China’s Telecommunication Companies Under Pressure

IITM CSC Article #29
21 June 2012
 
China’s Telecommunication Companies Under Pressure
 
China’s telecommunication companies have been attracting global attention, facing pressure from governments all across the globe on a range of issues including national security and unfair trade practices. China has the largest and fastest growing telecommunications industry in the world. In terms of services, infrastructure and equipment manufacturing, Chinese multinational telecommunication companies, Huawei and ZTE Corp, are amongst the world’s largest players in this sector. While some of this attention is due to their large and unparalleled growth in the telecom markets, most attention is directed to the security concerns posed and their implicit closeness to the Chinese government. One recent example is the Australian refusal earlier this year to allow Huawei Technologies from bidding on the $38 billion National Broadband Network, due to what PM Gillard reasoned were "national security matters."
 
Huawei’s Chief Executive Officer and founder, Ren Zheng Fei, started the company’s international operation in Hong Kong, which has now expanded to Africa, Asia, Europe and the US. This private company, owned by its employees, is the second largest telecom equipment manufacturer, catching up rapidly with Sweden’s Ericsson. Huawei has encountered several objections from various governments, primarily due to its apparent close links with the PLA. Ren Zheng Fei is an ex-Major and former military technologist of the PLA. Although Huawei has continually refuted links to the PLA and the Chinese government, countries have questioned its private status with “Chinese characters” as a threat to national security. There is no doubt that Huawei, if it deems itself private, must prove its ‘non-state owned enterprise’ style of business, i.e. more transparent, in order to secure its current operations and eventually increase its footprint in the global telecommunication market.
 
Earlier this month, lawmakers from the US House Intelligence Committee, made such a call for transparency, by issuing letters to both Huawei and ZTE Corp based on their concerns regarding the companies’ link to the Chinese government. As reported, this letter brings to attention concerns that the equipment manufactured by Huawei and ZTE Corp., contains “backdoors into US telecommunications” causing a threat to US national security.
Additionally, as reported by Reuters, ZTE Corp, the world’s fifth-ranking telecommunications equipment manufacturer, has been questioned regarding its deals with the government controlled Telecommunication Company of Iran (TCI). ZTE Corp’s sale of spying equipment, to TCI, has led to a controversy as this allows for monitoring of potential political dissidents. This concern possibly has arisen due to the recent increase in sanctions against Iran and the US will thereby be persistent with its pressure on ZTE Corp regarding its Iran operations, in addition to its questions regarding Huawei’s government connections.
 
Another concern, this time primarily raised by companies in the West, is that the Chinese government heavily subsidizes Huawei and ZTE Corp, causing unfair competition amongst the global telecom players. As reported by Reuters, Michael McCarthy, chief legal and administrative officer for Infinera Corp. stated before the US-China Economic and Security Review Commission that "Our response must be equally clear to ensure the competition in this vital sector is not based on which government is willing to lavish the most aid to their producers, but rather on the quality of the products and the strength of the innovation." The pressure on the US companies posed by such ‘unfair competition’, along with the threat to security, is pushing the US government to reevaluate its dealing with these Chinese telecom giants.
 
Other Western countries are making similar, if not the same, assertions. Recent media reports state that the EU Commission was undertaking an inquiry regarding alleged Chinese government subsides to Huawei and ZTE Corp, allowing these companies to sell products at very low cost, driving away any form of competition from European Companies. Although the EU has officially not challenged Huawei and ZTE Corp, on the above allegation, it is reported that the EU Trade Commissioner Karel De Gucht complained that China subsidizes "nearly everything", distorting competition. The fact that China’s companies are predominantly state-owned enterprises, puts pressure on these companies (especially Huawei), to clear the air regarding subsidies, information security and its links to government.
 
These alarms, combined with allegations of cyber-attacks and bribery, have placed both Huawei and ZTE Corp in a predicament. Not only are their operations in Australia, Europe and the US being continuously questioned (or prohibited), other governments, are taking an increasing hard-hitting stance against these companies, in the name of national security.
 
However, with the background of the growing economic crisis and China being amongst the largest trading partners with most of the developed and developing world, these will be seen as just mere hiccups for the Chinese companies. But, if Huawei and ZTE Corp want to legitimately grow and enhance their operations, which there will be demand for, transparency and sharing information is required to build healthy confidence in dealing with these telecom giants.
 
 
By: 
Aditi Rao,
Affiliation: 
Project Associate, CSC IITM
Date: 
Friday, October 16, 2015 - 15:30
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