China's ZTE Corp. Has A Plan To Defuse U.S. Espionage Concerns

Politics and business can be a capricious combination, and one pawn in a recent game of international brinksmanship, Chinese telecom vendor ZTE Corporation, is looking for a little fairness when judging the merits of its products and services.

It would be folly to suggest that the United States and China were anything like best buds. At best (and this could be a stretch), they're "frenemies" in their political and business relationships. The nations circle warily around each other's interests - while simultaneously depending heavily on the other side for trade and commerce.

In the midst of this friction between the two nations lie companies that claim a desire to just do business, but still find themselves cast in the role of villain based on the winds of political change. That's what happend to telecommunications vendor ZTE last fall, when the U.S. House of Representatives Select Committee on Intelligence fingered ZTE, Huawei and a number of other unnamed Chinese companies as creators of potentially dangerous technology.

Deconstructing And Rebuilding Trust

The October report drafted by the Committee, recommended "…[t]he United States should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies" as a backdrop to dealing with all Chinese firms in that sector, specifically calling out ZTE and Huawei.

Naturally, ZTE and Huawei denied the allegations at the time, and ZTE is now making further moves to clear its name. The Shenzhen-based firm is proposing a concrete plan to assure both private and governmental U.S. buyers that the components it sells and delivers are free of any code that might "phone home" to ZTE and its alleged connections to government intelligence agencies within the People's Republic of China.

The plan is known as a trusted delivery mechanism, an industry euphemism for pulling in a trusted third-party to check and monitor hardware and software delivered to a customer. In this case, ZTE wants to use Virginia-based Electronic Warfare Associates (EWA), a defense and logistics contractor that performs services such as transportation of toxic materials, electronic signal intelligence and incident response. Think "spook-shop" for hire, and you get the idea.

Most importantly for ZTE, EWA is a known quantity for U.S. companies and could be enough to give ZTE the extra trust factor it needs to get past the accusations of the House Committee.

How It Would Work

Peter Ruffoo, Director of Government Relations for ZTE USA, explained how the trusted delivery mechanism would work, when used with a hypothetical customer, such as a telecommunications carrier in the U.S.

ZTE would ship the materials or code to the carrier, which would then get the products to EWA. Next, EWA would examine the components and source code within the product (be it hardware or software), reporting to the U.S. government, the customer and ZTE of any anomalous code or other problems it might find. Once cleared, the product would be shipped back to the carrier for deployment.

The process Ruffo described would be used for new equipment as well as updates to software.

Ruffo hopes that this solution will be enough to ease the concerns of the Committee as well as any potential customers that might have been alarmed by the recommendations of the Committee.

Uphill Battle Ahead

It will be an uphill battle for the company. According to Ruffo, when ZTE worked with members of the Committee throughout 2012 as the House was working on this report, ZTE offered a briefing to the Committee by EWA, which was declined.

In a broader sense, the company is facing a U.S. industrial and political environment that has grown increasingly cold to Chinese incursions in the U.S. marketplace. This chilling effect, which Ruffo likened to a similar reaction to Japan's strengthening within U.S. markets in the '80s and early '90s, has put a lot of Chinese companies in the position of having to defend themselves as being something other than puppets of the Chinese government.

"There's an assumption that all Chinese companies are the same," Ruffo said, maintaining that is not the case.

In reality, Ruffo emphasized, while some companies in China do have close ties to the PRC government, that is not necessarily true for all private entities in mainland China. Ruffo, as one would expect, firmly defended ZTE as an independent private organization, and pointed to the company's efforts to be transparent and work with U.S. partners to create opportunities for profit and jobs in both companies.

Tip Of The Iceberg?

Ruffo also reiterated a point made by his boss Zhu Jinyun, senior vice president for North America and Europe, when he testified before the Committee in September. Zhu said that if the Committee was worried about espionage from Chinese companies, picking out just ZTE and a few other vendors was short-sighted.

"As the Committee undoubtedly understands, virtually all of the telecom equipment now sold in the United States and throughout the world contains components made, in whole or in part, in China. That includes the equipment manufactured and sold by every Western vendor, much of which is made by Chinese joint-venture partners and suppliers," Zhu testified. "We respectfully suggest that the Committee's focus on ZTE, to the exclusion of the Western telecom vendors, addresses the overall issue of risk so narrowly that it omits from the Committee's inquiry the suppliers of the vast majority of equipment used in the U.S. market."

It was a point Ruffo made this week too. If you ask me, the wisdom of pointing out that the potential for spying exists within virtually every electronic component sold in the U.S. today could be questioned in a political atmosphere that seems to like nothing more than use China as a convenient punching bag, but that seems to be one of ZTE's main defenses.

Overall, ZTE is hoping that the power of the marketplace will get China's companies to be more accepted in the U.S., just as Japan was eventually accepted decades ago. But it recognizes it that's a tough sell in the U.S. these days.

"Right now, we'd like it to be more Tom Friedman and less Tom Clancy," Ruffo lamented, comparing the very different approaches by the authors of The World Is Flat and Red Storm Rising

Image courtesy of BartlomiejMagierowski / Shutterstock.