Caixin
Aug 29, 2018 11:15 AM
DOING BUSINESS IN CHINA

Beijing’s Blurring of Business, Government Lines Makes Headaches Down Under for Huawei

This week’s Tech Talk takes us to a theme that lies at the heart of modern China’s high-tech and broader business landscapes, namely the question of where does government end and business begin? That question was center stage last week when Australia banned Chinese tech giants Huawei Technologies Co. Ltd. and ZTE Corp. from selling their core telecom equipment for use in any of the nation’s 5G wireless networks now being planned and built.

This particular decision wasn’t completely unexpected, since Australia had made a number of similar moves in the past that hinted at unease in dealing with these two giants that have become leading suppliers of equipment that form the backbones of many nations’ telecom networks.

The ban, which follows similar moves in the U.S., wasn’t based on any publicly presented evidence showing equipment from either company might contain backdoors or unknown flaws that could be exploited for spying. Instead, both bans appear to stem from concerns about potential government connections between Huawei and ZTE. Specifically, both Canberra and Washington worry that Beijing might exploit its own backdoors into these two companies to gain access to sensitive information passing through foreign networks built using their equipment.

Huawei is particularly vulnerable to such speculation due to the background of its founder, Ren Zhengfei, a former engineer for the People’s Liberation Army, even though the company has vehemently denied any such current connections. ZTE has been less vocal on the matter, as it’s had bigger fish to fry lately after it was almost put out of business earlier this year by unrelated U.S. sanctions for illegally selling American-made products to Iran.

But the fact of the matter is that Washington’s and Canberra’s concerns are probably both justified to some extent due to China’s unusual past that saw little or no differentiation between government and business. Some boundaries have emerged in the current Reform Era, especially within the younger, more vibrant private sector. But even those lines are often blurred in today’s landscape where big traditional state-owned enterprises co-exist alongside those newer private companies, both subject to differing levels of “participation” by central and local governments.

Lack of privacy

The subject of privacy protection is a frequent hot topic in China, even if many are resigned to using products and services where their personal information is often accessed and used without their consent. I attempted my own WeChat survey on the matter and got a few replies from my thousand-plus contacts polled. But perhaps not surprisingly, the vast majority of people stayed quiet on the matter. That contrasts sharply with my previous polls, no doubt due to concerns that anything they said might come back to haunt them later.

All that said, let’s move back to the case at hand with Huawei and ZTE, which have now been formally cut off from two of the world’s biggest telecom markets with the U.S. and Australia bans. Australia’s concerns emerged as early as six years ago, when the country banned Huawei from helping to build a government-backed national broadband network. More recently the nation said this year it would stop using Huawei and ZTE smartphones for all of its military personnel.

The U.S. previously rolled out a similar informal ban on the use of Huawei and ZTE equipment in all national communications networks, and is now considering legislation that would ban the use of such equipment in all government projects.

To understand all the to-do, we need to take a brief walk back in time to modern China’s recent socialist past when everything was state-owned. In the nation’s first three decades, businesses like banks and telephone companies were just central government arms whose main purpose was to implement centrally planned economic directives. Officials moved freely between government ministries and the industries they oversaw, and such practice continues to this day in state-dominated sectors like banking and telecommunications.

Today’s private sector is a bit more independent, though also still subject to occasional government meddling beyond the usual regulation. One example is the government officials that reportedly sit inside most of the nation’s major internet companies monitoring them for content considered politically sensitive or inappropriate. Talk has also circulated that Beijing could purchase strategic stakes in such firms to give the government greater say in their boardrooms and strategic planning.

That brings us back to companies like Huawei and ZTE, which both profess to be private even though they probably have regular government contact. What’s more, Beijing almost certainly reserves the right offer its “guidance” to these and any other companies anytime it desires, which is probably where the big concerns lie in Washington and Canberra. My own personal view is that Huawei and ZTE equipment and smartphones are probably no less secure than products from other countries right now. But there’s no guarantee that the situation couldn’t change if Beijing decided to take a different approach.

I’ll end with a few thoughts from my survey, which asked if local people trusted Huawei’s products to protect their privacy and whether Canberra’s latest move was justified. The two respondents who directly addressed the Canberra question were divided, one saying he wouldn’t trust Huawei’s equipment while the other said existing legal frameworks should have been used.

The one theme that did come out from my six or seven braver respondents was that no one feels particularly secure using Chinese-made networks or smartphones. One person summarized the broader feeling quite nicely: “I’ve already given up on the idea of privacy protection, not only for smartphones, but for everything from bank cards to staying in hotels. I’m used to the fact that my personal information may be sold,” he said. “If I was a foreign government, from the perspective of protecting citizens’ personal information, I would have similar scruples to those expressed by Australia.”

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
Copyright © 2017 Caixin Global Limited. All Rights Reserved.