Image for Fighting Cold War on Frosty Frontier of Business
Amid diplomatic efforts to thaw chilly relations between the United States and China, American businesses are on the frontier of a cold war, ripping out Chinese telecommunications equipment and being raided by Chinese authorities looking for evidence of counterintelligence.

Wireless Providers Rip Out Chinese Gear; China Raids U.S. Consulting Firms

The United States and China have frosty diplomatic relations, but the real cold war is being fought on the chilling frontier of business. American wireless providers are ripping out Chinese equipment from their cell towers, and Chinese officials are raiding U.S. consulting firms that provide allegedly sensitive data to their American clients.

U.S. ‘rip-and-replace’ legislation requires wireless carriers to strip telecommunications equipment made by Huawei and ZTE from their cell towers. Replacing the equipment has proven complicated and costly because replacement equipment isn’t always the same size or is on back-order from European suppliers.

Chinese police are enforcing a new counterespionage law aimed at curbing collection of financial data by international consulting firms working for American clients. They have raided major firms such as Bain & Company, Mintz Group and Capvision Partners, which have been accused of “stealing intelligence information” about key Chinese industries.

These on-the-ground actions are occurring as tensions have increased between U.S. and Chinese officials, in part because of Taiwan, but in larger part because of growing economic, technological and military competitiveness between the world’s two largest powers. China is trying to adapt to U.S. computer chip restrictions by refocusing production on lower-end semiconductors. One consulting firm estimated this new direction could enable China over the next decade to capture 50 percent of the global supply of “mature semiconductors”.

Replacing cell tower equipment has proven costly, problematic and time-consuming. The consulting firm raids have sent shock waves through the business community that Chinese political leaders are courting to return to or invest in China. The anti-democratization of Hong Kong has added to the chilling effect.

Most Recent Raids at Capvision
The most recent raid occurred at the Shanghai headquarters of Capvision, which Chinese authorities have charged with paying high wages to well-placed Chinese employees to obtain sensitive information illegally. Chinese media reports, which have just started to highlight the raids, said at least one Chinese employee of a state-owned company has been sentenced to six years in prison for sharing “state secrets” with an American business.

China recently revised its counterespionage law to expand what is deemed as spying. The revision prohibits sharing “documents, data, materials and objects” that may have a “bearing on national security”, a broad reference that worries U.S. and multinational business officials active in China.

News headlines focus on the global back-and-forth between American and Chinese leaders. For example, as the United States moves ahead with its massive effort to repatriate semiconductor manufacturing, China has expressed umbrage about being technologically isolated. But the foot soldiers in this cold war are far from diplomatic front.

Capvision may be the victim of its own PR. Its website says it “offers a matchmaking service connecting a roster of 450,000 ‘experts’ across various industries.” The firm brags that its clientele includes “most of the world’s leading consulting firms, the largest private and venture capital firms investing in China and all the largest financial security firms”. The Chinese raided Capvision’s offices in Shanghai, Beijing, Suzhou and Shenzhen, according to media reports.

The real cold war between China and America is being fought on the chilling frontier of business.

Rural Wireless Providers Hit Hardest
Ridding U.S. telecommunications networks of equipment made by Chinese suppliers has fallen hardest on smaller, rural wireless providers, even with $1.9 billion in compensation provided by the Federal Communications Commission.

“Many rural communities face the disastrous choice of having to continue to use insecure networks that are ripe for surveillance or having to cut off their services,” says Geoffrey Starks, an FCC commissioner. Convincing Congress to increase reimbursement seems unlikely in the face of a political standoff over the debt ceiling and massive federal spending cuts.

A news story related how a rural Alabama telecommunications provider, which began by installing phone lines to connect around 2,000 residents with a local doctor, chose ZTE equipment because it was the cheapest option. It will cost $68 million to replace the equipment, but the FCC says it only can offer $27 million in reimbursement to Pine Belt Cellular. Meanwhile, customers have complained the replacement equipment cuts in and out, interrupting service.

Potential Diplomatic Thaw
U.S. and Chinese diplomats met for two days in Vienna last week and came away with identical descriptions – a diplomatic rarity – of the sessions as “candid, substantive and constructive”.

The talks included finding a resolution to the war in Ukraine, managing issues related to Taiwan and finding other avenues for “constructive engagement”.

Columnist David Ignatius attributed the apparent breakthrough to the compatible chemistry of Jake Sullivan, the well-spoken U.S. national security adviser, and top Chinese diplomat Wang Yi.

“Sullivan and Wang are both confident enough to talk off script,” Ignatius reported. “Over nearly a dozen hours of discussion, they threw schedules aside. They have the confidence of their bosses, Presidents Biden and Xi Jinping, to engage in detailed discussion about sensitive issues. They appear to have found a language for superpower discussion, like what once existed between the United States and both Russia and China but has been lost.”

Beyond the obvious issues, Ignatius says the talks probed deeper matters – China’s reassessment of U.S. economic and technological decline and an emerging view that a prolonged war in Ukraine is strengthening a U.S.-led coalition that could restrict Chinese commercial opportunities and exclude it from key supply chains.

There also is reassessment by U.S. officials about finding ways to share global leadership with China on issues such as climate change, health care and nutrition. The Biden administration has signaled comfort with China attempt to mediate the war in Ukraine.

Ignatius wrote, “Biden’s opening to China has been motivated by one simple idea: The United States doesn’t want to start a new Cold War. Biden took too long to implement this insight, bowing to the new conventional wisdom in Washington that the more strident the confrontation with China, the better. But he seems to have found his voice.”

New voice or not, Biden heads to the Far East this week to solidify partnerships seen as crucial to combat growing Chinese influence. “The best way to establish a constructive relationship with China, in which there is an understanding about the larger framing, is to do that diplomacy within the context of a strong allied and partner engagement,” according to a senior Biden administration official. “And that’s exactly what we’re trying to do.”

Meanwhile, the foot soldiers in business are already feeling the heat of the potential cold war.