Frustration Over Huawei-ZTE Congressional Hearing

September 21, 2012

On September 13, representatives of both Huawei and ZTE, two of China’s largest telecom companies, were invited to Capitol Hill to testify at a hearing held by the U.S. House of Representatives Permanent Select Committee on Intelligence. The committee, as well as other parts of the U.S. government, have been investigating these companies due to their perceived ties to the Chinese government in general, and (in the case of Huawei) in particular the People’s Liberation Army.

When I first heard about this hearing, several months ago I believe, I thought it was a big win for these companies. There was so much rumor and speculation about these firms that the hearing would give them the chance to present their side and “clear the air.” Perhaps that would lead to a better environment for these companies to then ramp up their U.S. foreign investment plans.

Then again, maybe not.

Reporting on the hearing, tech site CNET went with this headine: “Lawmakers frustrated by Huawei, ZTE during hearings.” What was the problem? Apparently several of the members of the committee expected these folks to be more forthcoming during Q&A:

“I can say that I am a little disappointed today,” committee chairman Mike Rogers (R-Mich.) said at the end of the hearing investigating Huawei and ZTE. I was hoping for a little more transparency… Other inconsistencies worry me greatly.”

Granted, there are some legitimate issues here. ZTE has been accused of violating sanctions against Iran, Huawei has been less than forthcoming about its corporate structure, and neither company has explained in detail their relationship with government regulators.

As potential investors in the U.S. or suppliers of sensitive technology, it is quite reasonable for the U.S. government to take a close looks at these guys. We’re not talking here about a chair or a pair of shoes, but telecommunications infrastructure.

So I’m willing to meet the U.S. government at least halfway here when it comes to investigating these companies. Moreover, I can understand the frustration of the committee members when they ask questions and receive unclear or evasive answers.

After looking at the press coverage and some of the materials from the hearing, I have to admit that I’m somewhat frustrated too. However, for me the frustration stems from the difficult position Huawei and ZTE have been forced into and the useless nature of a hearing where the committee members have already made up their minds on the subject at hand.

Before we get to some of the details, I also want to point out that it’s not like these guys from ZTE and Huawei showed up out of the blue and that this testimony was the first time that these House members were exposed to these companies. No, in fact, the committee has been investigating them for some time, and there has been plenty of Q&A (written and oral), submitted materials, and even site visits (in China) made by members of the committee.

I have to wonder whether the questions raised at the hearing had already been asked and answered a long time ago. And if not, why not? Perhaps the hearing was all a big media show? {gasp!}

OK, let’s look at some of these “frustrating” exchanges. Here’s Rep. Sue Myrick, which some of you may recognize as the co-author of that disgusting letter about ZTE’s legal representation (I wrote a lengthy rant on that topic last week):

Rep. Sue Myrick (R-N.C.) pressed [ZTE VP] Zhu about allegations that the company destroyed documents and hid evidence regarding sales of equipment to Iran.

“We are actively cooperating with the U.S. government investigation to get to the bottom on this,” Zhu said through an interpreter.

“You are not answering my question,” Myrick shot back.

“We would never do something like that,” Zhu said.

Come on. This is an ongoing investigation, for which, by the way, Myrick doesn’t think that ZTE should be entitled to legal counsel. And she’s asking if they shredded documents? Are you shitting me? I wonder if she’s ever asked that question before at a hearing? She was obviously just throwing crap out there in an attempt to make these guys look bad. Very common at a House hearing unfortunately.

Here’s a question that actually includes reference to Chinese law:

Rep. Adam Schiff (D-Calif.) questioned Ding about Article 11 of the Chinese constitution, which the lawmaker said would require Huawei to grant access to its networks to the Chinese government for “state security” purposes. Ding said he was unaware of the law.

I’m not surprised that Ding, who works for Huawei, isn’t familiar with that law. Unless I missed an amendment somewhere, I believe Article 11 of the Constitution says this:

Article 11 The non-public sectors of the economy such as the individual and private sectors of the economy, operating within the limits prescribed by law, constitute an important component of the socialist market economy.

The State protects the lawful rights and interests of the non-public sectors of the economy such as the individual and private sectors of the economy. The State encourages, supports and guides the development of the non-public sectors of the economy and, in accordance with law, exercises supervision and control over the non-public sectors of the economy.

Are you confused? Me too. Maybe he’s trying to hang everything on that “supervision and control” language?

I don’t know where Schiff was going with that Constitution reference, but I understand his general point. What would Huawei or ZTE do if the State came knocking on their door and demanded that they cooperate in some way that would compromise privacy or integrity, etc.?

Everyone knows the answer: they would cooperate! Ding replied that Huawei would refuse, which was obviously disingenuous, but what was he supposed to say? There was no good answer there, and Schiff certainly knew that when he asked it.

And the underlying issue is an important one. If you believe, as it seems many House members do, that the Chinese government will use these companies to spy on the U.S., then it is troubling that they essentially cannot refuse a direct order from the public security folks.

Fair enough, but then why bother asking the question? Everyone already knew the answer, and again, if you believe all that about Beijing and spying, then isn’t your mind already made up on these companies anyway? Why bother with the hearing at all?

The opening statement by Chairman Mike Rogers sheds more light on this. His prepared statement set out a very scary scenario, filled with the following kinds of accusations:

We have heard reports about backdoors or unexplained beaconing from the equipment sold by both companies. And our sources overseas tell us that there is a reason to question whether the companies are tied to the Chinese government or whether their equipment is as it appears.

We have heard reports about their attempts to steal the trade secrets of other companies, which gives them a competitive advantage and makes us question their ability to abide by any rules.

Rogers’ statement ties all this in to accusations that have been made against China with respect to hacking and a variety of other cybersecurity and commercial espionage activities.

The bottom line for Rogers is this:

1. China is a big time spy.

2. People say that Huawei and ZTE work closely with the government.

3. Chinese law forces Huawei and ZTE to work closely with the government.

4. Telecom is a sensitive sector.

The argument makes sense, but the bottom line is frustrating not only for ZTE and Huawei, but for any Chinese telecom firm hoping to do business in the U.S.

Why? Although Rogers and his fellow House members complained that these companies did not turn over sufficient documentation, the question remains what could have satisfied their concerns. To a certain extent, these companies are being asked to prove a negative. Prove that you are not somehow controlled by the government, or the army. Prove that you would not accede to the government’s wishes when it comes to espionage. While there was obviously some documentation that the committee asked for that Huawei and ZTE, for whatever reason, simply refused to turn over, I’m not sure that doing so would have allayed fears anyway.

If you read Rogers’ statement, it doesn’t just say that the House is investigating these companies because of the rumors surrounding them. His distrust also stems from the perception of China’s record on cybersecurity issues and the inability of Chinese companies to refuse to cooperate with the State.

As a practical matter, there is some merit to these arguments. However, what this means is that all Chinese telecom companies will suffer similarly, and none of them will be able to rise above suspicion sufficient to pass muster with the U.S. government. If I’m a Chinese telecom company with designs on the U.S. market, this is extremely disturbing.

In addition to Rogers’ statement, we also see this broad brush approach in the words of the ranking member, Rep. Ruppersberger, whose prepared remarks included this little nugget, which was apparently written by a third grader:

The fact that both companies, Huawei and ZTE, were created and headquartered in China, a country known to aggressively conducts cyber espionage, raises issues. And add to that… the fear that China, a communist country, could compel these companies to provide it information or worse yet spy on Americans using this equipment.

Poor grammar aside, his point is clear: these companies are Chinese, and the commies can force them to do their bidding. End of story.

At the end of the day, I share the concern of U.S. lawmakers and believe an investigation makes sense. Moreover, if Huawei and/or ZTE refused reasonable document requests, this is a problem. On the other hand, it also seems clear that these House members are looking at all this in very simple, stark terms (i.e., China – Communist –  authoritarian) that lead me to the conclusion that the hearing was a huge waste of time and not at all the opportunity that I originally assumed it could be.

The big news here is that compared to the U.S. Congress, I come off as hopelessly optimistic and naive. Imagine that.