The first sentence uttered to describe the U.S.-Chinese relationship in the third and final presidential debate was President Obama’s, and it contained both the words “adversary” and “partner.” Messaging doesn't get much more mixed than that, and the President’s opponent, Mitt Romney, was not much clearer. In such a hotly contested election, we might be tempted to excuse the candidates for going out of their way to sound both tough and pacific on China, and conclude that the Sino-American relationship is not quite as schizophrenic as it appeared in the final debate. But the dynamic between Washington and Beijing is a fraught and contradictory mélange of increasing interdependence and growing mistrust. Nothing illustrates this better than the recent case against the Chinese telecom giant Huawei.
Earlier this month, the House Permanent Select Committee on Intelligence recommended that Federal agencies and private businesses alike stop using equipment from Chinese telecoms like Huawei and ZTE because of the risk that their products be used to conduct cyber espionage against the United States. Experts consider the Huawei threat to be particularly pointed because of its size: It is currently locked in a back-and-forth race with Swedish rival Ericsson for the title of largest telecommunications vendor in the world.
The committee’s report offers no hard evidence of espionage or information theft, despite its drafters having waded through a year’s worth of interviews, testimony and data analysis. Rather, it stands as a broad indictment of the Chinese way of doing business (that is, opaquely) and of the ideology of China’s economic choices (that is, heavy on state involvement). The report recommends taking a closer look at the “unfair trade practices” of the Chinese telecoms sector, “paying particular attention to China’s continued financial support for key companies.” Huawei is a private company, not a state-owned enterprise, but the exact nature of its relationship with the Chinese government is the report’s predominant concern.
There is, for instance, the problem that “Huawei failed to explain its relationships with the Chinese government” and “denied having any connection to or influence by the Chinese government beyond that which is typical regulation.” Then there is the fact that “Huawei admits that the CCP [Chinese Communist Party] maintains a Party Committee within the company, but . . . failed to explain what that Committee does on behalf of the Party, or which individuals compose the Committee.” The report cites an incident in 1987, when Huawei’s founder and CEO, Ren Zhengfei, pooled 21,000 renmibi (about $5,600 dollars at the time) with five other investors, none of whom, the report suspiciously notes, Ren had ever worked with before, and one of whom had “previous affiliation with the government.” Most importantly, there is the shady story of Mr. Ren himself, a former officer in China’s People’s Liberation Army who left the military thirty years ago. According to the report, “Huawei refused to describe Mr. Ren’s full military background [and] refused to state to whom he reported when he was in the military.”
It all boils down to a question of trust. The report's concluding lines sum up the problem: “Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.”
Cybersecurity experts have pointed out real vulnerabilities in several Huawei routers, but such flaws are common in equipment manufactured by other telecoms as well. And though the point of Huawei’s lack of transparency with regard to the CCP’s influence is well taken, especially when it comes to using their products in sensitive sectors, the company’s own rebuttals are worth paying attention to.
Huawei has protested that it is a private company whose goals are customer-oriented and commercially minded. Testifying before Congress in September, a Huawei vice president explained that bowing to government pressure would be a suicidal move for any corporation of its stature: “Huawei has not and will not jeopardize our global commercial success nor the integrity of our customers’ networks for any third party, government or otherwise.” Huawei has additionally pointed out that most of the telecom equipment produced by its rivals is also manufactured in China, suggesting that its own equipment is no less potentially insecure than that of its competitors.
This month, Canada followed suit. But Huawei remains very active in Europe, where it will have a hand in constructing about half of the 4G mobile networks planned across the continent. And the UK in particular continues to welcome Huawei with open arms. Just weeks ago, Huawei announced that it plans to invest $2 billion over the next five years in the UK to increase R&D efforts, open more technical centers, and increase its role in the British procurement market—the same sector from which it was banned in the United States. Along the way, Huawei will create 500 new jobs. The UK approach is more measured than that of the United States, Canada or Australia. In Britain, Huawei is closely monitored by the government’s signals intelligence body, the Government Communications Headquarters, which conducts regular inspections and security audits. And Huawei has established a “Cyber Security Evaluation Center” where security-cleared staff test the company’s equipment and code to ensure that it is reliable and capable of withstanding cybersecurity threats.
At the end of October, Huawei decided to salvage its market share in Australia, where it was excluded earlier this year from involvement with the country’s national broadband network on grounds similar to those voiced in the congressional committee’s report. Huawei announced that it would be setting up an evaluation center in Canberra similar to the one already in place in the UK, where it would provide the Australian government complete access to its software and hardware.
At the very least, Huawei’s involvement in Britain and Australia shows that the global verdict on Huawei is far from monolithic. Clearly, banning the company’s products is not the only approach to the issue. That the committee’s report failed to even consider any other approach, however, reveals the deep undercurrent of suspicion and hostility that is beginning to poison the Sino-American dynamic.
China and the United States are nothing if not distrustful of one another’s long-term intentions. China is the only country seen as a possible threat to American predominance. Andrew Nathan and Andrew Scobell conceded in their recent essay, “How China Sees America,” that increasing distrust is unavoidable:
Most Chinese strategists assume that a country as powerful as the United States will use its power to preserve and enhance its privileges and will treat efforts by other countries to protect their interests as threats to its own security. This assumption leads to a pessimistic conclusion: as China rises, the United States will resist. . . . It intends to remain the global hegemon and prevent China from growing strong enough to challenge it.
America clearly is concerned about China’s military rise. President Obama’s much-discussed “pivot to Asia” is described as a full-spectrum engagement, both civilian and military, for peacefully managing China’s rise in its neighborhood. But the focus on the military side of things is unmistakable. In the past several years, the United States has forged more military treaties with regional actors than any other kind of agreement. The U.S. Pacific Command now stands as the largest regional American combatant command, with 325,000 personnel, 1,900 aircraft, and 180 ships.
Yet the dominant source of American concerns remains China’s economic policy. This is the grievance behind Romney’s oft-repeated promise to label China a “currency manipulator” on his first day in office. It undergirds the trade disputes that have sprung up since long before China joined the WTO, which have fueled endless accusations of intellectual property theft and restrictive foreign investment laws.
Yet a default stance of knee-jerk jingoism can make for poor economic policy. In the debate, President Obama touted his trade spats with China—such as the complaints he filed with the WTO over Chinese handling of imported auto parts and steel—as a winning jobs policy that would allow American manufacturers to stay in business. Although the President claimed to have saved a thousand American jobs by halting the flood of cheap Chinese tires, a remarkable study by the Peterson Institute showed that each job saved cost Americans $900,000 in more expensive tires.
But spurning Huawei, and especially barring it from the U.S. procurement market, makes sense as policy of reciprocity when one considers that foreign firms are blocked from the $1.3 trillion Chinese government procurement market. National security interests aside, “playing fair” in business would entail putting an end to such asymmetry of market access. Both candidates seem to want China to “meet basic international standards”, as Romney stated in the debate. President Obama, who has blocked a Chinese company from building wind turbines in Oregon on national security grounds and has issued a report of his own against Huawei, in addition to launching numerous trade arguments against China, has made it eminently clear what sorts of standards those might be.
On the other hand, President Obama, like every President before him, has stated that Chinese prosperity and stability are in the interest of the United States. As Scobell and Nathan pointed out in their essay, the United States has done more than any other power to contribute to China’s modernization: It has drawn China into the global economy; it has given the Chinese access to markets, capital and technology; it has trained Chinese experts in science and technology; it has prevented the full remilitarization of Japan.
That is the crux of the dynamic: interdependence and suspicion. The case against Huawei includes valid criticisms of Chinese state involvement in the firm. Transparency is not a second-order liberal-democratic value but a vital necessity for global businesses.
Nevertheless, the Huawei episode also demonstrates the mounting mutual distrust at the core of the bilateral relationship. The report against Huawei focuses alarmist rhetoric on what might happen rather than analyzing what is likely to happen. This is a recipe for a protracted status quo.