The Chinese company Huawei has emerged as the
second-largest telecommunications equipment
company in the world. It operates in 140 countries
around the globe, providing equipment, software,
and services to forty-five of the world�s fifty largest
telecom operators. It is moving aggressively downstream
into the burgeoning smartphones market. As
a recent, detailed report on the company concluded,
Huawei�s �extraordinary range of product offerings
supports almost every meaningful segment of
telecommunications network architecture.�
Despite its global success, Huawei has consistently
been rebuffed in attempts to make large investments
and land large contracts in the United States. US government
officials have intervened on a number of
occasions to block potential acquisitions and equipment
contracts involving Huawei, citing security concerns
(though without specific details). The company
has vigorously contested allegations that it has ties to
the Chinese military or represents a security risk in the
United States. It has vowed to continue its quest to
become a significant player in the US telecom market.
All of this is being played out against a background
of increasing tension between Washington and Beijing
over cyber attacks on US corporations and government
agencies that have been traced back to sites
and hackers in the People�s Republic of China (though
not to the government directly). As this study was
going to press, the top counterintelligence agency in
the United States pointed the finger directly at China,
stating, �Chinese actors are the world�s most active
and persistent perpetrators of economic espionage.�
In addition, the White House disclosed that it had
commissioned a task force to evaluate the �opportunities,
risks and implications� posed by foreign telecommunications
companies in the US market. US officials
let it be known that while no particular company or
country was targeted, Huawei�s expansion in the US
market was a �key impetus� for the initiative.
At the same time, the Obama administration,
faced with the continuing economic drag from the
global financial crisis and economic downturn, has
been eager to reaffirm America�s historic open arms
policy toward foreign direct investment (FDI) as a
means of enhancing renewed economic growth and
prosperity. This includes the potential of large FDI
inflows from China over the next decade. To underscore
this commitment, Vice President Joe Biden
recently urged Beijing to increase investment in the
US market, saying, �We are still the single (best) bet
in the world, in terms of where to invest.� Chinese
investment, he continued, �means jobs. American
jobs.� In turn, Beijing has been quick to protest
America�s alleged unfair treatment of Huawei and
other Chinese telecommunications companies and
the �lack of transparency� in US FDI policy. It has
also threatened to match purported US investment
obstacles with new hurdles of its own.
This study traces Huawei�s corporate history, particularly
its unsuccessful efforts to gain a foothold in
the US market. It analyzes both the economic and
security challenges posed by future Chinese investment
in sensitive sectors, such as information technology
and the broader telecommunications supply
chain. The study concludes with recommendations
for action by the US government, by the Chinese
government, and by Huawei, to accommodate future
Chinese investment and contracting in the US
telecommunications sector while preserving vital US
national security interests and priorities.
These recommendations include:
:The US government should make the
investment/security-vetting process (the so-called CFIUS process) more transparent
and should take steps to formulate
and publicize a set of guidelines that
would explain the rationale behind individual
investment decisions. As a number
of intelligence officials from several administrations
have concluded, Committee on
Foreign Investment in the United States
(CFIUS) officials can provide more detail
on the sources of their security concerns
without jeopardizing US intelligence
efforts. At a minimum, the results of the
White House task force initiative cited
above, as they pertain to Huawei, should
be made public.
Efforts to expand CFIUS to cover normal
business contracts or joint research and
corporate ventures should be resisted. If
acceded to, moves to expand CFIUS,
whether stemming from congressional
sources or private competitors, would lead
to an undesirable politicization of the
process through an adverse intermingling
of national security and private competitive
concerns and motives.
Beijing should renounce trade-investmentdistorting
credit subsidies that aid Chinese
companies competing in overseas markets.
It should agree to adhere to the guidelines
and specific restrictions set out in the 1978
Organisation for Economic Co-operation
and Development (OECD) arrangement on
export financing and the 1991 Helsinki
Package that clarified rules with regard to
tied aid to developing countries. Pending
this action, Huawei would be well advised
to agree to be bound by OECD rules when
accepting subsidized credit arrangements
for its customers.
Huawei should bite the bullet and become
a publicly traded company listed on a US
stock exchange, most likely the NASDAQ.
The company�s opaque corporate structure
and its obscure decision-making process,
abetted by recent governance and accounting
scandals involving other Chinese companies
that invest overseas, feed suspicions
that it is an unreliable business partner and
secretly a creature of the Chinese government.
As the Economist recently stated in
criticism of Huawei�s resistance thus far to
public listing, �Huawei appears to want to
have it both ways: remaining a Chinese
company . . . while competing with publicly
traded Western giants�this is unlikely
to work.�
Huawei should continue�and even step
up�its efforts to assuage US government
agencies� security concerns. It has given
global security concerns a top place in its
corporate structure, and it should increase
and expand programs to provide independent,
continuous third-party evaluation
of its equipment. Finally, though
there are risks involved, the company�s
recent strategy of instant and highly vocal
rebuttal to negative judgments by the US
government and by congressional critics
and outside interest groups, will pay off in
the future�assuming the in-your-face
candor is consistently supported with
solidly documented facts.
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