Chinese Telecom Huawei Will 'Exit the U.S. Market'

U.S. and Chinese companies both face mistrust because of spying concerns.

The logo of Chinese tech giant Huawei is seen on a building on its campus in the Chinese city of Shenzhen on April 7, 2013.
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China-based telecom Huawei is planning to "exit the U.S. market" following accusations from Congress that the company is spying for China's military, said Huawei CEO Ren Zhengfei. This highlights a broader mistrust that China-based tech companies are connected with Chinese intelligence. Internet companies based in the U.S. may soon face a similar chilly reception in foreign markets following reports of the National Security Agency accessing data from American digital networks.

The House Intelligence Committee investigated Huawei in 2012 for potentially including surveillance back doors in telecommunications equipment sold to the U.S., in part because Zhengfei used to be a military technologist for the People's Liberation Army. Following the investigation House Intelligence Committee Chairman Mike Rogers, R-Mich., and its Ranking Member C.A. Dutch Ruppersberger, D-Md., cautioned U.S. companies that installing Huawei equipment on telecom networks is a potential risk to national security.

To avoid tensions between the U.S. and China, Huawei has "decided to exit the U.S. market, and not stay in the middle," Zhengfei said in an interview with French publication Les Echos on Nov. 25. Foreign Policy published an English translation of the interview on Monday.

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It is unclear what actions Zhengfei intended when he said "exit the U.S. market," but it likely signals that the company will no longer seek telecommunications deals on American networks, while it may continue selling phones in the U.S., says Stewart Baker, former general counsel for the NSA.

"They are very successful in other parts of they world, but they have not had much luck in the United States," Baker explains.

Australia and the U.K. have invoked national security to impose limits on deals carriers in their countries can make to purchase Huawei telecommunications equipment.

"Probably it's not an accident that the countries that are concerned about Huawei equipment are those countries allied in intelligence gathering with the United States," says Baker, who also served as assistant secretary for policy at the Department of Homeland Security.

This concern about national security risks may extend to other China-based information technology companies that want to enter American markets, Baker says. The Obama administration and U.S. spymasters have also accused China's government of using hackers to steal secrets from American businesses to benefit China's private sector. It is unclear whether China-based search engine Baidu would face difficulty entering the U.S. market because of national security concerns.

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"Applying the principles to ordinary consumer goods is a bit of a leap for the U.S. government," Baker says, noting that Congress has not tried to regulate Huawei mobile phones. "At the same time everybody who participates in social media is aware that they are surrendering a lot of data. The effort to make sure that data is not misused is the subject of considerable debate even without a foreign government in the mix."

National security concerns may also be a problem for U.S. information technology companies seeking business in foreign countries including China, following reports about the NSA monitoring the data traffic of Google and Yahoo. China has been building its own technology industry for years in an effort to create alternatives to U.S. equipment, Baker says.

"There is a risk we will see a division between people who trust Western equipment and those who trust Chinese equipment," Baker predicts.

International concern about digital spying by the NSA could make it difficult for U.S. companies to gain customers in the growing cloud-computing business, and could cost them up to $35 billion through 2016, according to a report from the Information Technology and Innovation Foundation think tank.

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