Category Archives: China

China, U.S. agree limits on emissions, but experts see little new

Reuters reports: China and the United States agreed on Wednesday to new limits on carbon emissions starting in 2025, but the pledge by the world’s two biggest polluters appears to be more politically significant than substantive.

As China’s President Xi Jinping agreed to a date for peak CO2 emissions for the first time and also promised to raise the share of zero-carbon energy to 20 percent of the country’s total, President Barack Obama said the United States would cut its own emissions by more than a quarter by 2025.

At its best, the announcement threw the political weight of the world’s two biggest economies behind a new global climate pact to be negotiated in Paris next year.

But the United States has already pledged to cut its carbon emissions by 17 percent by 2020 and it’s not clear if the new proposals will pass a Republican-dominated Congress. [Continue reading…]

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China is driving the BRICS train

Pankaj Mishra writes: Rarely has an acronym led such a charmed life as BRICS. Casually invented by former Goldman Sachs Group Inc. economist and Bloomberg View columnist Jim O’Neill to label emerging markets of promise, it actually brought together leaders from the disparate countries of Brazil, Russia, India, China and South Africa. Last week in Brazil, they took a decisive step toward building institutions that could plausibly challenge the long geopolitical and economic ascendancy of the West.

The New Development Bank, headquartered in Shanghai, would finance infrastructure and development projects. This would be the biggest rival yet to the World Bank and the International Monetary Fund, as well as the economic architecture designed by the U.S. in Bretton Woods in 1944.

There are good reasons why China is working hard to establish it. The BRICS countries contain more than 40 percent of the world’s population and account for a quarter of the world’s economy. China itself may shortly bypass the U.S. to become the world’s biggest economy (based on domestic purchasing power). Yet leadership of the World Bank and the IMF remains the exclusive preserve of the U.S. and western European countries.

The promised reforms to these institutions have not materialized; China now clearly wants to build its own global system with the help of the BRICS. A new “special relationship” with its closest economic partner in the West — Germany — and the recent establishment of Frankfurt as a clearinghouse for the renminbi is part of the same Chinese attempt to break the hegemony of the dollar as a payments and reserve currency. [Continue reading…]

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Tiananmen Square 25 years on: ‘Every person in the crowd was a victim of the massacre’

Ma Jian writes: On 4 June 1989, when the Chinese Communist party (CCP) sent 200,000 soldiers in armoured tanks to suppress the peaceful pro-democracy protest in Beijing’s Tiananmen Square, causing hundreds if not thousands of fatalities, it was unimaginable to me and most of my compatriots that, 25 years later, this barbaric regime would still be in power, and the massacre would be rendered a taboo. But despite the party’s most ardent efforts to wipe the episode from history, memories of the massacre refuse to be crushed. On the milestone 25th anniversary, Tiananmen is more important than ever.

The death toll of the Tiananmen Democracy Movement may pale in comparison with the millions who perished in the Great Leap Forward or the Cultural Revolution. Its significance, however, lies not in the number of casualties but in the nobility of its aspirations and the power of its legacy. The CCP and its western apologists like to claim that China, with its vast population, long, unbroken history and cultural traditions, has no desire – or indeed need – for constitutional democracy, and is much better off following its own “exceptional” path of political dictatorship combined with a market economy. But Tiananmen showed the world that the Chinese people are no different from everyone else. When given the chance to express their views freely, they seized it and howled in unison their desire for democracy, freedom and human rights. Although their understanding of the concepts was elementary, they instinctively grasped, like the protesters in Place de la Bastille and Wenceslas Square before them, that these ideals formed the foundation of any civilised and humane nation. To claim that the Chinese are unsuited to, or not yet ready for, democracy and freedom is to view them as less than human beings. [Continue reading…]

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Investigation confirms U.S. snooping activities against China

Xinhua reports: A Chinese Internet information body on Monday said an investigation spanning several months has confirmed “the existence of snooping activities directed against China” as exposed by former National Security Agency (NSA) contractor Edward Snowden.

A report by China’s Internet Media Research Center said Chinese authorities have looked into the NSA’s secret surveillance program codenamed PRISM, which is revealed by British, U.S. and Hong Kong media based on documents leaked by Snowden.

“Subsequently, an investigation carried out by various Chinese government departments over several months confirmed the existence of snooping activities directed against China,” the report said. [Continue reading…]

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Putin’s China pivot: All tactics, no trust

Following Russian President Vladimir Putin’s state visit to Beijing this week, Minxin Pei writes: The fragility of the budding Sino-Russian partnership was on full display during Putin’s visit, the centerpiece of which was supposed to be the signing of a long-term agreement for China to purchase Russian natural gas.

At first, negotiations were deadlocked, with neither side willing to budge on prices. The Russians were insisting on setting a high price while the Chinese, sensing Russian weakness, were trying to bargain the rate down significantly. Disaster was averted at the last minute when both sides reached an opaque agreement that would enable Russia to export $400 billion worth of gas to China over 30 years, starting in 2018.

Although the price was not disclosed, Russian media reported that it will be around $350 per thousand cubic meters, roughly the average for Russian gas exports to Europe but lower than the price for gas exported to Germany and other rich Western European countries (which have to pay over $400 per thousand cubic meters).

If anything, the Sino-Russian gas deal epitomizes the nature of the ties between Moscow and Beijing. Their relationship is purely utilitarian and lacks enduring foundations of mutual interest and shared values.

Nations become strategic allies not simply because they share the same potential opponents. They need to have deep trust in each other. At a minimum, trust is easier to build when potential allies have no fear of each other. And such trust becomes unshakeable if they share the same values.

Unfortunately, none of these conditions applies to the Sino-Russian relationship. Russia fears China, which borders on Russia’s sparsely populated far eastern region, part of which was, in the eyes of the Chinese, stolen from China in the late 19th century. Many Russians worry that China will take over that land, either through migration or more sinister means. Unlike the West, which has facilitated China’s rise and has come to recognize it as a reality, the Russian elite has trouble accepting China, impoverished and impotent only a generation ago, as a great power. [Continue reading…]

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America’s double standards on cybercrime and national security

The New York Times reports: The National Security Agency has never said what it was seeking when it invaded the computers of Petrobras, Brazil’s huge national oil company, but angry Brazilians have guesses: the company’s troves of data on Brazil’s offshore oil reserves, or perhaps its plans for allocating licenses for exploration to foreign companies.

Nor has the N.S.A. said what it intended when it got deep into the computer systems of China Telecom, one of the largest providers of mobile phone and Internet services in Chinese cities. But documents released by Edward J. Snowden, the former agency contractor now in exile in Russia, leave little doubt that the main goal was to learn about Chinese military units, whose members cannot resist texting on commercial networks.

The agency’s interest in Huawei, the giant Chinese maker of Internet switching equipment, and Pacnet, the Hong Kong-based operator of undersea fiber optic cables, is more obvious: Once inside those companies’ proprietary technology, the N.S.A. would have access to millions of daily conversations and emails that never touch American shores.

Then there is Joaquín Almunia, the antitrust commissioner of the European Commission. He runs no company, but has punished many, including Microsoft and Intel, and just reached a tentative accord with Google that will greatly change how it operates in Europe.

In each of these cases, American officials insist, when speaking off the record, that the United States was never acting on behalf of specific American companies. But the government does not deny it routinely spies to advance American economic advantage, which is part of its broad definition of how it protects American national security. In short, the officials say, while the N.S.A. cannot spy on Airbus and give the results to Boeing, it is free to spy on European or Asian trade negotiators and use the results to help American trade officials — and, by extension, the American industries and workers they are trying to bolster. [Continue reading…]

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U.S. charges five in Chinese army with hacking

The Wall Street Journal reports: The Justice Department indicted five Chinese military officers, alleging they hacked U.S. companies’ computers to steal trade secrets, a major escalation in the fight between the two superpowers over economic espionage.

The indictment, unsealed Monday, marks the first time the U.S. government has publicly accused employees of a foreign power with cybercrimes against American firms. It also marks the most extensive formal allegations by the government of the kind of hacking that American corporations have long complained about, but until now have rarely acknowledged.

Among those named as victims in the document are brand names from America’s industrial heartland, including U.S. Steel Corp., Westinghouse Electric Co. and Alcoa Inc.

U.S. officials said other cases relating to China are being prepared. In addition, alleged hackers in Russia are likely to be charged soon, according to people familiar with the government’s investigations. U.S. agencies have also been investigating incidents with possible ties to Iran and Syria, these people say.

It is unlikely the suspects will ever be brought to trial in the U.S., since there is no extradition treaty with China. Yet in publicly naming the five, and providing details in a 48-page indictment, the Obama administration is ratcheting up the political and diplomatic costs to China and others if they use computers to steal secrets or attack U.S. interests. [Continue reading…]

Reuters adds: China on Tuesday summoned the U.S. ambassador in Beijing and warned it would retaliate if Washington followed through with the charges. It said the affair would damage “mutual trust”.

At the centre of the row is a nondescript tower block in the northern suburbs of China’s financial capital Shanghai, home to Chinese People’s Liberation Army (PLA) Unit 61398.

The 12-storey block houses as many as several thousand staff, according to Mandiant, a U.S. cyber security firm recently acquired by global network security company FireEye Inc . Mandiant identified the location as the source of a large number of espionage operations in a 70-page report last year. [Continue reading…]

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China, Russia on verge of gas deal

The Associated Press reports: China plans to sign a multibillion-dollar deal to buy Russian gas during a visit by President Vladimir Putin next week despite U.S. pressure to avoid undermining sanctions on Moscow over the Ukraine crisis.

Washington has appealed to Beijing to avoid making business deals with Russia, though American officials acknowledge the pressing energy needs of China, the world’s second-largest economy.

Negotiations that began more than a decade ago had stalled over price. But analysts say Moscow, isolated over its role in Ukraine, faces pressure to make concessions in exchange for an economic and political boost.

“We are still exchanging views with Moscow and we will try our best to ensure that this contract can be signed and witnessed by the two presidents during President Putin’s visit to China,” a deputy Chinese foreign minister, Cheng Guoping, told reporters on Thursday. [Continue reading…]

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Whenever a new great power has emerged and faced an existing power, military conflict has ensued

Nouriel Roubini writes: The biggest geopolitical risk of our times is not a conflict between Israel and Iran over nuclear proliferation. Nor is it the risk of chronic disorder in an arc of instability that now runs from the Maghreb all the way to the Hindu Kush. It is not even the risk of Cold War II between Russia and the West over Ukraine.

All of these are serious risks, of course; but none is as serious as the challenge of sustaining the peaceful character of China’s rise. That is why it is particularly disturbing to hear Japanese and Chinese officials and analysts compare the countries’ bilateral relationship to that between Britain and Germany on the eve of World War I.

The disputes between China and several of its neighbors over disputed islands and maritime claims (starting with the conflict with Japan) are just the tip of the iceberg. As China becomes an even greater economic power, it will become increasingly dependent on shipping routes for its imports of energy, other inputs, and goods. This implies the need to develop a blue-water navy to ensure that China’s economy cannot be strangled by a maritime blockade.

But what China considers a defensive imperative could be perceived as aggressive and expansionist by its neighbors and the United States. And what looks like a defensive imperative to the US and its Asian allies – building further military capacity in the region to manage China’s rise – could be perceived by China as an aggressive attempt to contain it.

Historically, whenever a new great power has emerged and faced an existing power, military conflict has ensued. [Continue reading…]

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Tom Engelhardt: What, me worry?

Mapping the Chinese conquest of the planet
By Tom Engelhardt

In high school, I was one of those kids you probably loved to loath.  You know, the one who grabbed a front-row seat and every time the teacher asked a question waved his hand so manically that he was practically screaming, me, me, call on me!  But truth be told, amid all the things that made me unhappy in those years, school — actual schoolwork — wasn’t one of them.  Yes, I was confounded by the math problems in which the current of a river flowed at one speed and a boat was heading the other way at a different speed, and a few more bits of weird information were tossed into the eddies and you were supposed to do something with it all.  But generally speaking I enjoyed school.

I liked my teachers — at least the ones who challenged me to think or, as we would start saying only a few years after I was out of high school, “blew my mind,” the ones who seemed to bend the world in interesting directions.  I liked to learn.  I liked to read by myself in my room.  I went to the local library regularly and came home with piles of books.  I was a dino-nerd (with the American Museum of Natural History’s T. rex on the brain), and a Civil War nut (no Bruce Catton volume went unread) with a sideline in advanced sci-fi.  And it being the 1950s, I harbored the sort of nuclear fears that you barely thought about and didn’t really speak about, but that, in my case, appeared repetitively in unsettling dreams in which I found myself wandering through an atomically devastated world.

I was, above all, fascinated by history, in part perhaps because my parents were of a post-immigrant generation in flight from their past.  Undoubtedly, that fascination represented an early, particularly nerdish form of rebellion (not that anyone noticed).  Perhaps it was also comforting to nail myself into a narrative of American life in those years when the past, as my parents and so many other Americans saw it, was hardly worth thinking about, not when the future was so promising.

But let me hasten to add that not every class in high school thrilled me.  There was, for instance, my American history teacher.  He was a grey-haired ancient (though undoubtedly younger than I am now) who had, we kids then assumed, been passing news of the New World on to students since at least 1776.  He must once have been inspirational, but by the time I came along he was lecturing off ancient notes on yellowed paper.  I used to imagine those notes dissolving into a cloud of dust with the first gust of wind through the window by his desk.  I was then teaching myself a version of American history at home at night and I couldn’t have found the daytime version less impressive.

The textbook we used then — I still have it — was Living in Our America: A Record of Our Country, History for Young Citizens. Unit One (“The Beginnings”) started with this poem:

“In our great country can be found factories
with parking lots of full of automobiles —
not just cars of officials and factory owners,
but cars of the workmen, too.

“These cars are something more than pieces of
machinery to own and ride around in.

“They are symbols.

“They are symbols that in our country we can
and do earn much more
than a bare living.

“They are symbols, too, that their owners are free —
free to live in city, town, or country,
free to move on to other work,
free to seek other ways of life,
free in body and spirit.”

I’m sure history texts are just as uninspiring today, but in different ways.  After all, I was living then in the American Age of Steel, so long gone that — who can remember?

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Why China hates being No. 1

Minxin Pei writes: Few countries would turn down the title of world’s largest economy. You can count China among them.

Only the United States has enjoyed the immense power and prestige conferred by this position in the last 140 years (the U.S. surpassed Great Britain as the world’s largest economy in 1872 and has held the spot ever since). But last week, the Chinese government reacted with thinly disguised animosity to an authoritative economic report announcing that China would overtake the United States in 2014 as the world’s largest economy in terms of purchasing power parity (PPP).

According to the International Comparison Program of the World Bank, in 2011, the Chinese economy totaled $13.5 trillion in purchasing power parity. It is on target to grow 24% between 2011 and 2014, compared to 7.6% cumulative growth for the U.S. For its part, the U.S. had $15.5 trillion in PPP in 2011. The Chinese economy at the end of this year is expected to have $16.7 trillion in PPP, slightly bigger than the $16.6 trillion projected for the U.S.

Before the release of the latest World Bank report, the consensus estimate among economists was that China would surpass the U.S. as the world’s largest economy in PPP terms in 2019. That China has managed to catch up with the U.S. five years sooner is largely due to the effects of the financial crisis and the Great Recession, which caused anemic growth in the U.S. but affected the Chinese economy only moderately.

Instead of bragging about its coronation as the world’s No. 1 economy, China first tried to delete the reference to the new PPP estimate of its economy in the World Bank report and then all but suppressed its coverage within China’s domestic media.

On the surface, Beijing’s unfriendly reaction makes no sense. Ever since the Tiananmen crackdown in 1989, the Chinese Communist Party has relied on economic growth as the most important source of its legitimacy. Being crowned the world’s largest economy should only help reinforce the party’s claims of credit for bringing prosperity and international respect to China. And Chinese foreign policymakers have been skillfully playing the expectations game around the world. By pointing to the inevitable rise of China as the world’s largest economy and the relative decline of the U.S., Beijing has had considerable success in changing the economic and geopolitical calculations in many capitals, notably in Africa, Latin America, and the Middle East.

So, why does Beijing dislike being called No. 1 now? [Continue reading…]

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The bear and the dragon: Russia pivots to China in the face of western sanctions

The Globe and Mail reports: On March 20, the U.S. authorized sanctions against billionaire Gennady Timchenko amid the escalating crisis between Russia and Ukraine. Three weeks later, the Russian tycoon, who amassed a fortune trading oil and selling natural gas, appeared on Russian television. He was not in Russia at the time. He was in China. The West, he said, was “pushing us away.” China was not. In fact, Chinese companies were talking with Mr. Timchenko about buying more of Russia’s abundant energy.

“There is a market with a lot of potential developing in the Asia-Pacific region,” said the billionaire, who boasts close ties to Vladimir Putin and has been called one of Russia’s most powerful men.

This week, the country’s Prime Minister was even more explicit: “We are interested in diversifying today more so than ever before. Therefore we are implementing solutions for the export of gas and oil to Asian and Pacific countries, first and foremost China,” Dmitry Medvedev said on Russian television.

As the global fissures radiating from Russia’s moves against Ukraine call into question the future of its ties with Western powers, Russia is increasingly casting its gaze east, to a distant border long neglected. In May, Mr. Putin is expected to come to Beijing to sign a major contract that will see Russia pipe vast quantities of natural gas to China. It will mark the sixth meeting between Mr. Putin and Chinese President Xi Jinping since the beginning of 2013, as Russia pushes for a “pivot east” that has taken on sudden new urgency in the wake of the country’s moves in Ukraine, which have earned it global criticism, and an increasing likelihood of punitive sanctions.

The change stands to have wide-reaching ramifications, redrawing geopolitical alignments and altering global energy flows, a matter of concern to Canada, among others.

For Russia’s economy, Ukraine stands to create “a major crisis,” said Vassily Kasin, a China expert with the Centre for Analysis of Strategies and Technologies, a Moscow-based defence studies organization. “And China will become the major economic partner.” The two countries “will in fact move very close to an alliance, I think,” he said. “This is a major change.” [Continue reading…]

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China says more than half of its groundwater is polluted

The Guardian reports: Nearly 60% of China’s underground water is polluted, state media has reported, underscoring the severity of the country’s environmental woes.

The country’s land and resources ministry found that among 4,778 testing spots in 203 cities, 44% had “relatively poor” underground water quality; the groundwater in another 15.7% tested as “very poor”.

Water quality improved year-on-year at 647 spots, and worsened in 754 spots, the ministry said.

“According to China’s underground water standards, water of relatively poor quality can only be used for drinking after proper treatment. Water of very poor quality cannot be used as source of drinking water,” said an article in the official newswire Xinhua, which reported the figures on Tuesday.

The Chinese government is only now beginning to address the noxious environmental effects of its long-held growth-at-all-costs development model. While authorities have become more transparent about air quality data within the past year, information about water and soil pollution in many places remains relatively well-guarded. [Continue reading…]

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Putin has more admirers than the West might admit

Timothy Garton Ash writes: Tell me your Ukraine and I will tell you who you are. The Ukrainian crisis is a political Rorschach test, not just for individuals but also for states. What it reveals to us is not encouraging for the west. It turns out that Vladimir Putin has more admirers around the world than you might expect for someone using a neo-Soviet combination of violence and the big lie to dismember a neighbouring sovereign state. When I say admirers, I don’t just mean the governments of Venezuela and Syria, two of his most vocal supporters. Russia’s strongman garners tacit support, and even some quiet plaudits, from some of the world’s most important emerging powers, starting with China and India.

During a recent visit to China I was frequently asked what was going on in Ukraine, and I kept asking in return about the Chinese attitude to it. Didn’t a country which has so consistently defended the principle of respecting the sovereignty and territorial integrity of existing states (be they the former Yugoslavia or Iraq), and which itself has a couple of prospective Crimeas (Tibet, Xinjiang), feel uneasy about Russia simply grabbing a chunk of a neighbouring country?

Well, came the reply, that was a slight concern, but Ukraine was a long way away – and, frankly speaking, the positives of the crisis outweighed the negatives for China. What’s more, the United States would have another strategic distraction (after al-Qaida, Afghanistan and Iraq) to hinder its “pivot” to the Asia-Pacific region, and divert its attention from China. And, cold-shouldered by the west, Russia would be more dependent on a good relationship with Beijing. As for Ukraine – which already sells China higher-grade military equipment than Russia has been willing to share with its great Asian ally – its new authorities had already quietly assured the Chinese authorities that Beijing’s failure to condemn the annexation of Crimea would not affect their future relations. What’s not to like in all that? [Continue reading…]

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China seizes $14.5 billion assets from family, associates of ex-security chief

Reuters reports: Chinese authorities have seized assets worth at least 90 billion yuan ($14.5 billion) from family members and associates of retired domestic security tsar Zhou Yongkang, who is at the centre of China’s biggest corruption scandal in more than six decades, two sources said.

More than 300 of Zhou’s relatives, political allies, proteges and staff have also been taken into custody or questioned in the past four months, the sources, who have been briefed on the investigation, told Reuters.

The sheer size of the asset seizures and the scale of the investigations into the people around Zhou – both unreported until now – make the corruption probe unprecedented in modern China and would appear to show that President Xi Jinping is tackling graft at the highest levels.

But it may also be driven partly by political payback after Zhou angered leaders such as Xi by opposing the ouster of former high-flying politician Bo Xilai, who was jailed for life in September for corruption and abuse of power. [Continue reading…]

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After reports on NSA, China urges end to spying

n13-iconThe New York Times reports: The Chinese government called on the United States on Monday to explain its actions and halt the practice of cyberespionage after news reports said that the National Security Agency had hacked its way into the computer systems of China’s largest telecommunications company.

The reports, based on documents provided by the former security contractor Edward J. Snowden, related how the spy agency penetrated servers owned by the company, Huawei, and monitored communications by its senior executives in an effort to discover whether the executives had links to the Chinese military. The operation also sought to exploit the company’s technology and gain access to the communications of customers who use Huawei cellphones, fiber optic cables and network hubs.

American officials have been working to block Huawei from entering the American telecommunications market because of concerns that its equipment could provide Chinese hackers with a “back door” for stealing American corporate and government secrets.[Continue reading…]

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Ill-gotten gains held overseas pose sanctions risk for China

o13-iconWang Xiangwei, a columnist for the South China Morning Post, says that following Russia’s annexation of Crimea, Western efforts to freeze assets of Russian officials should motivate Chinese leaders to crack down on assets their own officials hold abroad.

As the crisis unfolds, Chinese authorities are treading carefully in their responses publicly, calling for dialogue. Privately, however, officials and ordinary mainlanders alike have been intrigued and are watching closely to see how the sanctions play out.

Internet users have been particularly amused by the nonchalant response from deputy Russian prime minister, Dmitriy Rogozin, who is among those on the sanctions blacklist.

On Twitter, he laughed off US President Barack Obama’s decision to name him while trying to squeeze Putin’s inner circle, asking if “some prankster” came up with the list.

In one tweet addressed to “Comrade@BarackObama”, Rogozin asked: “What should do those who have neither accounts nor property abroad? Or U didn’t think about it?”

Rogozin’s cheeky response was widely shared on the mainland’s social media scene. Some of the country’s more cynical internet users have wondered aloud whether Communist Party officials could be so dismissive if they found themselves in a similar situation, facing Western sanctions of overseas assets.

The conclusion is a resounding no. It is an open secret that corrupt officials move billions of US dollars in ill-gotten gains overseas every year, parking them in offshore accounts or investing them in property. A recent report by the International Consortium of Investigative Journalists estimated that wealthy Chinese sent US$1 trillion overseas from 2002-11, potentially making China the world’s biggest exporter of illicit capital, ahead of Russia and Mexico. [Continue reading…]

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Industrial espionage: NSA hacked servers of China telecom giant Huawei

n13-iconThe New York Times reports: American officials have long considered Huawei, the Chinese telecommunications giant, a security threat, blocking it from business deals in the United States for fear that the company would create “back doors” in its equipment that could allow the Chinese military or Beijing-backed hackers to steal corporate and government secrets.

But even as the United States made a public case about the dangers of buying from Huawei, classified documents show that the National Security Agency was creating its own back doors — directly into Huawei’s networks.

The agency pried its way into the servers in Huawei’s sealed headquarters in Shenzhen, China’s industrial heart, according to N.S.A. documents provided by the former contractor Edward J. Snowden. It obtained information about the workings of the giant routers and complex digital switches that Huawei boasts connect a third of the world’s population, and monitored communications of the company’s top executives.

One of the goals of the operation, code-named “Shotgiant,” was to find any links between Huawai and the People’s Liberation Army, one 2010 document made clear. But the plans went further: to exploit Huawai’s technology so that when the company sold equipment to other countries — including both allies and nations that avoid buying American products — the N.S.A. could roam through their computer and telephone networks to conduct surveillance and, if ordered by the president, offensive cyberoperations. [Continue reading…]

MIT Technology Review: How’s this for a tough sales job? The American sales reps of Huawei offer top-notch telecom gear at a 35 percent discount. But anytime they get near to closing a sale, their customers get a visit from the FBI or the U.S. Department of Commerce.

The message from the feds isn’t subtle: buy something else.

Huawei, based in Shenzhen, China, is the world’s largest seller of telecom equipment, commanding 20 percent of the market. Yet it is barely a factor in North America. Here its market share in optical equipment is just 1.4 percent, and in switches and routers it’s just 0.1 percent.

Just as Huawei has been shut out of the American market, leaks about the pervasiveness of spying by the NSA and other U.S. intelligence agencies might now hurt American companies abroad. Businesses are starting to talk of a “Snowden effect” of lost sales, dimmed prospects, and growing uncertainty, as they too come under a cloud of mistrust.

Huawei (pronounced wah-way) was founded in 1987 by Ren Zhengfei, a former military officer who splits the CEO job with executives who rotate every six months. As Huawei expanded overseas, suspicions began to swirl around the company, particularly in the United States. Its effort to buy 3Com, a networking company, was blocked by a trade panel that assesses national security risks. In 2011, Cisco Systems, a competitor, developed talking-point slides that laid out reasons for “Fear of Huawei.”

In 2012, partly at the Chinese company’s request, the U.S. House Intelligence Committee investigated and released a report. It offered no real proof of spying, yet it still concluded that the United States must “view with suspicion” progress by Chinese companies in the North America telecommunications market.

The concern was that somehow, with Huawei’s knowledge or without it, the Chinese government could use equipment sold by the company to eavesdrop or even to gain an advantage in a cyberwar. Huawei loudly denied the charges; it cried “discrimination.”

The irony now is that leaked National Security Agency documents suggest the U.S. was doing everything it suspected China of. The documents indicate that the U.S. may have compromised routers from Cisco, Juniper, and Huawei. It’s also believed to have weakened encryption products so the ciphers used by commercial software could be broken. [Continue reading…]

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