In 2001, when China joined the WTO and officially entered the world trading system, politicians and economists of every stripe confidently predicted that China would soon become very similar to many other Western market economies. The recent shocking revelations about Huawei show just how wrong they were.
Back then, few people outside China, even in the telecom industry, had heard of Huawei. Today, Huawei is the world’s largest provider of internet and telecom equipment, with $100 billion in sales last year. And as a new federal investigation shows, Huawei is also heavily engaged in espionage and intellectual property theft as a routine part of business.
In 2017, Huawei paid $4.8 million in fines after being caught stealing trade secrets from wireless telecom company T-Mobile. The federal indictment shows that the theft from T-Mobile was far from an isolated case. Huawei ran an organized, company-wide program that gave bonuses to employees for stealing valuable technical information and trade secrets from competitors. As someone who worked for U.S. and Canadian networking companies for 14 years, this is not a surprise. Huawei built its business on copycat products.
In China, Huawei is a rock star. It has a huge campus in Shenzhen. Chinese people visit Huawei just to tour the campus. China’s CEOs and executives regard Huawei as an example to emulate. The idea of stealing the West’s best ideas, and using them to build a champion company, is simply a good thing.
This is why the United States needs to change its business relationship with China. It’s not just technology theft. There is also the danger of Chinese networks being used to spy on Internet users. We know this practice is widespread in China. The head of Britain’s spy service, Alex Younger, recently said that security teams in China “use and manipulate data sets on a scale that we can only dream of.”
Only last year, the Chinese government hardened up its rules requiring Communist Party members to sit on the boards of most major Chinese companies. If Beijing tells a Chinese company to do something — like insert spying chips into the circuit board of a computer that is being sold internationally — the company has no choice. It obeys the instruction. As President Xi Jinping often says, the Chinese Communist Party is supreme in China.
It’s been estimated that China’s theft of American intellectual property costs U.S. companies between $225 billion and $600 billion annually. We’ve seen IP and trade secret theft impacting U.S. industries including computing, internet software, chemical manufacture, and even the development of new seed species for agriculture. It’s not an exaggeration to say that no industry is safe today from IP theft — and experts estimate that 90 percent or more of it comes from China. And most of that has direct links to the Chinese government.
On the telecom and internet network side, the U.S. government has prohibited telecom companies seeking federal contracts from using Huawei network equipment. But seven smaller telecom companies in the U.S. still use Huawei gear for wireless and internet networks. And around the world, Huawei is still a major player in some of the largest networks, including those in Germany, France, and Britain.
Tariffs may help to reduce America’s dependence on China. And criminal prosecution of particularly egregious examples of IP theft will help. But remember — those who ordered Huawei’s IP theft at T-Mobile will likely never enter a U.S. courtroom.
So it will take more to persuade Beijing to change its ways. The message must be: If China wants to participate fully in the world trading system, then it must adopt and practice Western norms. That includes respect for the patent and IP systems that every other country in the world respects, greater transparency in the ownership and control of business, and an end to huge state subsidies for state-owned corporations. Huawei’s example makes clear that simply talking abut the problem is no longer enough.
Jeff Ferry is research director at the Coalition for a Prosperous America.
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