China, US Quarrels Could Get Ugly for Telecom

The simmering trade war between the US and China could be heating up, as China dropped top US vendors from its approved state purchase list, according to reports this week.

Cisco Systems Inc. (Nasdaq: CSCO), Apple Inc. (Nasdaq: AAPL), Citrix Systems Inc. (Nasdaq: CTXS), Intel Corp. (Nasdaq: INTC) and McAfee Inc. (NYSE: MFE) were among the firms conspicuous by their absence from the Central Government Procurement Center's list of approved vendors, according to a Reuters investigation.

The cause: either security concerns about Western cyber surveillance, or protectionism for China's own products, according to different Reuters sources.

Cisco is the "chief casualty," with 60 products on the list in 2012 and none late last year, according to Reuters.

Cisco said in November that revelations about US spying hurt revenue in emerging markets, including China. But Cisco cited other financial difficulties as well, including a carrier spending slowdown. Overall, Cisco reported improving finances in November and healthy returns this month. (See Cisco Busts Slump Despite Carrier Slowdown and Cisco Sees Strong Quarter Despite Carrier Weakness.)

While the number of products on the list for regular spending by central ministries grew to just under 5,000 (more than 2,000 more than two years ago), the increase comes almost entirely from local companies, Reuters says. The number of foreign tech brands fell by a third, and less than half of vendors with security-related products survived.

A Chinese government official told Reuters that local Chinese companies might be preferred by sheer numbers, or because of more product guarantees from domestic security firms compared with overseas rivals.

Trade conflict between the US and China goes back several years, and security is often the reason (or pretext). In 2012, a committee of US congress said Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) pose a security risk and US companies shouldn't do business with them. (See US vs Huawei/ZTE: The Verdict.)

A few weeks later, China Unicom Ltd. (NYSE: CHU) reportedly replaced Cisco routers, citing security concerns. (See Cisco Feels Security Heat in China.)

The next year, China launched investigations into EMC Corp. (NYSE: EMC), IBM Corp. (NYSE: IBM) and Oracle Corp. (Nasdaq: ORCL) over security concerns. (See China to Probe Software Giants.)

Want to know more about Asian telecom? Visit Light Reading's Asia content channel.

But tech trade between the two companies hasn't stalled. CenturyLink Inc. (NYSE: CTL) announced a Chinese expansion late last year. (See CenturyLink Expands in China.)

This month, European companies talked with China and its businesses to expand cooperation. (See Eurobites: Operation 'Woo China' Kicks In.)

And China Telecom tapped Alcatel-Lucent (NYSE: ALU)'s Nuage Networks for SDN for its cloud platform. (See China Telecom Taps Nuage SDN for Public Clouds.)

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

R Clark 2/26/2015 | 8:41:04 PM
Not much change Actually this was a bit carelessly reported by Reuters. The Central Govt Procurement List that the story references is really a list of preferred suppliers for contracts below 500k yuan (around $80k). Those companies not on the list can bid for these projects but they have to go through a competitive bid.

Plus, it doesn't apply to provincial governments -  there's no change there.
And I don't believe either list applies to telco procurement.

Still, it's not a friendly move. The environment for foreign businesses, tech in particular, has been deteroriating for a number of years and will no doubt continue to deteriorate.
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