US escalates tensions in Beijing again by banning China Telecom

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(Bloomberg) – A US ban on China Telecom (Americas) Corp. by regulators are signaling escalating tensions as the world’s two largest economies clash over issues ranging from coronavirus to cyber espionage and computer chips.

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The United States Federal Communications Commission on Tuesday voted 4-0 to revoke authorization to operate in the United States for the unit of China Telecom, one of the three major communications providers in China.

While the company doesn’t do much business in the United States, being shut out of the market is important in the wake of action against other giants of China’s burgeoning tech industry, including its gem of crown, Huawei Technologies Co.

“This is an important move,” said Martijn Rasser, director of the technology and national security program at the Center for New American Security in Washington. “It also sends a broader message to Beijing, that regardless of the president, the United States continues to be concerned about the risks posed by Chinese technology companies operating in the United States.”

Virtual summit

President Joe Biden and President Xi Jinping are expected to meet virtually later this year. The two last spoke on September 9 and discussed what the White House described as safeguards to ensure that competition between the two countries does not come into conflict. Their meetings follow friction during the administration of former President Donald Trump, which has pursued an aggressive approach to China, particularly on trade.

The two countries are currently battling over a wide range of issues, from movements from Beijing to Taiwan and Hong Kong to the origins of the coronavirus pandemic.

The Trump administration has used export controls, bans and executive orders to block companies, including China’s largest tech company, Huawei, and chipmaker Semiconductor Manufacturing International Corp.

The FCC also intervened with actions against Huawei, China Mobile Ltd. and others. On Tuesday, he said China Telecom (Americas) “raises significant risks to national security and law enforcement.”

“Our record clearly shows that it is operating as a subsidiary of a Chinese state-owned enterprise,” which gives the Chinese government the ability to control its actions, said Acting FCC President Jessica Rosenworcel. “This can cause real problems with our telecommunications networks,” including surveillance and misdirected traffic.

Beijing-based China Telecom is one of the largest telephone companies in China and the second-largest mobile operator in China with 370 million subscribers, according to a securities filing filed on Oct. 22 by the company. Along with China Mobile and China Unicom, it dominates the Chinese telecommunications market, according to a US Senate report last year.

“The FCC’s action is long overdue,” said Derek Scissors, senior researcher at the American Enterprise Institute. “The Chinese telecom majors are much more arms of government than commercial companies. “

China Telecom previously told the agency that it is an independent company based in the United States and is not under the control of the Chinese government.

“The FCC’s decision is disappointing,” Ge Yu, a spokesperson for China Telecom, said in an email. “We plan to pursue all available options while continuing to serve our customers. There was no response to an e-mail sent to the press contact of the Chinese Embassy in Washington.

The FCC’s action shows that more measures against Chinese technology could be brewing, said Roslyn Layton, co-founder of the China Tech Threat website which tracks Chinese technology and suggests policies to strengthen security.

“This decision shows that the FCC is not afraid to take action against the big players in the world,” Layton said in an email.

FCC to End Authorizations for China Unicom Americas Ltd., Pacific Networks Corp. and its subsidiary ComNet. In June, the agency proposed a ban on products from five Chinese companies, including Huawei and surveillance camera makers Hangzhou Hikvision Digital Technology Co. and Dahua Technology Co.

FCC Commissioner Brendan Carr has called for action to ban Shenzhen, China-based drone maker SZ DJI Technology Co. from the US market, calling it “Huawei on wings.”

China Telecom is to cease operations in the United States within 60 days of the issuance of the FCC order, the agency said in a press release. The company’s activities in the United States are eclipsed by its activities elsewhere.

The U.S. company’s contribution to overall revenue and assets is low, China Telecom chief executive Ke Ruiwen said during an August 2020 earnings call, without giving details. Its US unit leases lines from US infrastructure providers and operators to provide business and wireless services.

China Telecom’s Internet backbone is reaching the United States, said John Byrne, analyst at GlobalData.

“Basically what they’re doing is providing a very reliable domestic Chinese network to multinational companies in various markets looking to access supply chain partners or customers. Conversely, they provide reliable US connectivity to Chinese entities, ”Byrne said.

“In today’s environment, many Chinese telecom operators and suppliers are treated with the same brush – no real evidence of wrongdoing but a general perception that they might be committing some sort of wrongdoing at the behest of Chinese government actors – corporate espionage or the like, “Byrne said.” And frankly, there is no constituency right now for a US politician or regulator appearing to side with the Chinese government. “

US officials said they obtained information about potential threats during confidential briefings.

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