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Chinese Military Tied to Telecoms, Says Former Intelligence Agent

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The structure of modern Chinese society makes state control -- or at the least, involvement -- a near-certainty.

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From an October 2009 report by the US-China Economic and Security Review Commission, a body created in 2000 with a legislative mandate to "monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People's Republic of China":
  • Huawei is a well established supplier of specialized telecommunications equipment, training and related technology to the PLA that has, along with others such as Zhongxing, and Datang, received direct funding for R&D on C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) systems capabilities. All of these firms originated as state research institutes and continue to receive preferential funding and support from the PLA.
  • ZTE Corp, another of China's large telecommunications manufacturers, and Huawei, also provide certification training and related engineering training to PLA personnel assigned to communications and IW related positions, according to provincial level Communist Party military newspapers.
Three years later, a March 2012 report shored up the commission's previous findings (emphasis theirs):

Huawei's involvement with PLA research and development either directly as a vendor or indirectly as a research collaborator with various PLA affiliated organizations or universities all weaken claims by Huawei's leadership that it maintains no ties with the Chinese government or the military. The combination of recent infusions of cash, regular appearances at PLA defense industry events, and working relationship with various government research institutes on projects with dual use applications suggests that an ongoing relationship between Huawei and the Chinese military and Chinese political leadership may exist.

This would appear to contradict Charles Ding's testimony that "Huawei does not engage in customized R&D or production for military purposes." Or maybe it's all a big misunderstanding, as Zhu Jinyun proffered, calling the fears of back doors in ZTE's telecom equipment "not fact-based," pointing out that American companies, including Microsoft (MSFT), Apple (AAPL), and Google (GOOG), operate in much the same fashion.

"What they have been calling back doors are actually software bugs and those are the types of bugs you find in all high tech companies," Zhu said. "I want to emphasize that a bug is not a back door."

It Is Not Like Any State We Have an Understanding of in the Western World

Michel Juneau-Katsuya maintains that the structure of modern Chinese society makes state control -- or at the least, involvement -- a near-certainty.

"China is not like any state we have an understanding of in the Western world," Juneau-Katsuya tells me. "In China, you will not be put in charge of a company as important as Huawei without having been a loyal servant of the state and having demonstrated that on a constant basis for years and years and years."

He describes the corporate class as those who "were either people in power in the government, are the children of people who are or were in power, or are those with close relationships to people in power. These are the people with power now in the private sector."

These people, as Cisco (CSCO) CEO John Chambers said in April, don't always "play by the rules." And Juneau-Katsuya says the strategic access companies like Huawei and ZTE can provide is far too important to leave to a run-of-the-mill executive.

"Do you think the Chinese government would let that slip away, a company that is embedded in peoples' communications all around the world?" he asks. "You're going to keep your distance from that? I don't think so."

Philosophically, Juneau-Katsuya says, the Chinese cannot "simply abandon the ideological conflict" that has been entrenched since the Communists took power in 1949.
No positions in stocks mentioned.
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