiston “Canada's spying touches nerve in Brazil,”
CBC News (Oct 15, 2013) http://www.cbc.ca/news/world/canada-s-spying-touches-nerve-in-brazil-susan-ormiston-1.2054334
.
[111] See Michael Brissenden,
“Australia spied on Indonesian president Susilo Bambang Yudhoyono, leaked
Edward Snowden documents
reveal,” ABC News Online (5 Dec 2014): http://www.abc.net.au/news/2013-11-18/australia-spied-on-indonesian-president-leaked-documents-reveal/5098860
; and Anna Henderson & George Roberts, “Indonesia says embassy spy
claims 'just not cricket' as Australian ambassador Greg
Moriarty questioned by
Foreign Ministry,” ABC News (2 Nov 2013): http://www.abc.net.au/news/2013-11-01/australian-ambassador-emerges-from-jakarta-spy-claims-meeting/5064224
.
[112] See Louise Yaxley,
“Foreign embassies expected to be used for spying: expert,” ABC
News: The World Today (1 Nov 2013), citing ANU Professor Michael Wesley: http://www.abc.net.au/news/2013-11-01/foreign-embassies-expected-to-be-used-for-spying/5064418
.
[113] For example, PSC
Report, pp.22, 24, 26.
[114]
For historical surveys of privatization in China, see Yusuf, S., Nabeshima, K.
and Perkins, D.H. (2006) Under New Ownership: Privatizing China’s
State-Owned Enterprises (Palo Alto, CA: Stanford University Press, 2006);
and Jin (2013), op.cit. For more recent statistics on the size of the private
sector,
see Koen,V., R. Herd and S. Hill (2013), “China's March to
Prosperity: Reforms to Avoid the Middle-income Trap”, OECD
Economics Department Working Papers, No. 1093, pp.16-18 (OECD
Publishing): at http://dx.doi.org/10.1787/5k3wd3c4219w-en
[115] Statistics for internet
users come from China Internet Network Information Center,
“34th Statistical Survey on Internet Development in
China” (July 2014), available at http://www1.cnnic.cn/IDR/ (accessed 15
January 2015); and for recent mobile phone figures, see Xinhua,
“China’s Mobile Phone Users Hit 1.22 Billion”
Xinhua Online
(21 November 2013), available at http://news.xinhuanet.com/english/china/2013-11/21/c_132907784.htm.
For earlier statistics on mobile phone users, see Ministry of Industry and
Information Technology, “2000 nian qian yidong
tongxin fazhan
qingkuang” (The development of mobile communications prior to 2000),
available at http://www.miit.gov.cn/n11293472/n11293832/n11294132/n12858447/12864552.html.
[116] PSC Report,
pp.27-8.
[117] PSC Report,
p.21.
[118] See Cisco Systems,
“Gongsi jieshao” (Introducing the Company): http://www.cisco.com/web/CN/aboutcisco/company_overview/about_company_overview_overview.html
[119] Richard McGregor, The
Party: The Secret World of China’s Communist Leaders (New York: Harper
Collins, 2010), pp.34,
197-9.
[120] Rowan Callick,
Party Time: Who Runs China and How (Collingwood: Black Inc., 2013),
pp.142-3.
[121] Callick,
p.43.
[122] Martin Jacques,
When China Rules the World (London: Penguin Books, 2012),
p.615.
[123] McGregor, p.200;
and see the CCP’s web page for “non-state-owned enterprises”
at http://dangjian.people.com.cn/fg/
.
[124] McGregor, p.219, citing
Bruce Dickson, Wealth into Power: The Communist Party’s Embrace of
China’s Private Sector (Cambridge University Press, 2008).
[125] PSC Report, p.23, citing
McGregor, even though McGregor is a journalist rather than an “expert in
Chinese political economy,”
and no page number is given for this opinion
attributed to him.
[126] For
earlier accounts that mention the RAND Report or quote it without
acknowledgement, see J. Dean, “Outside of U.S., Few Fear
Huawei,”
Wall Street Journal (Asian edition), 22 February 2008, online at: http://online.wsj.com/news/articles/SB120359554277582713
; and Tech Law Journal, “3Com Huawei transaction to be reviewed by
CFIUS,” Tech Law Journal (9 October 2007). Online:
http://www.techlawjournal.com/topstories/2007/20071009b.asp
. For a more recent article citing the PSC Report, see Jordan Robertson,
“The Chart That Helps Explain Cisco's 6,000 Job Cuts,”
Bloomberg (15 August 2014), at: http://www.bloomberg.com/news/2014-08-14/the-chart-that-helps-explain-cisco-s-6-000-job-cuts.html
[127] For example, Paula
Dwyer, “Congressional Report on Huawei Smacks of Protectionism,”
Bloomberg News (9 October 2012): http://www.bloomberg.com/news/articles/2012-10-08/congressional-report-on-huawei-smacks-of-protectionism
; and Anon. “Huawei and ZTE Put on hold: Two big Chinese telecoms firms
come under fire in America,” The Economist (13 October 2012): http://www.economist.com/node/21564585?fsrc=scn/fb/wl/pe/putonhold
[128] See, for example, Chris
Frates, “Wolf Continues to Push Lobbying Firm to Drop Chinese
Client,” National Journal (30 April 2012), at http://www.nationaljournal.com/blogs/influencealley/2012/04/wolf-continues-to-push-lobbying-firm-to-drop-chinese-client-30
, which links to an open letter from Congressman Frank Wolf making a dubious
connection between Huawei and Chinese human rights
abuses.
[129] See Scott Bevan
and Jake Sturmer, “NBN review reveals cost blow out” ABC The
World Today (12 December 2013), at: http://www.abc.net.au/worldtoday/content/2013/s3910183.htm
[130] U.S. firms that have
recently been excluded from bidding on government contracts for “security
reasons” include Apple
(iPad and Macbook Air), Symantec Corporation,
Kaspersky Lab, and Microsoft (for its Windows 8 system). See Katherine Rushton,
“China
bans officials from buying Apple products,” The
Telegraph (6 August 2014), at: http://www.telegraph.co.uk/technology/apple/11017019/China-bans-officials-from-buying-Apple-products.html
.
[131] See David E. Sanger and
Nicole Perlroth, “N.S.A. Breached Chinese Servers Seen as Security
Threat,”
New York Times (22 March 2014), at http://www.nytimes.com/2014/03/23/world/asia/nsa-breached-chinese-servers-seen-as-spy-peril.html?_r=0
.
[132]
Ibid.
[133] Huawei has
co-operated with the U.K. government in setting up a cyber security evaluation
centre where independent technical analysts
can test the company’s
products for vulnerabilities: see HM Government, “Huawei Cyber Security
Evaluation Centre: Review
by the National Security Adviser,” online at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/266487/HCSEC_Review_Executive_Summary_FINAL.PDF
[134] Pan, p.10-12.
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