Framing’ Chinese Hi-Tech Firms: a political and Legal Critique

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51 PSC Report, p.13 & 48, nn.40-41.

52 The PSC Report (at p.10) also refers to a “classified annex” that the writers claim contains much more evidence against Huawei, but this (conveniently?) cannot be published due to “national security concerns.”

53 PSC Report, p.23.

54 PSC Report, pp.13, 22-4.

55 See PRC Company Law, Art.19.

56 For more details on the role of the Communist Party Committees in corporations in China, including foreign corporations like Walmart, see C. Hawes, “Interpreting the PRC Company Law through the Lens of Chinese Political and Corporate Culture,” UNSW Law Journal 30.3 (2007): 813-23 at 816-19.

57 CCP Charter, Art 32, available at http://www.idcpc.org.cn/english/cpcbrief/constitution.htm .

58 CCP Charter, Art. 32.

59 Jiang Min, Wu Zheng and Zhang Jianhua, “Zhonggong shouci zai woermafendianjianli dang zuzhi” [CCP sets up Party organisations within Walmart for the first time], Xinhua News Agency, 26 August 2006, at: http://www.ln.xinhuanet.com/ztjnl2007-08/26/content_11295101.htm. Hawes, above n 29, p.818-9.

60 Ren, Z. (2008) “Jinqi zai canjia gongsi youxiu dangyuan zuotanhui shi fayan” [Speech given while participating in a recent symposium for Huawei’s outstanding Party members]. Copy on file with author.

61 Sun, X. and Zhang Z. (2008) Mengniu neimu (Mengniu: the inside story), 3^rd edn, Beijing: Peking University Press, pp.263-4.

62 Hawes, op.cit., pp.816-9.

63 For discrimination against private enterprises in China, see Shuanglin Lin & Shunfeng Song, eds., The Revival of Private Enterprise in China (Aldershot, UK: Ashgate, 2007), p.36; and Jin Zeng, State-Led Privatization in China (Abingdon, UK: Routledge, 2013), p.133-4. A more nuanced account is provided in Yingfeng Xu, “Financing of Private Enterprises and Deepening Financial Reform,” in Shuanglin Lin & Xiaodong Zhu, eds., Private Enterprises and China’s Economic Development (Abingdon, UK: Routledge, 2007), pp.51-73.

64 Guan, S. Y. China’s Telecommunications Reforms: From Monopoly towards Competition (New York: Nova Science Publishers, 2003), pp.18-39.

65 Cheng and Liu (2004), 76-8, 104-9; and for further details, see Yongde Wang, Langxing guanli zai Huawei [Wolf-style management at Huawei] (Hubei: Wuhan University Press, 2007), pp.283-6.

66 Jin, op.cit., p.27.

67 Li, G. “Can the PRC’s New Anti-Monopoly Law Stop Monopolistic Activities? Let the PRC’s Telecommunications Industry Tell You the Answer,” Telecommunications Policy 33.7 (2009), p.361; G. Zhang, pp.8, 38, 55.

68 Yongde Wang, pp.101-2; Cheng and Liu, p.110.

69 Cheng and Liu, 116.

70 With more than 50 shareholders, a company must normally be formed into a joint stock company, which stipulates one vote per share: see PRC Company Law, Arts 79 & 104. With less than 50 shareholders, a company can be formed as a limited liability company (LLC), which allows flexibility in the way voting rights are divided up among shareholders: PRC Company Law, Arts 24 & 43. The PRC Company Law was first introduced in 1994, and Huawei was restructured from an employee-owned collective to a registered limited liability company in 1997: see PSC Report, p.15-16.

71 The PSC Report gives a very useful detailed summary of Huawei’s employee share ownership program based on information provided by the firm: PSC Report, pp.15-20.

72 Ren’s veto will last until 31 December 2018: PSC Report, p.20.

73 Information about the employees’ representative commission and the number of employee unit holders is taken from Huawei’s 2013 Annual Report, pp.108-9.

74 Huawei gave this explanation in materials cited in the PSC Report, p.15-16.

75 PSC Report, p.14, 21-2. The only solid criticism that the PSC Report could make was that Huawei is not controlled by its shareholders but by its senior executives, but this is no secret and does not prove any government control over the firm.

76 PSC Report, p.22.

77 PSC Report, p.31-2.

78 PSC Report, p.11.

79 See the detailed analysis of these disputes in Anderson, op.cit., at 1320-1585.

80 See, for example, Anon., “Samsung ordered to pay Apple $120m for patent violation,” The Guardian 3 May 2014; Charles Arthur, “Microsoft loses EU anti-trust fine appeal,” The Guardian 28 June 2012;

81 Some scholars have also noted that most countries go through a period of development when they feel the need to breach intellectual property rights in order to catch up with more developed nations. Only after reaching a certain stage of prosperity and technological advancement do they then seek to enforce intellectual property laws vigorously. This occurred in both the U.S. and Japan, for example. See Doron S. Ben-Atar, Trade Secrets: Intellectual Piracy and the Origins of American Industrial Power (Yale University Press, 2004).

82 PSC Report, pp.2-3.

83 Peter Rossi, “Huawei’s End-to-end Assurance System,” talk given at a University of Technology Sydney workshop on “Cloud Computing, Cyber Security and Privacy Protection in China: Legal and Political Issues,” 12 June 2014. Note also that U.S. firms producing internet equipment for the U.S. market, such as Cisco Systems, also manufacture some of their products and components in China: see Cisco Systems, “Gongsi jieshao” (Introducing the Company): http://www.cisco.com/web/CN/aboutcisco/company_overview/about_company_overview_overview.html .

84 For details of some of these cyber attacks, see n.94 below.

85 PSC Report, p.14.

86 See “Huawei dangwei shuji Zhou Daiqi: guojihua tui Shenqi tisheng jingzhengli” (Huawei’s Party Secretary Zhou Daiqi declares: Internationalization has pushed Shenzhen’s business firms to increase their competitiveness), Shenzhen tequ bao 23 November 2011, at http://tech.southcn.com/t/2011-11/23/content_33696313.htm (accessed 16 January 2015). Zhou’s role as Communist Branch Secretary is not mentioned in Huawei’s Annual Reports or on its Chinese or English-language websites.

87 See, for example, the website of the electrical instrument manufacturer Zhengtai Group (CHINT), “Dangjian gongzuo” (Party Building Work), at: http://www.chint.com/partybuilding?sitePageId=49; and the Tengen (Tianzheng) Group, “Wenming chuangjian” (Building a Civilized Firm), at http://www.tengen.com.cn/sm2111111250.asp. Cf., the description of Mengniu Dairy Group’s Party Committee in Sun & Zhang, op.cit., p.263-4.

88 This was the reason given by ZTE to the Permanent Select Committee on Intelligence for requesting that the list of ZTE’s CCP Committee members be kept classified: see PSC Report, p.40.

89 See Huawei’s website at: http://www.huawei.com/worldwide/index.htm and http://www.huawei.com/en/about-huawei/publications/communicate/hw-087875.htm. We also mentioned Iran, but as noted, Huawei was only one of several multinationals doing business in Iran.

90 Zhang (2007), ch.7, gives a detailed account of Huawei’s difficult struggle to compete with heavily subsidized state-owned Chinese telecom equipment manufacturers in the early 1990s.

91 Cheng & Liu, 103, 284-7; see also Huawei’s evidence as recorded in the PSC Report, p.28. For typical examples of how government export development banks assist corporations in other countries, see the websites of Canada’s Export Development Corporation at http://www.edc.ca/EN/About-Exporting/Trade-Links/Pages/financing.aspx ; and Efic in Australia: http://www.efic.gov.au/export-community/Pages/bankingandfinance.aspx .

92 Cheng & Liu, 285.

93 PSC Report, p.29.

94 See Department of Justice, “U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against U.S. Corporations and a Labor Organization for Commercial Advantage” (19 May 2014), at: http://www.justice.gov/opa/pr/2014/May/14-ag-528.html

95 PSC Report, p.3.

96 PSC Report, p.v, 9, 12-13, 14-15.

97 For the letter requesting clarification and documents, see http://intelligence.house.gov/sites/intelligence.house.gov/files/documents/HuaweiRenZhengfe12JUNE2012.pdf

98 Ibid.

99 Ibid.

100 Ibid.

101 PSC Report, p.v, 9, 12-13, 14-15.

102 See RAND Report, front matter.

103 Pan, p.81.

Jonathan E. Lewis,Spy Capitalism: ITEK and the CIA (New Haven: Yale University Press, 2002); reviewed on the CIA’s website at: https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/csi-studies/studies/vol47no1/article08.html .

104 See In-Q-Tel’s website: https://www.iqt.org/

105 “About In-Q-Tel: Team”: https://www.iqt.org/about-iqt/

106 “In-Q-Tel Portfolio”: https://www.iqt.org/portfolio/ and “About In-Q-Tel,” op.cit.

107 See the useful archive of articles on the Snowden leaks published by the Washington Post: Kennedy Elliott and Terri Rupar, “Six months of revelations on NSA,” Washington Post (Dec. 23, 2013): http://www.washingtonpost.com/wp-srv/special/national/nsa-timeline/

108 Quoted in Sanger and Perlroth, op.cit.

SeeMichael Birnbaum, “Germans launch probe into allegations of U.S. spying,” Washington Post (24 October 2013): http://www.washingtonpost.com/world/uproar-in-germany-continues-over-accusations-that-us-tapped-merkels-phone/2013/10/24/39e4c618-3c96-11e3-b0e7-716179a2c2c7_story.html ; and Susan Ormiston “Canada's spying touches nerve in Brazil,” CBC News (Oct 15, 2013) http://www.cbc.ca/news/world/canada-s-spying-touches-nerve-in-brazil-susan-ormiston-1.2054334 .

109 See Michael Brissenden, “Australia spied on Indonesian president Susilo Bambang Yudhoyono, leaked Edward Snowden documents reveal,” ABC News Online (5 Dec 2014): http://www.abc.net.au/news/2013-11-18/australia-spied-on-indonesian-president-leaked-documents-reveal/5098860 ; and Anna Henderson & George Roberts, “Indonesia says embassy spy claims 'just not cricket' as Australian ambassador Greg Moriarty questioned by Foreign Ministry,” ABC News (2 Nov 2013): http://www.abc.net.au/news/2013-11-01/australian-ambassador-emerges-from-jakarta-spy-claims-meeting/5064224 .

110 See Louise Yaxley, “Foreign embassies expected to be used for spying: expert,” ABC News: The World Today (1 Nov 2013), citing ANU Professor Michael Wesley: http://www.abc.net.au/news/2013-11-01/foreign-embassies-expected-to-be-used-for-spying/5064418 .

111 For example, PSC Report, pp.22, 24, 26.

112 For historical surveys of privatization in China, see Yusuf, S., Nabeshima, K. and Perkins, D.H. (2006) Under New Ownership: Privatizing China’s State-Owned Enterprises (Palo Alto, CA: Stanford University Press, 2006); and Jin (2013), op.cit. For more recent statistics on the size of the private sector, see Koen,V., R. Herd and S. Hill (2013), “China's March to Prosperity: Reforms to Avoid the Middle-income Trap”, OECD Economics Department Working Papers, No. 1093, pp.16-18 (OECD Publishing): at http://dx.doi.org/10.1787/5k3wd3c4219w-en

113 Statistics for internet users come from China Internet Network Information Center, “34^th Statistical Survey on Internet Development in China” (July 2014), available at http://www1.cnnic.cn/IDR/ (accessed 15 January 2015); and for recent mobile phone figures, see Xinhua, “China’s Mobile Phone Users Hit 1.22 Billion” Xinhua Online (21 November 2013), available at http://news.xinhuanet.com/english/china/2013-11/21/c_132907784.htm. For earlier statistics on mobile phone users, see Ministry of Industry and Information Technology, “2000 nian qian yidong tongxin fazhan qingkuang” (The development of mobile communications prior to 2000), available at http://www.miit.gov.cn/n11293472/n11293832/n11294132/n12858447/12864552.html.

114 PSC Report, pp.27-8.

115 PSC Report, p.21.

116 See Cisco Systems, “Gongsi jieshao” (Introducing the Company): http://www.cisco.com/web/CN/aboutcisco/company_overview/about_company_overview_overview.html

117 Richard McGregor, The Party: The Secret World of China’s Communist Leaders (New York: Harper Collins, 2010), pp.34, 197-9.

118 Rowan Callick, Party Time: Who Runs China and How (Collingwood: Black Inc., 2013), pp.142-3.

119 Callick, p.43.

120 Martin Jacques, When China Rules the World (London: Penguin Books, 2012), p.615.

121 McGregor, p.200; and see the CCP’s web page for “non-state-owned enterprises” at http://dangjian.people.com.cn/fg/ .

122 McGregor, p.219, citing Bruce Dickson, Wealth into Power: The Communist Party’s Embrace of China’s Private Sector (Cambridge University Press, 2008).

123 PSC Report, p.23, citing McGregor, even though McGregor is a journalist rather than an “expert in Chinese political economy,” and no page number is given for this opinion attributed to him.

124 For earlier accounts that mention the RAND Report or quote it without acknowledgement, see J. Dean, “Outside of U.S., Few Fear Huawei,” Wall Street Journal (Asian edition), 22 February 2008, online at: http://online.wsj.com/news/articles/SB120359554277582713 ; and Tech Law Journal, “3Com Huawei transaction to be reviewed by CFIUS,” Tech Law Journal (9 October 2007). Online: http://www.techlawjournal.com/topstories/2007/20071009b.asp . For a more recent article citing the PSC Report, see Jordan Robertson, “The Chart That Helps Explain Cisco's 6,000 Job Cuts,” Bloomberg (15 August 2014), at: http://www.bloomberg.com/news/2014-08-14/the-chart-that-helps-explain-cisco-s-6-000-job-cuts.html

125 For example, Paula Dwyer, “Congressional Report on Huawei Smacks of Protectionism,” Bloomberg News (9 October 2012): http://www.bloomberg.com/news/articles/2012-10-08/congressional-report-on-huawei-smacks-of-protectionism ; and Anon. “Huawei and ZTE Put on hold: Two big Chinese telecoms firms come under fire in America,” The Economist (13 October 2012): http://www.economist.com/node/21564585?fsrc=scn/fb/wl/pe/putonhold

126 See, for example, Chris Frates, “Wolf Continues to Push Lobbying Firm to Drop Chinese Client,” National Journal (30 April 2012), at http://www.nationaljournal.com/blogs/influencealley/2012/04/wolf-continues-to-push-lobbying-firm-to-drop-chinese-client-30 , which links to an open letter from Congressman Frank Wolf making a dubious connection between Huawei and Chinese human rights abuses.

127 See Scott Bevan and Jake Sturmer, “NBN review reveals cost blow out” ABC The World Today (12 December 2013), at: http://www.abc.net.au/worldtoday/content/2013/s3910183.htm

128 U.S. firms that have recently been excluded from bidding on government contracts for “security reasons” include Apple (iPad and Macbook Air), Symantec Corporation, Kaspersky Lab, and Microsoft (for its Windows 8 system). See Katherine Rushton, “China bans officials from buying Apple products,” The Telegraph (6 August 2014), at: http://www.telegraph.co.uk/technology/apple/11017019/China-bans-officials-from-buying-Apple-products.html .

129 See David E. Sanger and Nicole Perlroth, “N.S.A. Breached Chinese Servers Seen as Security Threat,”

New York Times (22 March 2014), at http://www.nytimes.com/2014/03/23/world/asia/nsa-breached-chinese-servers-seen-as-spy-peril.html?_r=0 .

130 Ibid.

131 Huawei has co-operated with the U.K. government in setting up a cyber security evaluation centre where independent technical analysts can test the company’s products for vulnerabilities: see HM Government, “Huawei Cyber Security Evaluation Centre: Review by the National Security Adviser,” online at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/266487/HCSEC_Review_Executive_Summary_FINAL.PDF

132 Pan, p.10-12.