Huawei Pushes Back as Pressure on Chinese Companies Grows

(Bloomberg) -- Huawei Technologies Co. said a proposed ban on selling its gear to some U.S. mobile providers isn't lawful, pushing back against assertions it poses a risk as the Trump administration increases pressure on China over trade and national security.

The Shenzhen-based networking giant's presence in the U.S. “has been artificially restricted by unfounded allegations and suspicions based solely on misperceptions” about its relationship with China's government, Huawei said in a filing with the Federal Communications Commission that was made public on Tuesday.

The agency under Chairman Ajit Pai, an appointee of President Donald Trump, has proposed barring telecommunications companies from using a federal subsidy to buy gear from companies such as Huawei and ZTE Corp. that are judged to be a national security risk.

Huawei, China's top telecommunications equipment vendor and the world's No. 3 smartphone maker, was founded in 1988 by former Chinese army engineer Ren Zhengfei. The company took the unusual step Wednesday of publicizing the minutes of a recent high-level meeting during which the ex-military officer emphasized the symbiotic relationship between the two world powers, and China's dependence on cutting-edge American technology. Huawei will buy some 50 million chips from Qualcomm Inc. alone this year, he was cited as saying.

“The U.S.-China trade dependency is mutual and extensive, I don't foresee strong conflicts,” Ren was quoted as saying in a transcript posted on social media platform WeChat. “American communications technology crested in the 1960s, when we were mere college students.”

Read more: Huawei Boss Attacks ‘Closed-Minded' American Lawmakers

The rapid ascendancy however of Huawei and other Chinese companies in just the past decade has raised red flags. On Monday, another federal agency asked the FCC to block China Mobile Ltd. from entering the U.S. market, citing national security grounds. A spokesman for China's foreign ministry said the U.S. “should stop groundless speculation and intentional suppression against Chinese companies.”

The U.S. is set to impose tariffs on $34 billion of Chinese goods on Friday, with China vowing to retaliate. Trump has also threatened additional tariffs on $200 billion of Chinese imports that could be implemented if China imposes counter-measures. Talks between the U.S. and China have stalled in part over American demands that Beijing reduce government support for high-tech industries.

Huawei, in its comments to the FCC that became available Tuesday, said it's an independent, privately-owned business. Letting Huawei compete freely could yield savings, while restrictions “will result in excessive profits for a handful of other equipment suppliers in this highly concentrated market.”

The result would leave the U.S. falling behind other countries, with harm concentrated in remote and poor areas, according to the filing said. “The U.S. cannot afford to become the only country in the world that lacks access to the best communication technologies,” Huawei said in the filing.

The FCC's authority over the subsidy, the Universal Service Fund, doesn't encompass national security concerns, Huawei said.

CTIA, a Washington-based trade group with members including U.S. mobile providers AT&T Inc. and Verizon Communications Inc., didn't express outright support or opposition to the measure. It said in a filing that the FCC should proceed cautiously and consult with the Department of Homeland Security and other agencies before acting.

FCC action could have the “inadvertent effect” of inhibiting investment in secure equipment by creating uncertainty over which suppliers can be used, the CTIA said.

The Competitive Carriers Association, with members including regional and rural mobile providers, opposes the FCC's rule which will “devastate impacted rural carriers,” according to an emailed statement from the Washington-based trade group.

The Telecommunications Industry Association, a trade group for gear makers, said it supports the FCC's proposal.

The FCC in April cast a 5-0 vote to advance the restriction, which won't be final until a second vote that hasn't been scheduled. The agency in its draft order said Congress scrutinized Huawei and ZTE as possible security threats.

--With assistance from Gao Yuan.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Justin Blum

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