Huawei, ZTE and the Role of the Government(s)

June 14, 2012

Observing Huawei’s attempts to move into the U.S. market in the past few years has been like watching a poorly-constructed high-speed train go off the rails. Huawei tries to make a deal, politicos in D.C. start making noise about investigations and security review, the parties get nervous and Huawei withdraws. Their soft power push hasn’t made much progress either, with many members of Congress still convinced that the tech firm is an unofficial wing of the People’s Liberation Army.

Instead of getting better, it’s possible that things are going to get even worse. A new investigation is ready to go, and the New Yorker’s Evan Osnos says that we may finally start to get answers to some very important questions:

What do we mean when we say a Chinese company has “close ties to the government”? Or is “connected to the military”? And does this matter?

It is a problem that writers on China have encountered for years, and it can be difficult get firm evidence. But now Congress is getting interested in those questions, and the results (if they go public) could make for fascinating reading. Members of the House Intelligence Committee who are investigating spying threats from China have asked two big Chinese telecommunications firms active in the United States to explain their relationship with the Chinese government. In letters to Huawei and ZTE Corp., the lawmakers are asking, for instance, about the role of the “Party committee” and the “work the two companies have done in Iran and their funding arrangements with the Chinese government.”

I must admit, all this does appeal to me. Every time Huawei gets into trouble with a proposed U.S. deal, my ultimate conclusion is always “Um, I don’t really know,” which reinforces the popular belief that I ingested a great deal of lead paint as a toddler.

The thing is, we really don’t know to what extent companies like Huawei, or even ZTE, have connections with the government here. Obviously they sell products to the government and are highly regulated by several different agencies, but beyond that, are any government officials calling at least some of the shots at these enterprises or demanding (spying-type) favors from them? Everyone has an opinion, in particular anyone who lives in The District, Northern Virginia, or Southern Maryland who wants to score some political points one way or another — that’s pretty much all they do in D.C. these days. And the government here in Beijing never shies away from holding Huawei’s treatment out as an example of U.S. protectionism. Talk about a political football.

So what about the allegations against Huawei? Me, I don’t know, but I’d sure like to. The only problem is that these companies may not be able to disclose all pertinent information to U.S. authorities, as Osnos explains:

Both Huawei and ZTE have pledged full cooperation with the lawmakers’ questions, but I would not expect them to be any more forthcoming than they can legally manage. Part of the complexity about being a big Chinese company is that it’s not clear what information related to your relationship with the government counts as a secret.

Of course, whether it’s a “secret” or not is only a problem if that particular secret is one of the “State” variety. And despite some legal reform in this area, no one really knows what a State secret is. A famous opinion of the U.S. Supreme Court on pornography noted that although the term couldn’t be defined all that well, essentially “you’ll know it when you see it.” State secrets in China are sort of like “you’ll know it when we’ve locked you up after the fact for saying it.” Kind of makes you feel sorry for Huawei and ZTE executives and lawyers, who will be caught right in between these two governments. Sucks to be them.

I’m as eager as Osnos to see where this goes, but I remain a skeptic. These sorts of investigations tend to be politicized in the U.S. (understatement of the year). No matter the ultimate conclusions of such a report, the media narrative is almost impossible to predict, much less the juvenile shenanigans Congress will engage in after it’s issuance; someone is bound to take one minor point and blow it all out of proportion, ignoring the majority of the findings. If you remember how much fun Congress had demonizing China, and the Clinton Administration, when the Cox Report came out, then you know what I’m talking about.

By hey, maybe those guys on The Hill will surprise me this time, and we’ll learn something useful, either good or bad. Wonders never cease.