What do we mean when we say a Chinese company has “close ties to the government”? Or is “connected to the military”? And does this matter?
It is a problem that writers on China have encountered for years, and it can be difficult get firm evidence. But now Congress is getting interested in those questions, and the results (if they go public) could make for fascinating reading. Members of the House Intelligence Committee who are investigating spying threats from China have asked two big Chinese telecommunications firms active in the United States to explain their relationship with the Chinese government. In letters to Huawei and ZTE Corp., the lawmakers are asking, for instance, about the role of the “Party committee” and the “work the two companies have done in Iran and their funding arrangements with the Chinese government.”
Depending on what this probe turns up, this could help unravel one of the most perplexing questions about big Chinese firms. Take Huawei, for instance. On one level, it looks and acts more like a Western tech company than one of the big state-owned behemoths we hear so much about. It’s a closely held company, owned by its employees, and already the world’s second-largest telecom-equipment maker, working all over the world, with twenty-three R. & D. centers and a staff of a hundred and forty thousand people, including a lot of Chinese engineers from M.I.T. and Stanford. And it is innovating—it filed for more international patents than any other company in 2008. The founder spent ten years in what has been described as China’s equivalent of the Army Corps of Engineers, before founding the company, which is one reason why people have long wondered about its links. But in a valuable piece by Sheridan Prasso in Fortune last year, the company pushed back on this idea, saying much of the speculation stems from an instance of “mistaken identity,” repeated in a spin cycle from news accounts to think-tank reports, which confused it with “another Chinese company with a similar name which was in fact headed by a PLA officer and may have sold optical communications gear to Iraq under Saddam Hussein.” “There was some confusion there,” a company spokesman, Bill Plummer, told Fortune. “Huawei has never delivered any military technologies at any time.”
That sounds plausible. But then there is that other piece of the puzzle that is not so clear—part of what we think of as China’s expanding body of unwritten rules. In the domain of business and government relations, a company, regardless of how private it is, can be called to provide sensitive proprietary information in the name of national security at any time. In 2010, the government compelled companies to provide encryption codes. You might think a firm would resist, to protect the brand and the appearance of independence, but it has few options. Since the Party has ultimate authority over the banks and the security services, it can decide whether a company is a good candidate for a loan, or, conversely, a prime target for a corruption investigation. As Adam Segal, the China technology and security expert at the Council on Foreign Relations, put it at the time, “Private companies in China are always wondering what the government is going to want next.”
Adding to the opaqueness about where the boundaries lie between companies and government, the C.E.O.s of Chinese state-owned enterprises are shuffled between companies much the way that local Party secretaries are. At times, Chinese companies have undertaken what amounts to their own foreign policy, pursuing major pipeline or hydropower projects, with all the stature of a sovereign power. (Indeed, often the local ambassador in a small country is outranked, in the Party hierarchy, by the head of a large firm.) And in yet more cases, it can be difficult to separate what is a contract and what is foreign aid. In Kenya, for instance, where Chinese telecoms have won about eight per cent of the regional market, the C.E.O. of a big Kenyan telecom complained privately to the U.S. embassy that he was being pressured by ministers to make deals with China, or else “put all Chinese foreign assistance to Kenya at risk,” as one piece put it.
Both Huawei and ZTE have pledged full coöperation with the lawmakers’ questions, but I would not expect them to be any more forthcoming than they can legally manage. Part of the complexity about being a big Chinese company is that it’s not clear what information related to your relationship with the government counts as a secret. I, for one, will be watching to see where this goes. If anyone out there has insights into the ways Chinese companies deal with these issues, let me know.
Photograph by Zhan min/Imaginechina/AP.
