U.S. Weighs Curbs on Chinese Telecom Firms Over National-Security Concerns

Huawei, ZTE caught in growing tech feud between Washington and Beijing

By John D. McKinnon

The U.S. worry about Chinese telecommunications companies is driven largely by longstanding concerns that the Chinese government uses the companies’ network equipment to spy on or disrupt U.S. networks. 

WASHINGTON—The Trump administration is considering executive action that would restrict some Chinese companies’ ability to sell telecommunications equipment in the U.S., based on national-security concerns, said several people familiar with the matter.
The move, if it happens, would represent a significant escalation of a growing feud between the U.S. and China over tech and telecommunications. 

The affected firms likely would include Huawei Technologies Co. and ZTE Corp.

They have found themselves increasingly in an international crossfire.
Pentagon officials said this week that they are moving to halt the sale of phones made by the two companies on U.S. military bases around the world. 

U.S. officials are concerned that Beijing could order manufacturers to hack into products they make to spy or disable communications. 

The latest action could come in the form of a White House executive order, possibly in the next few weeks, people familiar with the matter said. 

One possibility under consideration has been curbing the ability of companies doing business with the U.S. government from using network equipment made by companies that could pose a national-security risk.
Significant complexities remain, however, including the exact scope of the possible order, and no final decisions have been made. 

A spokesman for the White House National Security Council said officials “have no comment on the matter at this time.”
ZTE didn’t immediately respond to request for comment. 

Huawei declined to comment specifically on the potential executive order but said that security and privacy were key priorities for the company.
The effort is being driven largely by longstanding concerns that the Chinese government could use the companies’ network equipment to spy on or disrupt U.S. networks. 

The U.S. and several of its allies recently have stepped up scrutiny of how the Chinese firms’ equipment is used in networks.
The issue has played into broader friction over trade between the two countries. 

Longer-term, U.S. officials also are concerned about whether China or Western democracies will win the race to develop next-generation networks.
Already this year, the Commerce Department has banned American companies from selling products to ZTE, over its violation of previous sanctions involving North Korea and Iran. 

Huawei is under investigation by the Justice Department over similar concerns.
The Federal Communications Commission also recently launched a rule-making process that is expected eventually to lead to curbs—mainly affecting smaller and rural telecommunications firms—on providers’ ability to use federal universal-service funds to buy Huawei and ZTE equipment.
The administration also is beginning to look more closely at finding ways to restrict more kinds of technology transfers from U.S. firms to China.
Chinese officials have warned that they will take steps to retaliate if the U.S. intensifies its efforts against firms such as Huawei.
San Diego-based Qualcomm Inc. has already been caught in the dispute, suffering a delay in its effort to acquire Dutch automotive chip maker NXP Semiconductors NV, a purchase the U.S. company needs to diversify its product line as the smartphone market plateaus. 

China, which has a say in the deal as one of several countries where the companies have substantial sales or assets, initiated the delay.
Some U.S. lawmakers of both parties are concerned about the possibilities for sophisticated electronic espionage.
Sen. Mark Warner (D., Va.), the vice chairman of the Senate Intelligence Committee, “does think we have to take seriously the risks potentially posed by Chinese telecom in our systems,” a spokeswoman said.
The U.S. and China also are locked in a duel over next-generation networks, with the U.S. aiming to block China’s ambition of developing the technology to build and run them around the world.
Still, the potential U.S. move also raises thorny questions, such as whether it should be limited to core network equipment, or extend to handsets, some industry officials said.
“Addressing global supply chain security concerns has long been a priority for the tech industry,” said Pamela Walker, a vice president at the Information Technology Industry Council, an advocacy group. 

“Moving forward, we urge policy makers to share information with suppliers and contractors so we can increase the level of security and assurance within the supply chain.”
Officials have considered whether security tests could be used to screen some suspect equipment—a move that could simplify the effort at one level, but also create new complications.
Huawei is the world’s biggest supplier of wireless equipment and No. 3 vendor of smartphones. 

The Shenzhen-based company has been all but shut out of the U.S. telecom market since a 2012 congressional report said its equipment could be used for spying.
ZTE recently has been the fourth-largest seller of smartphones in the U.S.

Rogue Nation

The Chinese Dragon Bares Its Teeth, But Meets Unexpected Resistance
By Douglas Bulloch

Over the course of this year, as Donald Trump has unsettled himself into the U.S. Presidency, one relatively clear policy area that has emerged is the slow ratchet of pressure on China. 

Incendiary rhetoric from the campaign abated for a time – after a congenial meeting at Mar-a-lago in March – but clearly Trump had intended China to take away inferences from that meeting that China duly, and predictably, ignored. 

It may be the Trump team fully expected this outcome, and that the current round of twitter bridling was also long planned. 

Either way it matters little. 

The several areas of dispute where Chinese and U.S. interests overlap are all now in the spotlight.
Consequently, the U.S. has recently announced – and conducted – more regular FONOPS missions in the South China Sea, a significant arms deal with Taiwan, and the newly elected dovish President of South Korea has now authorised a more extended THAAD deployment after briefly flirting with de-escalation. 

Furthermore, although the U.S. secured some advances on trade with China which have not yet been reversed, they have made little secret of their disappointment now that further progress has stalled. 

All the talk in Washington at the moment is of further action against China on the question of technology transfers and IP protection.

Diplomatic Shape Shifting
Attempting to get all this in perspective has led some to conclude that the U.S. is struggling to retain influence in the region, as China's Belt and Road Initiative dominates the attentions of investors, particularly in the wake of Trump's abandonment of the Trans Pacific Partnership (TPP). 

This interpretation is reinforced by the lack of success the U.S. has so far had in pushing back against Chinese expansionism in the South China Sea and its failure to stop North Korea's missile programme.
China's reactions to U.S. pressure, however, characterised by deflection over North Korea, naval cooperation with Russia, and open displays of military readiness, are not providing any comfort for those regional states who might be persuaded to think again about the strength of their relationship with the U.S. 

Indeed, countries that are not historically close to the U.S. have recently been the focus of China's more assertive posture.
In the South China Sea, a Vietnamese decision to commence appraisal drilling for gas in contested waters was reversed after overt threats of Chinese military intervention. 

Now a remote Himalayan valley is hosting a sharp stand-off that has newspapers in India considering the prospect of war. 

And to the North, Mongolia has seen the election of a new President who makes no secret of his hostility to China. 

What happened to China's peaceful rise to regional hegemon? 

What happened to the cooperative spirit of the BRICS? 

What does it all mean for the Belt and Road Initiative?
There are many detailed conclusions that might be drawn about each question, but right now South Korea's response to North Korea's missile development is a work in progress, Japan is on the move strategically, and India is holding firm over Doklam, so until things settle down much will remain unclear. 

What is clear, however, is that there is an ongoing reassessment taking place across the region, with clear strategic realignments taking place, but it is not all going China's way.
While the focus right now is on North Korea, it is also the case that this particular problem has long been moving in the same direction. 

Trump has failed to prevent North Korea developing their capabilities so far, but China is clearly feeling the heat and may yet act more decisively against their erstwhile allies. 

In other areas there are real changes. 

Japan, South Korea and Taiwan all remain firmly in the U.S. orbit, now Vietnam and India are making explicit overtures for U.S. support. 

After years of friendly exchanges with the Obama administration, Vietnam has this week announced the visit of a U.S. aircraft carrier scheduled for next year.
India, on the other hand, has seen Narendra Modi visit the White House for an unexpectedly friendly exchange, amid murmurings about 'freedom of navigation' – code for the possibility of naval engagement in the South China Sea – while bluntly refusing to concede to China's increasingly belligerent demands over Doklam.
At a broader level, India and Japan have long been growing closer, cementing an India/Japan initiative called the Asia Africa Growth Corridor, which shows some similarities to China's Belt and Road Initiative. 

Then behind all this, the strategic support of the U.S. for such a development would suddenly see China facing a rather different world than they were expecting. 

Indeed, they even went so far as to condemn India's alliance with Japan, linking it to their own unwillingness to support India's bid permanent member status in the UNSC.
As the U.S. retreats, so the need for the U.S. advances.
After all these months of diplomatic manoeuvring, it is difficult to escape the conclusion that the mere prospect of U.S. withdrawal, however distant, has focussed attention on what a China led regional order might look like. 

In particular, that multitude of territorial claims that China makes on almost all of its neighbours now looks less like a historical detail, and more like a growing problem, a problem to which the most obvious answer happens to be a stronger relationship with the U.S.
While the focus of the world's attention over recent months has been the U.S., therefore, it is also worth considering how the world is changing for other aspirant powers. 

Where China publicly claims to oppose North Korea becoming a nuclear power, it more certainly opposes the deployment of THAAD in South Korea, and it has failed on both counts. 

It has stretched its arms towards ASEAN, but instead of successful diplomatic persuasion has resorted to tin-eared military threats to prevent a unified rejection of their South China Sea grab. 

With the U.S. it faces more pressure on a trade relationship the economy depends upon, and with India – a fellow BRICS country – they are issuing daily threats against them. 

Hardly the most auspicious backdrop to the forthcoming 19th Party Congress.