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RISK PROFILES OF CHINESE TELECOM COMPANIES WITH SUBSIDIARIES OPERATING IN THE UNITED STATES

June 10, 2020

Executive Summary

China views its leading telecommunications companies as a top priority nationally and has been aggressively pushing for further development of this sector for over a decade. To propel 's goal of becoming the world's most technologically advanced global actor, it has encouraged foreign expansion of its top telecommunications companies, including into the United States. A report released on June 9, 2020 by the Senate Permanent Select Committee on Investigations found that:

“Today, three state-owned carriers dominate the Chinese telecommunications market: Mobile, China Telecom, and China Unicom, commonly referred to as the ‘Big Three.’ In addition to shoring up a stable domestic market for these carriers, the Chinese government has encouraged its carriers to expand into global markets, including the United States. This expansion, however, raises national security concerns. U.S. government officials have warned that Chinese state-owned carriers are ‘subject to exploitation, influence, and control by the Chinese government’ and can be used in the Chinese government’s cyber and economic espionage efforts targeted at the United States.”1

Unfortunately, at least three of these four Chinese telecom majors have successfully tapped the U.S. capital markets to help underwrite their malevolent activities. Indeed, three of these Chinese companies are actually listed on the New York Stock Exchange.

America's "Team Telecom" (i.e., the grouping of U.S. government agencies from DoJ, DoD and DHS that focus on the risk and threat emanating from this sector) has raised security concerns related to these companies in the past. It reported to the FCC that the relationship of these entities to the Chinese government makes it such that the carriers “are ultimately owned by the Chinese government [and] are required to comply with Chinese national security laws to

1 https://www.hsgac.senate.gov/imo/media/doc/2020-06- 09%20PSI%20Staff%20Report%20-%20Threats%20to%20U.S.%20Communications%20Networks.pdf 2

support the Chinese government’s intelligence work,” giving them access to critical U.S. infrastructure that could be exploited for espionage or other national security purposes.

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v China Mobile

LISTED: NYSE: CHL

(1) China Mobile considers maritime coverage a top priority and has launched over 15 base stations to provide telecommunications services to the illegally-claimed Paracel and Spratly Islands in the South China Sea. These include the following.

• March 2003: China Mobile’s Hainan branch established a mobile communications base station on Woody Island, in the Paracels. There is also a China Mobile store located on Woody Island.

• December 2007: Base stations were established on Pattle Island and Duncan Island, both in the Paracels.

• January 2008: Three more base stations were established in the Paracels, on Triton Island, Money Island, and Lincoln Island.

• May 2009: China Mobile’s first 3G TD base station was established on Woody Island, markedly improving PLA communications across the Paracels.

• May 2010: Fiery Cross base station was established, followed soon after by new base stations across the Spratlys on Cuateron (Huayang) Reef, Hughes (Dongmen) Reef, Subi (Zhubi) Reef, Gavin (South Smoke) Reef, Johnson (Chigua) Reef, and Mischief (Meiji) Reef.

• April 2013: China Mobile’s first 4G base station was established in the Paracels.

• February 2018: China Mobile signed a framework agreement with the PLA Navy (PLAN) South China Fleet to upgrade 4G coverage in the Paracels and Spratlys with PLAN support and resources. China Mobile reportedly intended at the time to build additional telecommunication base stations and infrastructure to support its operations.

(2) In May 2019, the U.S. Federal Communications Commission (FCC) denied China Mobile International’s Section 214 application to provide international telecommunications services between the U.S. and foreign destinations. The decision was made after an extensive review by relevant Executive Branch agencies, which examined potential national security, law enforcement, foreign policy, and 4

trade policy concerns, concluding that the application “raises substantial national security and law enforcement risks” due to “several factors related to China Mobile USA’s ownership and control by the Chinese government.”

(3) The Chinese government’s oppressive internet surveillance and censorship system is implemented with the full cooperation of China Mobile, China Telecom, and China Unicom. The communications blackout in Xinjiang during the July 2009 Urumqi riots was executed through the suspension of the carriers’ Urumqi branch phone services, including long-distance calling and broadband Internet services in the region.

v China Telecom

LISTED: NYSE: CHA

(1) China Telecom has expanded its cellular activities and range to cover parts of the South China Sea and has provided logistics and communications support to expand coverage in the region.

• The PLA Navy's South China Sea Fleet has signed framework agreements to cooperate with the Hainan branches of China Mobile, China Unicom, and China Telecom to improve the civilian cellular connection in occupied parts of the South China Sea.

• 2013: China Telecom signed an agreement to expand its 3G service in the disputed Spratly islands chain, extending its network to the Nansha Red Reef.2

(2) China Telecom has strong ties to the PLA, and a 2013 report raised serious concerns about the entity’s potential as a cybersecurity threat to the United States.

• Early in 2020, U.S. government agencies. including the Department of Justice and the Department of Homeland Security, strongly urged that the Federal Communications Commission (FCC) revoke its authorization for

2 https://www.commsupdate.com/articles/2013/07/11/disputed-spratly-islands-receive-3g-courtesy-of-china-telecom/ 5

China Telecom to provide services in the United States, due to national security risks.3

v China United Network Communications (China Unicom) 中国联合网络通信集团有限公司

LISTED: NYSE: CHU

(1) China Unicom is providing telecommunications systems to the illegal Paracel (Xisha) islands and Spratly (Nansha) islands in the South China Sea to service China’s civilian and military personnel and, reportedly, to upgrade daily operations on the islands, including signals intelligence and location services.

• 2012: Three 2G/3G base stations were established in the Paracels (Xisha), on Woody (Yongxing) Island, Pattle (Shanhu) Island, and Duncan (Chenhang) Island.4

• 2014: Three more 3G base stations were established in the Paracels, on Triton (Zhongjian) Island, Money (Jinyin) Island, and Lincoln (Dong) Island.5

• 2017: 4G base stations were established on Woody Island and West Sand (Xishazhou) in the Paracel Islands and on Fiery Cross (Yongshu) in the Spratlys (Nansha), using a submarine fiber-optic cable connection.6

• 2018: China Unicom signed a framework agreement with the PLA Navy (PLAN) South China Fleet to upgrade 4G coverage in the Paracels and Spratlys with the support and resources of the PLAN. China Unicom will also reportedly be building more telecommunication base stations and infrastructure to support its operations.7

3 https://www.cpomagazine.com/cyber-security/fcc-urged-to-consider-china-telecom-a-national-security-threat/ 4 http://tech.sina.com.cn/t/2012-06-28/11567322616.shtml 5 http://www.sohu.com/a/105971134_203761 6 http://www.cnii.com.cn/hygl/2017-07/28/content_1877968.htm 7 https://www.thepaper.cn/newsDetail_forward_1981078 6

(2) China Unicom’s provincial branches have been contracted by the PLA to equip PLA units: in particular, newly formed or reorganized corps-level units. China Unicom also provides PLA engineering training.

• Recent contracts include the implementation of a smart barrack management system for the Second Artillery Corps in Luzhou, Sichuan (Unit 96038), renovation of the PLA Shenyang Joint Logistic Support Center (a unit of the Central Military Commission’s Joint Logistic Support Force), and equipment procurement for the 42nd Army’s 9th Armored Brigade (Unit 53263)’s smart military base.

• China Unicom has a school-enterprise partnership with Changsha Vocational and Technical College (former Hunan Post and Telecommunication College), which serves as a PLA Hunan Reserve Infantry Division communications training base.8

(3) North Korea’s sole internet service provider, Star Joint Venture, launched the country’s first full-time, wide-bandwidth internet connection through China Unicom. North Korea appears to have started supplementing the China Unicom connections in 2017 with new links from Russian telecommunications company, TransTeleCom.9

(4) The Chinese government’s oppressive internet surveillance and censorship system is implemented with the full cooperation of China Mobile, China Telecom, and China Unicom. The communications blackout in Xinjiang during the July 2009 Urumqi riots was executed through the suspension of the carriers’ Urumqi branch phone services, including long-distance calling and broadband Internet services in the region.

8 http://changsha.caiep.net/changsha_wenjiaodanwei/content.php?id=59787 9 https://www.38north.org/2017/10/mwilliams100117 7

v ComNet (a subsidiary of CITIC)

LISTED: HKSE: 0267

(1) Pacific Networks Corp subsidiary ComNet (USA) LLC is one of the major Telecommunication Service providers in North America. Headquartered in Kong, ComNet (USA) LLC has deployed points of presence in the U.S. and Canada.

(2) ComNet (USA) LLC is a wholly-owned subsidiary of Pacific Networks Corp. Both are indirectly 100% owned by CITIC Group Corporation via several holding companies and investment vehicles, including Crown Base International Limited, Effectual Holdings Corp., and Douro Holdings Inc.

(3) CITIC Group Corporation has a wide and varied risk profile, including significant ties to the military.10

• China International Trust and Investment Corporation (CITIC) is a state- owned investment company set up in 1979 that has become one of China’s most influential financial and industrial conglomerates. At its founding, with Li Ka-shing as a member of the board of directors at CITIC, the company began serving as the of the PLA and provided financing for military weapons sales and Western technology purchases. CITIC was integral to providing logistical assistance to defense-industrial companies and was behind the arrangement of major Chinese arms sales, including missiles to Iran in the 1980s by Norinco and (then) subsidiary Poly Group. Its subsidiary, HK-based Asia Satellite Telecom (AsiaSat), is also affiliated with the PLA and has been known to carry communications traffic for Chinese military entities and affiliated companies. (CITIC’s ownership stake in AsiaSat predates that of the Carlyle Group.)

• In 1983, CITIC co-founded major and arms export company Poly Group11. Though no longer owned by CITIC, Poly Technologies, a subsidiary of Poly Group, was placed under U.S. OFAC sanctions in 2013, for alleged violations of the Iran, North Korea, and Syria Nonproliferation Act.12

10 https://www.citic.com/uploadfile/2020/0421/20200421063029386.pdf 11 https://www.poly.com.cn/english/1686.html 12 https://www.reuters.com/article/usa-china-sanctions/u-s-lists-new-iran-sanctions-on-several-chinese-firms- idUSL1N0BB79720130211 8

• In 2014, CITIC Group Corporation agreed to pay $6.6 million in restitution and penalties to the U.S. Securities and Exchange Commission (SEC) regarding allegations that it had information regarding China National Offshore Oil Corporation's (CNOOC) purchase of Nexen Energy in 2012. The company has neither admitted nor denied the allegations.13

• There have been allegations that CITIC is using satellite company, Asia Satellite Telecommunications (AsiaSat), which it co-owns with a U.S. firm, the Carlyle Group, to expand its surveillance activities. The satellites being developed by AsiaSat allegedly have been used to aide PLA geolocation and communication technology in the South China Sea, including for stationed PLA personnel. There are also concerns that new developments are underway with a tenth satellite that would help further enhance the technological capabilities of Beidou Navigation Satellite System, the Chinese equivalent of the Global Positioning System (GPS) that has dual-use military applications. There is U.S. legislation preventing the exports of satellites to China.14

• CITIC is publicly listed on the Stock Exchange under stock code 0267.

13 https://www.sec.gov/news/press-release/2014-26 14 https://www.wsj.com/articles/china-exploits-fleet-of-u-s-satellites-to-strengthen-police-and-military-power- 11556031771