One of the largest Chinese telecommunications equipment suppliers, Huawei Technologies Company, recently unveiled plans to establish Future Wei, a wholly-owned U.S. subsidiary with headquarters in Plano, Texas.
Ordinarily, such a foreign investment in the United States would be welcomed by the local Chamber of Commerce and others anticipating associated employment and revenue opportunities. As Americans learn more about the parent company and what Chinese enterprises like it are up to, however, patriots in Texas and elsewhere in this country are likely to say "No way, Huawei!"
For one thing, Huawei Technologies is believed to have violated U.N. sanctions against Iraq by constructing fiber optic links for Saddam Hussein's air defense systems. The Washington Post reported on March 1, 2001 that the company was the subject of an official U.S. inquiry regarding the extent to which Huawei helped Iraq "improve links between antiaircraft missiles and the radar systems that guide them."
Fiber optics not only increase the efficiency and reliability of communications between far-flung military Iraqi facilities. They also serve to make such communications considerably more secure, complicating — if not defeating — U.S. efforts to monitor such message traffic and to locate its originators and receivers.
The predictable result of Huawei's assistance has been to compound the danger Saddam's anti-aircraft weaponry poses to the U.S. and allied crews enforcing the no-fly zone over northern and southern Iraq. Every day, thanks to Huawei, Americans are being put at greater risk of death, injury and/or capture — with the attendant prospect of a propaganda windfall for Saddam and the possible cessation of vital military operations over Iraq.
The peril posed by Huawei's contribution to improving Iraq's air defenses has been deemed sufficiently great that U.S. and British bombing sorties have been specifically aimed at disrupting or destroying the fiber optic network. It would appear that such efforts have not, to date, accomplished the latter. Even the disruption our air strikes may have achieved could be offset with the help of Huawei technicians, or those they may have trained in Iraq.
Unfortunately, this is not the only example of troublesome international activity on Huawei's part. It also reportedly sold the Taliban regime in Afghanistan a telephone switching system in Kabul that the Indian government has identified as communications surveillance equipment.
In the hands of the Taliban, such equipment would have been a tool for domestic repression.
Another troubling issue concerns Huawei's relationship with the Communist Chinese government. The company was founded and continues to be supervised by Ren Zhengfei, a former officer in the People's Liberation Army. While the company has maintained the appearance of independence from government control, it has to date chosen not to disclose its ownership structure.
Perhaps for this reason, Huawei has thus far steered clear of listing on public exchanges, a step that would preclude it from maintaining that non-transparent posture. As a wholly-owned, private subsidiary of Huawei, FutureWei evidently hopes to enjoy a similar degree of non-disclosure. So far, it appears to have gotten away with setting up shop in Texas without attracting the scrutiny of state or federal regulators either to itself or its parent company.
One thing is clear: FutureWei, which plans on providing telecommunications and enterprise networking equipment to U.S. consumers, will be an extension of Huawei Technologies — affording it access to the American market previously untapped by that company.
FutureWei could have another purpose, as well. It could be part of a gambit whereby Huawei would be able to join other Chinese companies in tapping the U.S. capital markets. A report issued on July 15 by the congressionally mandated U.S.-China Security Review Commission raised concerns that the penetration of the American equities and bond markets by some of these PRC entities could mean that U.S. investors are unwittingly underwriting activities inimical to our nation's security interests.
It would not be unprecedented among Chinese firms for FutureWei (or some other, sanitized off-shoot of Huawei Technologies) to pursue a public listing on the U.S. capital markets in the period ahead. Huawei may calculate that it could get away with listing a subsidiary company in the U.S. markets without having itself to meet awkward disclosure requirements, as was the case with PetroChina. A spin-off of the China National Petroleum Company created in 2000, PetroChina raised some $2.9 billion from U.S. and other investors while the parent, CNPC, retained majority control.
Alternatively, the subsidiary could serve as a stalking horse for the parent company (or a derivative), allowing the degree of activist opposition (of the kind that dramatically reduced the amounts raised by the CNPC/PetroChina initial public offering) to be assessed before risking the embarrassment of a contested or failed IPO.
The U.S. government, state authorities and American consumers should remain vigilant with respect to corporate creations that have the effect of obscuring the true identity, management and global activities of a foreign firm — particularly one as problematic as Huawei Technologies. Given Huawei's intimate association with the Iraqi military for the purposes of enhancing Saddam's ability to endanger American and allied lives, any subsidiary — particularly a wholly owned one like FutureWei — must receive the closest of scrutiny.
In the absence of government intervention or full disclosure as part of a public listing, however, it may fall to American consumers and the business community to take the lead in guaranteeing appropriate transparency and accountability.
Frank J. Gaffney Jr. held senior positions in the Reagan Defense Department. He is currently president of the Center for Security Policy.