Holmes Report 14 Oct 2012 // 11:00PM GMT
Earlier this month, the US House Select Committee on Intelligence released its report of a yearlong investigation of two Chinese telecommunications equipment manufacturers, Huawei and Zhongxing Telecommunications Equipment Corporation (ZTE). At issue was whether or not the US businesses of those companies constituted a national security risk.
Based on the publicly available version of the report, the Committee uncovered no smoking gun, recounting instead a series of allegations made against the companies and using the firms’ reluctance to divulge proprietary information and explain the operation of their in house Party committees to suggest that both were tools of Beijing.
(Never mind that no company would divulge trade secrets in a public forum, and that every company operating in China, including American and European multinationals, is required to maintain a largely pro-forma Party committee.)
In the end, the best case the Committee could make against the telecom giants (now ranked first and fifth in the industry worldwide) was that they had “means, opportunity and motive” to undermine US security, and that was enough to exclude them from doing business in the US.
Based on that specious logic, every gun owner should be convicted of murder and every parent of an irritating kid convicted of child abuse.
Furthermore, by its recommendations the Committee has proven that the national security issue is a red herring. If a potential vulnerability could be baked into network hardware, all equipment made outside of the US or by a non-US firm would be suspect, and no foreign carrier should trust American-made network gear.
If the Committee were truly interested in strengthening America’s cyber-defense, they would not red-line these two companies, but demand extensive testing of all of the gear in our networks regardless of provenance. “Distrust but verify,” as The Economist suggested, or, as the Romans said, “caveat emptor.”
The real issue appears to be a fear of China. A surprising portion of the Committee’s report focuses not on Huawei or ZTE, but on documenting China’s conduct of espionage against the United States and the PRC’s implicit encouragement of cybercrime.
The report’s release one month before an especially divisive US election wraps it in a larger context that blames China for de-industrializing America, raising global oil prices, manipulating currency, and polluting the planet.
The Chinese government has done little of late to help the cause of its leading enterprises. From its ham-fisted industrial espionage efforts to its seemingly gratuitous belligerence in the South China Sea and the Senkakus to its reprehensible stance on Syria’s Assad regime, Beijing has tarnished Brand China and, by extension, its nascent multinationals.
Against this background, Huawei and ZTE have caused an understandable shock to the American system. Given China’s reputation for intellectual property theft, poor quality, and cheap goods, the very idea that a Chinese company could leads via quality and innovation seems to be such a non-sequitur that we reflexively discard it is impossible.
What is more, Huawei and ZTE are the first companies in seven decades to challenge US leadership in a core American industry that have not hailed from an ally or a client state. It is bad enough they are foreign: it is unforgivable that they are from a country that doesn’t toe Washington’s line.
In an age of rising Sinophobia, then, Huawei and ZTE are guilty of the worst crime possible: they are Chinese. If the companies have failed in any way, it is in underestimating how much their provenance would cost them in overseas opportunities.
The lesson that the Huawei and ZTE case offers to Chinese companies and PR practitioners is clear: it is an increasingly hostile world for Chinese companies venturing abroad, and a Chinese heritage is a liability in the world’s most lucrative markets. In both word and deed, Chinese companies venturing abroad must proactively shed the taint of Brand China, standing apart from association with and the actions of the government.
Doing so will be neither easy nor fast, and it presumes an effort that precedes overseas business. It requires accepting a degree of transparency with which most Chinese executives would be extraordinarily uncomfortable. And it demands that a company first seek within itself those traits or behaviors that could trip it up overseas and openly expunge them.
Sinophobia is not going away anytime soon, but it need not be a life sentence. The Chinese government will do what it will; a cohort of transparent, well-behaved, successful Chinese multinationals can do more to cure Sinophobia than cloying words from the Ministry of Foreign Affairs.
The sad irony is that China’s baby multinationals must rise above their heritage in order to save it.
David Wolf is CEO of Beijing consultancy Wolf Group Asia.