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Huawei Asks to be Investigated

February 27th, 2011 Leave a comment Go to comments

Recently I wrote about the unfair suspicion and distrust and bad mouthing systemically heaped upon China and Chinese companies by many in the U.S. Well, finally, one company – Huawei – has decided to fight back.

According to this article from WSJ,

BEIJING — Chinese telecom equipment maker Huawei issued a public invitation Friday to U.S. authorities to investigate the company to dispel what it says are mistaken fears that it is a threat to American national security.

Huawei Technologies Ltd. made the unusual appeal in a letter on its website following its announcement last week it would unwind its purchase of American computer company 3Leaf Systems after it failed to win approval from a U.S. security panel.
“We sincerely hope that the United States government will carry out a formal investigation on any concerns it may have about Huawei,” says the letter, signed by Huawei deputy chairman Ken Hu.

The company rejected what it said were untrue allegations that it has ties to China’s military, receives improper Chinese government financial support or is a threat to American national security.

“There is no evidence that Huawei has violated any security rules,” said the letter.

Huawei is one of the biggest makers of network switching gear and reported sales of $28 billion last year. It has struggled to gain a foothold in the United States against rivals such as Cisco Systems Inc.

While Huawei is valiant, I personally am not optimistic, at least not for the short term. The obstacles to the U.S. treating China fairly is too high. Still, one has got to begin somewhere. And confronting the U.S. government to stop treating Chinese companies based on hearsays and innuendos is an important first start.

A copy of Huawei’s open letter to the U.S. government can be found on Huawei’s website, copied below:

We would like to provide the basic facts behind the recent 3Leaf matter that has been the subject of much attention and discussion about Huawei. These facts will not only help understand the real situation behind the proposed acquisition, but also Huawei’s position on this matter. They will also clarify some long-standing and untrue rumors and allegations regarding Huawei.

Futurewei, Huawei’s U.S. subsidiary, purchased certain assets from 3Leaf, an insolvent technology start-up located in Santa Clara, California, in May and July 2010, when 3Leaf was ceasing its operations and no other buyers for its intellectual property were forthcoming. Huawei submitted a timely request to the Bureau of Industry and Security at the Department of Commerce in advance of completing the purchase in May and the Department of Commerce certified that no license was required to export the 3Leaf technology. After learning that CFIUS was interested in the 3Leaf transaction, Huawei submitted draft and formal voluntary filings to initiate a CFIUS review of the transaction in November 2010.

On February 11, 2011, CFIUS formally notified Huawei that it recommended that Huawei withdraw its notice under terms dictated by CFIUS. We originally decided to decline the offer with an intention to go through all of the procedures to reveal the truth about Huawei. However, the significant impact and attention that this transaction has caused were not what we intended, and on February 18, we decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf.

The United States of America is a great country and one for which Huawei has always had the utmost respect. The values of democracy, freedom, rule of law and human rights in the U.S. are the very values that we at Huawei respect, advocate, and live by. As a company, we are learning much from our close links with the American people. In his inauguration speech, President Obama said, “On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord. On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics.” We share that vision, and it is the foundation on which we have sought to build our cooperation with American firms as we have invested and grown our business in the United States over the past decade.

Who We Are

Huawei Technologies, founded in 1987 in Shenzhen, China, is a private company owned entirely by its employees. We are currently the second largest telecommunications equipment provider in the world.

Huawei is committed to being a long-term investor in the United States where we already have over 1,000 U.S. employees. In 2010, we purchased products and services from American companies totaling some US$6.1 billion. Our investment in research and development activities in the United States has grown by an average of 66% per annum and it reached US$62 million in 2010. We have long been offering innovative products and services to our customers in the United States and we have always been a responsible investor, employer, taxpayer and corporate citizen.

Facts versus Misperceptions

Unfortunately, over the past 10 years, as we have been investing in the United States, we have encountered a number of misperceptions that some hold about Huawei. These include unfounded and unproven claims of “close connections with the Chinese military,” “disputes over intellectual property rights,” “allegations of financial support from the Chinese government,” and “threats to the national security of the United States”.

These falsehoods have had a significant and negative impact on our business activity and, as such, they must be addressed as part of our effort to correct the record.

First, the allegation of military ties rests on nothing but the fact that Huawei’s founder and CEO, Mr. Ren Zhengfei, once served in the People’s Liberation Army. Born on October 25, 1944 into a rural family where both parents were schoolteachers, Mr. Ren spent his primary and middle school years in a remote mountainous town in Guizhou Province, and studied at Chongqing Institute of Civil Engineering and Architecture, where he graduated in 1963. He was employed in civil engineering until 1974 when he joined the military’s Engineering Corps as a soldier tasked with building the then French-imported Liao Yang Chemical Fiber Factory. From there, Mr. Ren was promoted to Technician, Engineer and Deputy Director, a deputy-regimental-chief-equivalent professional role that had no military rank. Because of his outstanding performance, Mr. Ren was invited to the National Science Conference in 1978 and the National Congress of the Communist Party of China in 1982.

After retiring from the army in 1983, when China’s central government disbanded the entire Engineering Corps, Mr. Ren became dissatisfied with his job at the logistics service base of the Shenzhen South Sea Oil Corporation and decided to establish Huawei with RMB 21,000 (about US$2,500) in capital in 1987. He became the President of Huawei in 1988 and has held the title ever since.

It is a matter of fact that Mr. Ren is just one of the many CEOs around the world who have served in the military, and it is also a matter of fact that Huawei has only offered telecommunications equipment that is in line with civil standards. It is also factual to say that no one has ever offered any evidence that Huawei has been involved in any military technologies at any time.

The second issue is about intellectual property rights. Since our establishment, Huawei has respected and protected the rights of all intellectual property holders while vigorously defending our own intellectual property rights. We have applied for 49,040 patents globally and have been granted 17,765 to date. In addition to our own innovations, we buy access to other patent holders’ technologies through cross-licenses. In 2010, Huawei paid western companies US$222 million in licensing fees. Of that total, US$175 million was paid to American firms. For example, over the years we have paid U.S. company Qualcomm more than US$600 million in fees related to their intellectual property. The fact that Cisco withdrew the lawsuit it filed against Huawei in 2003 regarding allegations of intellectual property rights infringement further vindicates Huawei’s position in that matter and supports our position that we are only engaged in legitimate business practices. We learned from that experience that while disputes may arise in the course of business, they can be settled properly through bilateral negotiations.

With respect to the claim that Huawei receives financial support from the Chinese government, the truth is that we operate like any other private corporation. Our company is financed through capital from our shareholders and through normal commercial loans. In addition, Huawei is headquartered in the Shenzhen Special Economic Zone, so our company has always grown within a market economy.

Like many other companies that operate in China, Huawei receives tax incentives provided by the Chinese government to high-tech enterprises and support for some of our research and development initiatives. This is similar to tax incentives offered by American government agencies to U.S. companies. In 2010, Huawei received a total of RMB 593 million (USD$89.75 million) of financial support from the Chinese government for our research and development activities. All of this is consistent with financial support that is provided to normal businesses in China and in many other countries, including the United States.

The credit lines made available through Huawei by China’s commercial banks are actually designated for Huawei’s customers, not Huawei. As an intermediary, Huawei recommends loans to our customers and, once taken, our customers are responsible for paying the principle and interest directly to those banks. It is important to note that these types of loans only represented about 9% of Huawei’s annual income in 2010, a level that is similar to our industry peers. In 2004, the China Development Bank agreed to offer a US$10 billion buyer’s credit line to our customers and the amount was subsequently increased to US$30 billion in 2009. As of today, US$10 billion has been loaned to our customers from the China Development Bank.

The allegation that Huawei somehow poses a threat to the national security of the United States has centered on a mistaken belief that our company can use our technology to steal confidential information in the United States or launch network attacks on entities in the U.S at a specific time. There is no evidence that Huawei has violated any security rules. Not only that, in the United States we hire independent third-party security companies, such as EWA, to audit our products in order to certify the safety and reliability of the products at the source code level. In addition, Huawei has established a “trusted delivery” model to protect the security of networks we supply.

If the United States government has any real concerns of this nature about Huawei we would like to clearly understand those concerns, and whether they relate to the past or future development of our company .We believe we can work closely with the United States government to address any concerns and we will certainly comply with any additional security requirements. We also remain open to any investigation deemed necessary by American authorities and we will continue to cooperate transparently with all government agencies.

As a privately-owned civil communications equipment provider, we were the first company to establish an end-to-end network security system globally. We have been actively tackling challenges of network security through partnerships with network security regulators throughout the world. We believe that security problems will become more and more significant for everyone in our industry as the amount of data continues to grow rapidly. We are committed to working together with governments in all countries to take all necessary measures to protect information security.

Former American president Abraham Lincoln once said, ”Character is like a tree and reputation like its shadow”. In recent years, misperceptions and rumors have been the shadow of Huawei, affecting Huawei’s reputation and, we believe, the United States government’s judgment of Huawei. We sincerely hope that the United States government will address this issue by carrying out a formal investigation of any doubts it may have about Huawei in an effort to reach a clear and accurate conclusion.

The American telecommunications market is the largest in the world and Huawei has been striving to demonstrate our capabilities with a view to becoming a key contributor in this important market. However, unfounded accusations have jeopardized our business activities, with many false claims driven by competitive interests, which we understand because competition can be difficult. Huawei’s world-leading wireless broadband technologies can bring American telecom operators, as well as the general public, more advanced technologies and higher network speeds at a lower price. With the structure of wireless base stations becoming simpler, they do not pose any threat to national security, just as mobile phones do not pose risks to national security. While we can commit to not selling any products that concern American operators, we sincerely request guidance from the United States government on the scope of such restricted products and the duration of the related restrictions, as certain technologies that may seem crucial today will lose their leadership and sophistication over time. A full and permanent restriction is way too costly and unfair to any company.

We sincerely hope that the United States government will carry out a formal investigation on any concerns it may have about Huawei. The United States is an advocate for democracy, freedom, rule of law, and human rights. The United States government has demonstrated its efficiency in management, fairness and impartiality and we have been impressed by that ever since we made our first investment in this country some 10 years ago. We have faith in the fairness and justness of the United States and we believe the results of any thorough government investigation will prove that Huawei is a normal commercial institution and nothing more.

  1. Charles Liu
    February 27th, 2011 at 23:22 | #1

    A quick survey on Google News demonstrates the asymmetry in our media’s characture of Huawei:

    Search keywords “Huawei People’s Liberation Army” – 133 articles

    Search for reprint of the open letter by quoting a sentence – 2 articles.

    It appears our media is bent on linking Huawei with the Chinese military in the public opinion realm, thru a sea of disinformation.

  2. February 28th, 2011 at 06:30 | #2

    I’m personally very pessimistic about Huawei (and all other Chinese companies) chances in US and Europe. It’s frankly overt racist stereotype.

    Any Chinese companies that is doing well, must be doing so because (1) they steal secrets, and/or (2) they are backed by Communist government.

    Yeah, Chinese students can work for US companies, file tons of patents for US companies, but if they go back and do the same for Chinese companies, (or start their own companies in China), suddenly it’s national security.

    *
    But I do believe Huawei and other Chinese companies should fight back, and fight back hard. Even if they don’t win, they have to keep fighting for their reputations, and expose the xenophobia that is rampant in US and Europe.

    And they should sue politicians and media for defamation as much as possible.

    For the principle of it.

  3. SilentChinese
    February 28th, 2011 at 06:44 | #3

    Any one has seen Ren Zhenfei in action to get a taste of what this guy is like?

    The latest fight has his signiture all over it.

    He is one determined and single minded dude. He is one of the craziest and focused individual (CEOs) I have ever seen. a true genuine tough nut.

    He will not give up. He will crack the N.A. market one way or the other to beat Ericsson.

    as to the talk that he is a former PLA engineer etc.
    I mean f**K. find me a fortune 500 american company that does not have a single exectutive that had military service.
    This is pure nasty smear campaign by the money drenched whores pretending to be fair-and-balanced media.

  4. SilentChinese
    February 28th, 2011 at 07:28 | #4

    I can for the love of god post this on comment section of “Is It Advocacy, or Is It SPAM?” .
    so I post it here.
    @J.-c. Chu

    Come on.

    Any one worked in a big multinational (especially the industrial-defence-IT kind) would tell you that they (the multi-national’s IT department) always have a very mean firewall.
    stuff like facebook/internet mail/ any semi-entertaining site/ streaming media/ huhffington post / anything not catagorized/ are usually on the list. and they monitor each and everyone’s internet access, c-o-n-s-t-a-n-t-l-y.

    what you said about GFW also applies to these IT department and their firewalls

    ” fund-a-mentally ….. agg-ressi-vely cen-sored, without an ex-plan-ation.” etc etc/

    I don;t see these corporate employees having trouble interact with outside world or have their critical thinking skills retarded.

    typical americans who works for these big companies work like 50 some hours a week behind these firewalls. assume an average person spends 2/3 of his/her life awake. that is half of their adult working life is spent behind a corporate firewall that will block out facebook/y-tube/twitter. Do I see people waving pitch forks and demanding free-dom? no. I do see them go their bed praying that they don’t get fired from these places tomorrow!

    If fortune 500 companies overwhelming decided that it is good and not conterproductive to trade a little free-dom for alot security and order, then one would understand why chinese commies does not see the trade between freedom trade security an difficult choice…prevailing winds of ideologies aide. which shows how fragile and non-sensical these ideologies are.

  5. February 28th, 2011 at 10:18 | #5

    http://www.popsci.com/science/article/2011-02/tuning-laser-pull-rather-push-researchers-propose-working-tractor-beam

    Fudan University researchers author paper on a negative momentum “pull” /tractor beam

  6. March 2nd, 2011 at 01:01 | #6

    Fauna of chinaSMACK has a good post out – “Huawei’s London Underground Bid Blocked, Chinese Reactions

    It’s mainly a translation of Chinese reactions to this story over at NetEase.

  7. deldallas
    March 2nd, 2011 at 02:15 | #7

    I think just about anyone, anywhere in the world that runs a telecommunications company this is big is deeply-connected to their local government; Ren Zhenfei is definitely unlikely to be an exception. (Unfortunately) protectionist efforts are high in most economies these days and China’s however-deserved-or-undeserved notoriety for piracy/data-theft/espionage makes companies like Huawei an extraordinarily easy target. I’ve spent plenty of time living in China and, putting the U.S.-gov’t aside, I don’t think the laobaixing trust CCP-linked organizations with their electronic data either.

  8. SilentChinese
    March 2nd, 2011 at 07:51 | #8

    @deldallas

    I just had a conversation with very close relative who works for in the deep bowels for HUawei’s competitor on this subject.
    There is no difference if CCP or republicans are in charge.
    privacy is a charade in this electronic age.
    bottom line is there is no such thing is information security and privacy in this day and age for the common man. anything going over the air and on to a fiber it is relatively easy to bug and monitor. citizens of West included and especially.
    want something private? write on a peice of paper.

  9. SilentChinese
    March 2nd, 2011 at 07:54 | #9

    @deldallas

    privacy is just an issue interest groups (corporations, government) use to rile people up to support their financial and strategic goal. There is no privacy no matter who supplies your backbone, routers and 4-G transmitters. It is trivial to tap these things and don’t think some laws on the book can safe guard privacy. Privacy is an illusionary right people have. they lost it already.

  10. March 2nd, 2011 at 08:20 | #10

    “I don’t think the laobaixing trust CCP-linked organizations with their electronic data either.”

    That’s just the Chinese Laobaixing being realistic.

    Now, I’m sure some Chinese Laobaixing would wonder why Western Laobaixing would trust any supposedly private companies such as Google with their electronic data, when Google’s own use policy statements say they can do whatever they want with the user’s data?

    http://www.google.com/privacy/privacy-policy.html

    “•We have a good faith belief that access, use, preservation or disclosure of such information is reasonably necessary to (a) satisfy any applicable law, regulation, legal process or enforceable governmental request.”

  11. SilentChinese
    March 2nd, 2011 at 09:48 | #11

    mean while. SecState Hillary Rodham Clinton has just cut the crap and said this infront of US Congress.

    “We are in a competition for influence with China,” she said. “Lets put aside the humanitarian, do-good side of what we believe in. Lets just talk straight real politik. We are in competition with China.”

    “She noted a “huge energy find” in Papua New Guinea by U.S. company Exxon Mobil — which has begun drilling for natural gas there — and said China was jockeying for influence in the region, seeing how it could “come in behind us and come in under us.””

    I applaud her for her brutal honesty.

    http://www.google.com/hostednews/canadianpress/article/ALeqM5j4DsgGuXYEFAu9P7Mo5CFlMWGHwQ?docId=6116912

    The logic goes like this:
    * Chinese want to have higher living standards and China want to be a developed country. She needs energy and resources.

    * US also need these same energy and resources to maintain her citizen’s life style (with highest per-capita Carbo emission in the world-higher than that of saudi arabia) and her currentposition as a predominate global power.

    * If left unperturbed china would prob reach its development goals with 8-10% year on year growth in due time.

    * so in order to have these resources all for herself. China must not be allowed to develope. she must be de-railed, either through military containment, a made-up conflict, or a manufactured internal upheavel. or a combination of all three

    this logic purely about interest of US and has nothing to do with freedom or human rights.
    clearly by placing interest of US above that of China. and the inevitable logic that man, far from all created equal, that some (Americans) has more right to the resources of this earth than that of the unworthy Chinese. The average CHinese can not be allowed to have the same level of energy consumption (and by extension living standard) of US. period. This has been shown again and again in CLimate talks in Kyoto, Bali and Coppenhagen. That US will not give up its carbon economy and does not recognize the common but differentiated responsibilty.

    I retract my statement,.
    This has nothing and Everything to do with Freedom and human rights. just not the kind they would like you to believe in.

  12. deldallas
    March 2nd, 2011 at 15:07 | #12

    @raventhorn2000
    I don’t think anyone should trust any corporation/government too much, but, in multiple cases, Google has shown greater resilience to releasing data than that of its competitors — so that lends it a higher level of trust with many folks around the world.

    I also think Google understands that for an international corporation, trust is vital (thus its internal “don’t be evil” motto) — if people don’t think your company is the most trustworthy and they have alternative options, they might choose the alternative option. So if you have a business model where trust is how you preserve long-term revenue growth, what else are you going to do?

  13. deldallas
    March 2nd, 2011 at 15:12 | #13

    @SilentChinese
    Right, average U.S. citizens are already concerned enough that the U.S. government is misusing their data. They don’t want to be concerned that BOTH the U.S. and Chinese governments are misusing their data.

  14. March 2nd, 2011 at 15:12 | #14

    @deldallas #12,

    In terms of trust in general, if we shouldn’t trust governments and corporations too much, who should we trust? Bloggers? Well certain bloggers like us might be trusted, but what about 99% of all others? There are tons of misinformation, disinformation, and just raw garbage out there.

    Non-profits and religious organizations? Non-profits in the end chase after donations. If we trust them systemically, we might as well trust money and rich people to run our world and be done. As for trusting religious organizations, I have nothing against them, but I don’t want to RELY on any of them to do important things for society.

    Call me gullible. But if I have to choose, I choose government. At least government has a mandate (that everyone agrees on across all cultures) to take care of the people. Everyone else is just backseat drivers in my humble opinion.

  15. March 2nd, 2011 at 15:54 | #15

    “in multiple cases, Google has shown greater resilience to releasing data than that of its competitors — so that lends it a higher level of trust with many folks around the world.”

    Putting on a show complaint about privacy is not that much of a resistance.

    How does Google justify standing up to Chinese government, but then just merely complain and subsequently acquiescing to US government?!

    Western citizens are so easily fooled by such PR gambits. Seriously, so trusting for such simple tricks.

  16. deldallas
    March 2nd, 2011 at 21:39 | #16

    @raventhorn2000
    Perhaps it is also a PR gambit that Sergey Brin, the co-founder of Google, is a Jewish immigrant from Soviet-era Russia who deeply resents how government security controls crushed his father’s career opportunities and convinced him that they could live a better life in America. This would fit cleverly into Google’s PR too.

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