Jun 4, 2019

Sale of Huawei's underseas cables could leave risks unaddressed

Hengtong Group Chairman Cui Genliang. Photo: VCG/VCG via Getty Images

Huawei is set to sell its underseas cable business, a move that could help China continue a critical part of its global infrastructure push.

Why it matters: Two weeks ago, the U.S. Commerce Department added Huawei to its “entities list,” blocking it from U.S. suppliers. The sale of Huawei’s underseas cable business would effectively pass the baton to another Chinese national champion, Hengtong Group.

Context: Submarine cables carry the vast majority of international data, from cloud computing to text messaging, and will only become more critical with the arrival of 5G.

  • China aims to capture 60% of the world’s fiber-optic communications market, and it is not getting out of the underseas cable business, which is far too important, commercially and strategically.

Between the lines: Huawei’s move puts the spotlight on Hengtong Optic-Electric, a subsidiary of Hengtong Group whose ties with the Chinese military could draw just as much scrutiny.

  • Like Huawei, Hengtong's founder served in the People’s Liberation Army.
  • The PLA also gave the company an innovation award in 2015 and formed an academic partnership to research underseas cables the following year.
  • The Chinese government has praised Hengtong as a model of “civil-military integration” for developing military-grade cable technology, underscoring the dual-use history of its technologies.

The impact: The sale would barely put a dent in Huawei’s portfolio. Last year, its underseas cable business generated $17 million in net profit, according to Huawei’s annual report — a drop in the bucket of its $8.6 billion in net profit.

What to watch: U.S. officials have been concerned that Huawei’s growing involvement in underseas cables could allow China to monitor or disrupt data traffic, per a Wall Street Journal report in March. Rather than limiting the fallout, Huawei’s sale might simply spread the damage by putting Hengtong in U.S. crosshairs.

Jonathan Hillman is director of the Reconnecting Asia Project at the Center for Strategic and International Studies.

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