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Commentary: Telecom sector not in trouble

By Mei Xinyu (China Daily)

16:00, October 19, 2012

The telecom equipment manufacturing industry is the pride of China. Chinese enterprises are surpassing their foreign counterparts in the technology-intensive and capital-intensive industry. China's telecom equipment manufacturing sector has gained advantage in the fiercely competitive market and attracted globally reputable companies.

Huawei and ZTE had been the world's second and fifth largest telecom equipment makers for years. But after Huawei's sales revenue touched 102.7 billion yuan ($16.07 billion) in the first half of this year, it overtook Sweden's Ericsson to become the world's largest telecom equipment maker.

The development path of China's telecom equipment manufacturing industry, however, is becoming increasingly problematic, both economically and politically. Fearing that China would challenge its hegemony, the United States has dealt one blow after another to Chinese telecom equipment makers. As a result, Huawei and ZTE cannot function in the US market freely.

In 2008, the US used national "security concerns" to derail Huawei's proposal to join hands with Bain Capital, a politically reputable equity company, to acquire 3Com. Similar designs prevented the Chinese company from acquiring the wireless network division of Motorola. In 2010, Sprint Nextel excluded Huawei and ZTE from a contract worth billions of dollars, again because of Washington's "security concerns".

The US also prohibited Huawei from participating in the construction of its National Emergency Communications Network and stopped it from buying part of the assets of American computer company 3Leaf Systems. And on Oct 8, the Intelligence Committee of the US House of Representatives issued a report that said: "Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems." The report recommends that US regulators block mergers and acquisitions by Huawei and ZTE in America and that US government computer systems not include any components from the two companies. The reason: Huawei and ZTE equipment can be used to send information to China through remote control.

Given the importance of the US' market in the global economy, Washington's move would create political risks for Chinese telecom equipment makers in other overseas markets, even though the accusation that the two Chinese companies pose a security threat to the US is untenable.

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