CHINA AND HI-TECH: COMPETITION AND CAPABILITIES   

    

"Huawei is state directed.  You know Huawei is state directed because the Party does not allow large independent firms in strategic sectors like telecom."

 

A pril 23, 2019

DEREK SCISSORS

I do want to say one thing about technology, within investment.  I am not qualified to talk about firms as intelligence threats.  I would never stand up here and say, "Let me explain to you how Chinese firms are monitoring us."  I don't know.  I know I'm being monitored, but I don't know who's doing it or how.  The Chinese are unsubtle about letting you know you're being monitored.

Huawei is state directed.  And you know Huawei is state directed because the Party does not allow large independent firms in strategic sectors like telecom or banking or power or oil etc.  

So anybody telling you Huawei is private ... . There is just a paper out on this that was put out by Chris Balding and somebody else, sort of going through what the worker ownership of Huawei means and how it doesn't hold up to scrutiny.  I don't need that.  What I need is, when I ask a Chinese government official, "Name the big private Chinese players in telecom," they are like, there aren't any, you idiot.  Because there aren't any.  So Huawei is state controlled.  Chinese firms in telecom are state controlled.  Chinese semi-conductor firms are state controlled... state money.  I don't know what they do.  That's not what I'm saying.  I'm saying, drop the pretext that they are not being directed as necessary and when necessary by the state. 

The third and final speaker at last week's event was Naomi Wilson, Senior Director of Policy for Asia at the Information Technology Industry Council.  The tail end of her presentation seemed to us a continuation of the discussion Mr. Scissors had opened with the above remarks about Huawei.  Ms. Wilson did not specifically refer to Huawei, but as we listened to her, it seemed to us that Huawei was very much on her mind.  Here is some of what she said.

So it is those various areas of expertise that really need to be assessed in tandem.  It is one thing to say China is a threat.  Okay.  Yes, we can acknowledge that.  We can acknowledge that the Chinese government has more input into the direction of private companies, but the intent does not necessarily yield the capability.  So, we need to look at the tools that are currently available in the private sector to mitigate those threats or risks if it's possible.  And that is something that we try to do as an industry association. [that] is [to] work with governments, help them understand the full picture.  Yes, there are risks.  Sometimes they can be mitigated. And sometimes a blunt solution is going to cause many more problems than it solves.  And those are the challenges and the risks that we face here if we don't work in concert and in a coordinated manner.

Because so much that is written about Huawei is about Huawei's role in building 5G networks, some comment on 5G-what it is, what it may do-seems in order.  This short paragraph from PC magazine is a start:

5G brings three new aspects to the table: greater speed (to move more data), lower latency (to be more responsive), and the ability to connect a lot more devices at once (for sensors and smart devices).

More to the point for those readers whose knowledge of such things is almost as rudimentary as our own, 5G seems to be the key to unlocking the big benefits of the future, things like driverless cars along with numerous other applications for Artificial Intelligence.

If Mr. Scissors is correct that Huawei is state directed - and we believe he is - that then raises questions about the system of rules to which all of the countries mentioned above say they subscribe.  How meaningful can that system be if the parties are so far apart in the understanding of basic concepts like private ownership?  That said, there were two elements of Ms. Wilson's response to Mr. Scissors that we expect to return to again and again as these issues evolve.   Her comment that "the intent does not necessarily yield the capability," was an important qualification.  But not necessarily a comforting one, as the U.S. Government may not have the expertise to judge what the Chinese government can realistically direct Huawei to do.

To use Donald Rumsfeld's taxonomy, these may be known-unknowns, but there is cold comfort in just knowing the questions when so much is riding on the answers.