Edward Tessen Tanaka
Sep 25, 2012

China's Huawei responds to allegations ban with 81-page paper

A Huawei logo is seen above the company's exhibition pavilion during the CommunicAsia information and communications technology trade show in Singapore in June.China's Huawei Technologies Co Ltd is the second largest telecoms equipment provider in the world. Huawei is headquartered in Shenzhen and has more than 110,000 employees worldwide. The company, just last year, reported profits in excess of 11.6 billion yuan (approximately $1.76 billion US) with sales of 209.0 billion yuan.

Recently, the company has come under intense scrutiny by numerous Western world governments because of its alleged affiliation with the Chinese military. Huawei has been blocked from pursuing several large business transactions. The company was founded by a retired military engineer in the People's Liberation Army. The governments of several countries have intervened in Huawei's international expansion to prevent the company from using its own telecom equipment to introduce hidden "backdoors" into communications infrastructures and facilitating acts of surveillance and corporate espionage.

The U.S. House of Representatives' Intelligence Committee is currently investigating Huawei for allegedly rigging its products to give the Chinese "an opportunity for greater foreign espionage, [to] threaten our critical infrastructure, or increase the opportunities for Chinese economic espionage." Of course, Huawei denies such charges and has even gone so far as to formally rebut this belief by publishing a report entitled "The Case for Huawei in America." The 81 page paper, which was released on its US subsidiary website, defends the company's business practices and suggests that the congressional committee's investigation borders on "persecuting."

The paper also "promises" that Huawei will not cooporate with the Chinese government and/or military and compares recent allegations to the "Red Scare" tactics used by Senator Joseph McCarthy in the 1950s. Western political officials scoff at this promise and because of previous acts of state sponsored industrial espionage, which could be traced to the Chinese, they have been active in preventing Huawei from expanding outside of China.

For example, in 2008 Hauwei and Mitt Romney's Bain Capital Partners tried to purchase computer equipment maker 3Com Corp. This deal was derailed after the Committee on Foreign Investment, which is closely associated with the Treasury Department, voiced its concerns. In 2011, Huawei abandoned its plans to purchase assets of 3Leaf Systems due to similar objections.

The United States in not, however, alone in its perspective and practices regarding Huwaei. Last year, the Australian government prevented the company from becoming a partner in a $38 billion broadband initiative. Although Huawei was not given a reason as to why it was not allowed to participate, the company says that "The government plays no role in Huawei in its operational sense, or the running of the company. We are 100 percent owned by staff."

While this is technically true on paper, there are other aspects that factor into how Huawei is perceived.Sun Yafang, chairwoman of the board of Huawei Technologies listens to a speech before receiving a World Telecommunication and Information Society Award at the International Telecommunication Union (ITU) headquarters, May 2012.

Ren Zhenfei, the founder of Huawei, has been a member of the Chinese Communist Party since 1978 and retired as a major in the People's Liberation Army in 1982. While he is quick to note that Huawei is independent of such entities, the company has a history of employing high level officials that had formal roles in either the military or Communist party. For example, Huawei's chairwoman, Sun Yafang, was employed by the Ministry of State Security Communications Department prior to working for Huawei. The CIA also notes that her relationship with the state was used to help Huawei during a period of financial difficulty in 1987. Such relationships have hindered the company's expansion internationally, and not just in Western countries—India, too, has blocked Huawei for reasons of national security.

Huawei isn't the only Chinese company facing scrutiny, but it happens to have the technical expertise, size and relationships to act upon these fears. Interestingly, telecom equipment companies—especially from the United States—have a long and distinguished history of working with the NSA, CIA and FBI. Regardless, the issue will continue to make headlines as both a factor that affects politics and, just as important, economics.