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Admiral William Owens on technology transfers and investment challenges in the U.S.-­China relationship

Photograph of Admiral William OwensAdmiral William Owens is the Executive Chairman of Red Bison Advisory Group, the Chairman of CenturyLink Telecom, and serves on the board of Wipro. He has previously served as the Chairman of AEA Investors Asia, Vice Chairman of the NYSE for Asia, and as a board member with more than 20 public companies including Daimler, British American Tobacco, Telstra, Nortel, and Polycom. In addition, Admiral Owens has served as the CEO of Nortel, Teledesic and the President of Science Applications International Corporation (SAIC). Prior to joining the private sector, Admiral Owens was the Vice Chairman of the Joint Chiefs of Staff, the second-ranking United States military officer with responsibility for reorganizing and restructuring the armed forces in the post-Cold War era. Admiral Owens is a graduate of the United States Naval Academy with a bachelor’s degree in mathematics, Oxford University with a bachelor’s and master’s degrees in politics, philosophy and economics, and George Washington University with a master’s degree in management. On September 26, 2016, he spoke with Michael Grouskay CMC '17.

Technology transfers from the U.S. to China have played a very important role in China’s rapid economic development. Do you think such transfers have now slowed? If technology transfers have in fact slowed, what are the reasons, especially political reasons, for this development?

There have been lots of technology transfers from the U.S. to China. One source comes from Chinese students who study in the United States, who are exposed to American academic, technological, and commercial environments. These students participate in research and development projects, gain extensive knowledge of American technology and business, and in many cases come back to the United States to work after graduating. On the other hand, many American companies have recognized China as a marketplace, and are interested in doing whatever they can to engage with China in profitable ways. Moreover, companies have manufactured all kinds of products in China for economic reasons, which results in a great deal of knowledge transfer and encourages business relationships on the Chinese side. 

What are the existing hurdles that prevent U.S. firms from transferring advanced technology to China? What hurdles do Chinese firms face in acquiring technologies in the U.S.?

One of the biggest hurdles facing Chinese technology firms is the Committee on Foreign Investment in the United States (CFIUS), which prevents Chinese companies from buying a large share of existing American companies. This makes it harder for Chinese companies to access American technology. There are all kinds of other hurdles imposed by various government agencies, which reflect that we question the trustworthiness of the Chinese and are unwilling to share our technology with them or bring their technology into our country. For Chinese companies such as Huawei and ZTE, we certainly would not allow them to have access to our technologies, even though their abilities are in many cases superior to ours. We don’t want them to have access to the details and source codes used by our companies. Perhaps one of the largest challenges is understanding what it is that the Chinese want to do. Many companies today believe that the Chinese will steal their technology, and therefore don’t want to share their technology with China. They think that their secrets are going to be jeopardized. 

In a well ­publicized paper for the Council of Foreign Relations, Ambassador Blackwell and Dr. Tellis called for tightening U.S. technology transfers to China. Do you believe that a consensus is emerging in the U.S. that a U.S.-­China geopolitical rivalry is escalating, thereby justifying such a step?

The paper does not justify tightening technology transfers, but a consensus is emerging. Professor Graham Allison at Harvard has talked about the Thucydides Trap, and there is some truth to that. We are very suspicious of a rising number two power that is likely to be the number one power within the next decade. Our fear of that happening has a big impact on our willingness to be open with China. This has led China to move into other countries with investments and big visions, like the Belt Road Strategy which do not involve the United States. When the United States establishes the TPP and excludes China, China will implement its own free trade agreement with other Asian countries and move ahead in its own way. What we’re seeing is a large amount of competition and an unwillingness to cooperate and trust each other. 

Given the recent record of CFIUS, is the U.S. becoming stricter toward China’s acquisition of American technologies with potential military or national security applications? Are there specific examples that we should pay attention to?

Less has happened than we think has happened, but the threat of CFIUS is great when a Chinese company looks to acquire an American entity. Even though the process is arduous, the 13 agencies that oversee CFIUS are fairly open. The perception is that CFIUS has a harder standard to meet than it actually has. There have been many little issues that subsequently become big political issues. In 2011, Huawei attempted to acquire a $2 million bankrupt software company on the West Coast. The U.S. government prevented it because the company had some previous exposure to the U.S. military and government, which embarrassed the Chinese and Huawei. CFIUS has a bad reputation, but the reality of what it has done is far less than what has actually happened. The perception is alive and well. A lot of law firms are making a lot of money, and the Chinese face a lot of resistance when trying to buy American entities. 

One example that has received significant attention is Huawei Technologies. Why has Huawei been prevented from entering the U.S. telecom market? Are American concerns regarding Huawei justified?

The concerns are unjustified and there’s no smoking gun. There has been a House Congressional study. It is apparent to me from reading it that it is more politically-driven than reality-driven. Even though we don’t have smoking guns, we are suspicious. Huawei’s dominance in networks and enterprise equipment means it could pose a threat to national security. About 10 years ago, I was involved in a project to bring Huawei technology into Sprint; Huawei had great solutions to bring into Sprint’s wireless networks, and Sprint was convinced that Huawei was the best in the world. At the time, Gary Locke, who was the Secretary of Commerce determined that Sprint couldn’t move forward with the deal, even though it was in Sprint’s best interest. This is the best example, but there have been many others. American telecommunications companies worry about the competition of Huawei, and they tend to make their point in government, in advisory committees, and in other ways. CISCO even sued Huawei for stealing secrets, but the suit was dismissed. However despite the efforts of a number of companies to preclude Huawei from coming into the U.S., Huawei is apparently welcomed in some ways through smartphones and enterprise equipment. Nonetheless, Huawei will not be allowed to invest in the core of American telecommunications networks, even though Huawei’s contributions to the quality of these networks would be very important to our country. It’s unfair that Huawei has been met with so much suspicion. It is 90% politics. Huawei hasn’t done anything that should make us feel that they wouldn’t be good partners.

What steps might Huawei take to persuade U.S. lawmakers and concerned officials that it is not a threat to American national security?

Huawei cannot do any more than it has already done. It offered to open up all of its source code and it offered to allow independent third parties to have access to its equipment. Nonetheless, it has been unable to satisfy concerns that it wouldn’t be so smart that it could find a way to interfere with our networks. In some ways, Huawei has actually given up, and being close to this company, I can tell you that it is frustrated with the fact that it has tried so many different things and has still been turned away. Huawei is dominant in the world of telecommunications technology. No one has anywhere near the capability that it has. Right now, Huawei is valued at more than $60 billion, and within three years it’s likely to be $100 billion. One day, the United States will need Huawei’s technology, and when we ask, it will come, but it is unlikely that it will spend any more money and time in efforts to enter the U.S. telecommunications market.

How will Sino­-U.S. tensions over the issue of technology transfers affect the overall commercial relationship between the two countries?

It is going to get worse and worse. It goes back to Graham Allison’s “Thucydides Trap.” We fear that China is going to be an enemy and that it will start to dominate the blue oceans. Of course China has had no imperialist history for one thousand years, but the United States is still fearful. Many Americans don’t understand Chinese history or the challenges China has faced in its border crises, and consequently U.S. foreign policy will preclude the Chinese for the near future of ever thinking of moving outside of their country. Eisenhower’s military industrial complex is alive and well in the U.S.; and the Congress, the contractors, the generals and the admirals would all like to make sure we have a strong military (perhaps stronger than we need in terms of dollars), and may therefore need to find an enemy to confront to justify these dollars. All of these factors will be geopolitical factors that will prevent China and the United States from getting closer. Therefore we need strong people with strong views to be on the side of doing the right thing. 

Author: 
Michael Grouskay