Chinese tech giant Huawei plans to sell off its undersea telecom cable business, a move that has drawn much speculation, given the timing soon after the U.S. administration enacted an export ban on the company.
The Chinese company that intends to purchase the Huawei unit is notable in that, like Huawei, it also has strong ties to the Chinese Communist Party (CCP).
Huawei Marine was established in 2008 as a joint venture between Huawei and UK-based submarine communications firm Global Marine Systems. Since then, the company has become one of the world’s largest undersea cable providers.
According to the filing, Hengtong signed a letter of intent with Huawei Tech Investment, a subsidiary through which Huawei controls its stake in the undersea cable joint-venture, for the purchase via cash and share issuance. The filing didn’t disclose a price or provide a reason for the deal.
Undersea Cables
Undersea cables are a critical part of global communications, including transmitting global internet, voice, and data traffic.According to Huawei Marine’s website, it has participated in 90 projects worldwide, building a total of 50,361 kilometers (31,293 miles) of cables.
Security Concerns
Chinese-built marine cables have long been considered a security concern by the United States.“China poses a significant threat to the U.S. Navy and its allies due to its long‐term efforts to gain incremental control of the foreign companies associated with the undersea cable industry and the potential enhancement of these cables to support undersea monitoring and command and control,” Johnson said.
“The company’s knowledge of and access to undersea cables could allow China to attach devices that divert or monitor data traffic—or, in a conflict, to sever links to entire nations,” the WSJ reported, citing the officials.
Huawei Unit’s Buyer
Hengtong Optic-Electric is a subsidiary of Hengtong Group, a Chinese fiber-optic manufacturer. Prior to the latest announced acquisition, Huawei Marine has been working with Hengtong Group to build the Peace Cable project: a 12,000-kilometer (7,456 miles)-long underwater high-speed internet cable system linking Pakistan, South Africa, Kenya, Somalia, Djibouti, Egypt, and France.The cable is currently being built, and according to Huawei’s official website, will be ready for service in the first quarter of 2020.
Hengtong Optic-Electric, while being a publicly listed company on the Shanghai Stock Exchange, has strong ties to the CCP. Cui Genliang, Hengtong Group’s current Party secretary and chairman of the board, has been a delegate to both the 12th and 13th National People’s Congress, the CCP’s rubber-stamp legislature, according to the Optic-Electric website.
The 13th National People’s Congress began in 2018 and lasts for five years, which means that Cui will hold his position until 2023.
While attending a provincial Party congress meeting at the Jiangsu capital of Nanjing in November 2016, Cui spoke about how his company would follow closely Beijing’s national strategic policies, including “Made in China 2025” and “One Belt, One Road,” for the goal of turning it into an international high-tech corporation with annual revenues surpassing 100 billion yuan (about $14.5 billion), according to the Optic-Electric website.
Beijing rolled out the Made in China 2025 plan in May 2015 for the goal of transforming China into a high-tech powerhouse by 2025 by aggressively developing fields like information technology (IT), robotics, and semiconductors.
One Belt, One Road (OBOR, also known as Belt and Road) is an investment initiative announced by Beijing in 2013, under which the Chinese regime builds geopolitical influence through financing infrastructure projects. Some Hengtong cable-building projects have been described in press releases as part of OBOR.
Hengtong has also received government subsidies. According to its 2013 annual financial report, the company received at least 73 million yuan (about $10 million) in 2011, at least 136 million yuan (about $19 million) in 2012, and at least 115 million yuan (about $16 million) in 2013.