1 Talking Point 6 Week in 60 Seconds 7 Property Week in China 8 Aviation 9 Chinese Models 11 Economy 13 Chinese Character 19 October 2012 15 Society and Culture Issue 168 19 And Finally www.weekinchina.com 20 The Back Page What we learned in the debate m o c . n i e t s p e a t i n e b . w w w As Obama and Romney vie to appear toughest on China, Huawei and other Chinese firms cry foul at US treatment Brought to you by Week in China Talking Point 19 October 2012 Phoney claims? Why Huawei, ZTE and Sany are livid over their treatment in the US Not welcome: a new intelligence report from Washington says Huawei and ZTE pose a security threat to the US merican presidents past, pres - first employed Lincoln’s aphorism ers are “strongly encouraged to seek Aent and (perhaps) even future last year in an open letter to the US other vendors for their projects”. have all been drawn into the divi - government requesting an investi - This reflects longstanding Ameri - sive China debate in the last month. gation into any concerns that Wash - can concerns that information trav - This week saw Barack Obama bat - ington might have about its elling through Chinese-made tling it out with contender Mitt operations. The hope was that a for - networks could be snooped on, or Romney to talk toughest on trade mal review would clear the air. But even that crucial infrastructure politics and China. Romney in par - the report’s findings – announced could be disrupted or turned off ticular has been making headlines this month – only look like stoking through pre-installed “kill switches”. with his repeated promises (four in up further acrimony. We have covered such suspicions be - the most recent presidential debate fore (see WiC96), as well as their role alone) to label China “a currency What were the recommendations? in derailing Huawei’s efforts to win manipulator” on his first day in of - They came from the House of Rep - new contracts or acquire businesses fice, should he be elected. resentatives’ Intelligence Commit - in the United States. But the belief But last week it was more the tee, after an 11-month probe into was that a formal review would lay spirit of long-gone Abraham Lin - Huawei and its Chinese peer, ZTE. the ground for a more productive re - coln that Chinese executives were The conclusions were pretty lationship with US regulators. If so, it hoping to invoke, particularly his damning stuff: that the two firms was a forlorn hope. observation that “character is like a “cannot be trusted to be free of for - P h o t o tree and reputation like its shadow”. eign state influence and thus pose a So the Chinese firms are disap - S o u r Huawei, now the largest global in - security threat to the United States pointed? c e : R e formation and communications and to our systems” and that US net - Very. They claim to have made u t e r s technology provider by revenues, work providers and system develop - strenuous efforts to reassure the 1 Week in China Talking Point 19 October 2012 American authorities that their sus - picions are misconceived, with ZTE insisting that it set an “unprece - dented standard” for cooperation between a Chinese company and a Congressional inquiry. Huawei has also said that it cooperated in an open and transparent manner. But the investigators weren’t im - pressed by their efforts. “Neither company was willing to provide sufficient evidence to ameliorate the Committee’s concerns,” the re - port concluded. “Neither company was forthcoming with detailed in - formation about its formal rela - tionships or regulatory interaction with Chinese authorities. Neither company provided specific details Best Overall Renminbi Products and about the precise role of each com - Services Provider pany’s Chinese Communist Party Committee.” Huawei has come in for criticism in the past about its opaque owner - ship structure, which some allege is designed to obscure its residual ties to the Chinese military. In June we alluded to the rumours once again, after a story on the company seemed to lead to a local magazine’s entire print run being pulled from Best Bookrunner of Offshore Best Offshore news stands in China (WiC155). But Renminbi Bonds Renminbi Bond House Stan Abrams, an IP lawyer and au - thor of the China Hearsay blog, tends to agree that the two firms – at least from a Chinese perspective – probably did provide an unprece - dented amount of information to the Committee. Yet this effort was doomed to failure, he says, by the gulf in worldview between the Chi - nese firms and the members of the Committee. “There was simply no Dim Sum Bond House Best Dim Sum of the Year Bond House way the two sides were ever going to come together,” Abrams suggests. And both sides see the purpose of the investigation differently too? For the Committee, the final decision was based firmly on security fears. As it explained during the hearing, HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and the investigation was “not political HSBC Bank USA, NA. 12-043 jousting or trade protectionism mas - 2 Week in China Talking Point 19 October 2012 querading as national security”. American regulators also argue that their anxiety is more than jus - tified, following a rising incidence of cyber espionage apparently from Chinese sources. But the Chinese are deeply un - convinced. An immediate gripe is that no hard evidence of security breaches was made available in the public sections of the report, al - though its authors alluded to mate - rial in an annex to its findings, which was classified. I’ve got a binder full of Chinese rhetoric This lack of transparency chimes with complaints made by network and transmitted data out - tion and obstruct Chinese ICT com - other Chinese interests, including side of the country. But it insists panies from entering the US mar - Sany Group, about the blocking of that the laptop was infected via a ket,” Huawei said in a statement to a purchase of an Oregon wind shared WiFi network, and that the the press. farm near a US naval facility at the beaconing wasn’t prompted by Huawei overtook Ericsson as the beginning of October. But the Chi - Huawei software. leading global supplier of telecoms nese claim that no evidence was equipment for the first half of this given on why the purchase consti - And the Chinese also say they are year, with $16 billion in revenues. It tuted a security threat. In an unex - being singled out? is also regarded by many as a new pected twist, they are now suing Yes, their second objection is that breed of Chinese challenger that de - Obama and his Treasury Secretary there is little logic in only targeting velops its own technologies, rather Tim Geithner for violating the US Huawei and ZTE when the rest of the than manufacturing or assembling constitution. industry also relies on Made in them for overseas firms. One of Sany’s founders Xiang China components too. In August CNET News talked Wenbo complained to media of the “Virtually all of the telecom in - about Huawei as a “patent ma - US action: “They are petty frastructure equipment now sold in chine” which deserved credit for scoundrels who can’t be reasoned the US and throughout the world breakthroughs in networking stan - with. The US treats China like a contains components made, in dards that let mobile carriers sup - hostile country. Whatever we do is whole or in part, in China. That in - port multiple communications on a deemed as endangering American cludes the equipment manufac - single network. The Economist national security.” tured and sold by every Western magazine took a similar line, noting CNET News, a tech industry jour - vendor in the United States, much that Huawei had won contracts in nal based in the United States, also of which is made by Chinese joint half of the rollouts of Europe’s 4G noted that the final report on ZTE venture partners and suppliers,” networks, as well as having pio - and Huawei didn’t specify instances ZTE countered last week. neered the ‘dongle’ technology that of data theft, although lawmakers Hence the view that – if Huawei allows laptops to connect wirelessly had raised red flags about ZTE and ZTE are to be genuinely re - to the web. equipment enabled with “back - garded as national security threats This adds to the Chinese sense doors” for sneaking into networks because of their Chinese origins – that US firms are running scared of undetected. Committee chairman other vendors should also be sub - the competition. Chinese newspa - Mike Rogers also told reporters ject to the same level of scrutiny. pers including the National Busi - about “numerous examples” of ness Daily have even alleged – citing “beaconing” in which routers turn So why do the Chinese firms think unattributed sources – that Cisco on independently and start to trans - they are being blocked in the US? Systems has been a guiding force P h o t o mit data. Huawei has acknowledged They see it as a clear case of com - behind the Committee’s findings. S o u r a similar case in the past from a lap - mercial skulduggery. “We have to The allegation sounds unlikely, al - c e : R e top belonging to one of its employ - suspect that the only purpose of though there is a history of bad u t e r s ees, which connected to a customer such a report is to impede competi - blood between the two companies, 3 Week in China Talking Point 19 October 2012 after Cisco sued Huawei for using stolen source code in its routers and switches.