Photo by Tingshu Wang | Credit: REUTERS
I like to write articles about the future because no one can disagree with you.
I wouldn’t bet on importing or using Chinese telecom components in a U.S. project in the near future. One of the few (very few things) Democrats and Republicans seem to agree on is continuing the restrictions on certain Chinese companies (ok a lot) from participating in U.S. telecom projects due to fears of espionage and cyber threats. In other words, no matter who wins the election this November, it’s going to be a tense relationship with China. By the way, I leave diplomacy to people far smarter than me.
THEY ARE WATCHING YOU
Maybe I am more sensitive to Chinese shenanigans (a very business-like term) having lived in Asia for 15 years. I probably know more Chinese people and companies that have left China because of the Chinese policy of surveillance than your average American. I have former clients that moved their entire operations and, most importantly servers, out of China to less intrusive countries (FN1).
Using Google or other non-Chinese platforms requires bypassing restrictions through VPNs (Virtual Private Networks). However, I have heard many are blocked, and may be a regulatory concern while using them in China. As an aside, I will say the Chinese government is very creative in naming their technology, like the Great Firewall of China to control foreign website access, and the Golden Shield Project for surveillance!
China is the only country where I never turn on my computer or use my phone. I stopped using WeChat, the Chinese owned communication app a couple of years ago because it weirded me out when a message I sent was changed to the Chinese recipient (FN2). While this may seem strange to Westerners, remember the foundation of China is not democracy or freedom of speech.
WHY THE CHINESE? WHY THE TELECOMMUNICATION INDUSTRY?
You haven’t been paying attention. Surveillance, censoring speech, and control are in the DNA of China and generally counter to Western democratic beliefs. The telecommunication industry is the perfect vehicle for achieving China’s objectives. HOW did Chinese equipment get embedded in the U.S.? Because their products are less expensive (FN3).
SO WHAT DOES THIS MEAN FOR U.S. TELECOMMUNICATION?
The U.S. Commerce Department and Federal Communications Commission have issued a “rip and replace” for Chinese telecommunication equipment by November 16, 2024, but I suspect this will be extended, not into perpetuity, but sometime in 2025, because there is a lot of Chinese equipment in the U.S. and the concept of national security in telecommunication was in an earlier phase. By the way, I assume the Trump camp is really irritated now that Chinese hackers are alleged to have hacked their phone calls… The “rip and replace” requirement applies to telecommunication carriers that receive federal subsidies (a lot of them). But I have also been seeing an increase in U.S. content requirement in RFPs at the state and municipal levels which makes sense. The federal policy of preventing data leaks and surveillance risks, to be effective, needs to be implemented at the state and local levels or the “rip and replace” policy is just a sieve with big holes. Besides, if you were a smart city that wanted to boost connectivity, would you really want to go against federal policy and use Chinese telecommunication equipment?
HOW IS THIS ENFORCED?
I suspect the Chinese have been really creative in opening shell companies in other countries, localizing manufacturing for onward sales to the U.S., but enforcement is getting stronger and wiser to the shenanigans (see, I used this term again). Look through ownership is being rigorously enforced. Consider the Corporate Transparency Act (CTA) which is enforced through the Financial Crimes Enforcement NetWork (FinCen), a bureau of the Department of the Treasury. The CTA is intended to provide transparency and combat the misuse of anonymous shell companies and is not necessarily targeted towards China but… Also, you should consult your favorite lawyer, except maybe one whose expertise is only wills and trusts, or slip and fall cases, as you should always consider whether there is an issue under the Committee on Foreign Investment (CFIUS), or Office of Foreign Assets Control (OFAC) as well as other esoteric acronyms.
CAN’T WE ALL JUST GET ALONG?
Back to my prediction. I do not envision a short-term thawing of U.S.-China relations or even a détente. It is hard, however, to imagine long term there won’t be an eventual thaw in U.S.-China relations. But the countries are far apart in basic principles and policies, like human rights. Beyond telecommunication, you are probably aware that solar and artificial intelligence are also creating tension. So in the short term, if you are wondering if you should use Chinese components or Chinese partners in any U.S. telecom project, think through the consequences. Should the U.S. build up its technology base and support U.S. telecommunication companies? Yes.
About the author
Gary Sumihiro is the founder of Sumihiro Investments, LLC a global strategic consulting firm. Learn more at www.sumihiroinvestmentsllc.com.
FOOTNOTES:
FN1: For those of you that don’t know, you cannot access global search engines due to China’s strict internet regulations. There are local search engines like Baidu, and Sogou, but content is filtered, censored and surveilled.
FN2: Yes, there are other countries that do the same thing, but the enormity of the Chinese influence on global markets ranging from technology to toys is more substantial in my opinion. As most of the Chinese telecommunication companies are backed by their government, and minimum wage is far lower than Western companies, a Western company trying to win on price alone is likely not a great strategy.
FN3: There is probably several days worth of discussion around buying American, logistics and supply chain opportunities for building the technology base in the U.S.