WIRE FUNDS

China Looks at Syria, Sees $$$

Most companies might be frightened by the prospect of doing a mega-deal with Damascus. Not the telecom giant Huawei.

10.27.15 5:08 AM ET

Russia is betting its geopolitical future in the Middle East on a military intervention to prop up the regime of Bashar al-Assad. But one of the biggest companies from another rising power, China, is betting that when the long civil war in Syria is over, the country will be a good place to do business.

Huawei, one of China’s richest companies and the largest telecommunications equipment maker in the world, has signed an agreement with Syria to design a “national strategy for information and communication technology,” including the construction of a broadband network for Internet service, the company announced this month.

This isn’t the first time Huawei has gone to work for an authoritarian Middle Eastern regime. In 2011, the company signed a contract to install equipment for Iran’s largest mobile phone company as part of a system to track people’s locations via their cellphone signals. And U.S. intelligence officials have long suspected that the company gives the Chinese government and its security services access to the equipment that it installs, effectively acting as an arm of the Chinese surveillance apparatus.

The Syria deal won’t alleviate those concerns. It runs until 2020 and covers both a short- and long-term plan to repair and develop Syria’s telecom infrastructure, which has been badly damaged by five years of civil war, and says that Huawei will advise the country’s communications and technology ministry.

That assumes, of course, that there still is a ministry, or a government at all for Huawei to work with. The future of Syria and its embattled dictator is very much in doubt, despite Vladimir Putin’s best efforts. So, why would a massive Chinese firm, with longstanding and deep ties to the government, take such a risk?

It turns out that the Middle East and North Africa are prime targets for Huawei as it seeks to expand its telecom equipment and consumer technology business—think smart phones and video players. And the fact that Syria is descending into chaos doesn’t intimidate Huawei’s leaders.

“Huawei has a pretty strong track record in terms of infrastructure build-out, across developed and developing markets worldwide,” William Plummer, a Huawei vice president and spokesman, told The Daily Beast, noting that the company works in about 170 countries and serves roughly a third of the world’s population.

Huawei has been signing deals lately in countries with little infrastructure compared to more developed nations. And getting in on the ground floor is part of Huawei’s strategy.

“Huawei has a lot of partnerships with governments in Africa and the Middle East,” Amy Cameron, a senior analyst with BMI Research, told The Daily Beast. Notable customers include the governments of Ghana, where Huawei recently won a $305 million multi-year contract, and Mali, Tanzania, Zimbabwe, Kenya, Zambia, and Tunisia, she said.

“Part of their strategy is that a lot of these countries have state-owned wireline [carriers]. But if Huawei can work with the government and offer things like advice, technology training, and its own skills, it’s more likely they’ll eventually get a contract for building the network,” Cameron said.

And Huawei already has big contracts with all the major telecommunications providers in the Middle East, helping them built LTE wireless and land-based fiber-optic networks, Cameron said.

“It has a presence in the region and a lot of experience in a difficult operating environment. I don’t think Huawei has any better idea of whether Syria will be there in the long term. But it has nothing to lose by partnering with whomever is there now,” Cameron said.

Huawei is betting big on Syria and the whole region. In October, the company threw a lavish celebration in Dubai to mark 15 years of doing business in the Middle East. More than 300 senior government officials and business leaders, including representatives from top telecom companies and technology ministries, played with Huawei products, including video players, wearable devices, and saw demonstrations of “drones & robotics,” the company said in a press release. Nancy Ajram, a famous Lebanese chanteuse and Huawei “brand ambassador,” sang some of her greatest hits.

Those party guests represent the companies and countries with which Huawei already has deals—some of which have recently been renewed for several years—and they’ll be eager to get into the Syrian market when the war is over. If Huawei is ready to put its expertise to work, they’ll follow the company’s lead.

“This appears to be highly opportunistic,” said Scott Kennedy, the deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies. “The risk, commercial and physical, and scruples probably scared off many rivals.”

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Huawei also has something of a toehold in Syria already. World Tech Co., a telecom firm established in 1994 in Homs, boasts a number of deals it says it completed with Huawei as early as 2007, before the civil war began.

The company has posted photos on its website of what it says are workers installing Huawei fiber-optic lines in three Syrian cities. One photo shows a Huawei employee smiling with his Syrian colleagues.

Huawei may want this new relationship with Syrian government because it already has equipment that was installed before the country fell into chaos, said Doug Madory, the director of Internet analysis at Dyn, a U.S. research company that tracks online connectivity.

There’s no doubt that the Syrian people sorely need new, modern telecommunications. Madory said that significant portions of the Syrian Internet infrastructure have been knocked permanently offline because of the fighting, and some of them have been down for years.

“Despite the war, life continues in some form in Syria. Businesses still need to operate and telecommunications infrastructure needs to be maintained,” Madory said.

But Assad has also used that very same technology against his people, deploying intrusive surveillance software to censor dissent on the Internet and to track down agitators and members of the opposition.

Activists allege that Assad’s cousin, a billionaire businessman named Rami Makhlouf, has financed the Syrian Electronic Army, a group of pro-regime hackers that has tracked opposition members so they can be captured or killed by the government.

How did Makhlouf get so rich? In part because he owns SyriaTel, one of only two mobile phone companies in the country. If Assad and his cronies stay in power, there’s a good chance that Huawei will have to do business with the tycoon. According to Syria analysts, no company can operate in the country without Makhlouf’s consent.

Asked whether Huawei was assisting the Syrian regime with surveillance of activists and rebels, Plummer, the Huawei executive, said that the company generally complies with all rules and regulations of the countries where it works.

“Huawei builds commercial telecommunications infrastructure equipment according to open and global technical specifications, which mandate that all vendors incorporate an interface for lawful intercept,” Plummer said, noting that the U.S. has those laws on the books. “Accordingly, we incorporate the interface, nothing more.”

U.S. intelligence officials have long suspected Huawei of acting as a de facto surveillance arm of the Chinese government and its intelligence service. A congressional committee concluded that the U.S. should “view with suspicion” Huawei’s attempts to penetrate the American telecom market.

For its part, Huawei says it’s not owned and operated by the Chinese government and insists it’s free from official influence.

The Huawei deal with Syria may also be as much about public relations as it is about money.

“The contract is good messaging for Assad regime; it gives his regime another claim to respectability,” said Christopher Harmer, a military analyst with the Institute for the Study of War, in Washington. “This contract says the Chinese government and companies see the Assad regime as the legitimate rulers of Syria, and a good place to invest.”

As a practical matter, he said, Huawei might wait until the country is a lot safer before it puts many employees on the ground. “Any foreign telecom workers show up in Syria, and they will be an immediate target,” he said. “The last thing the opposition wants is for the Assad regime to be able to execute foreign investment and infrastructure contracts. Maybe the opposition lets the project get built, then hits it with vehicle IEDs,” he said, referring to improvised explosive devices.

But the deal may also help China even if workers aren’t immediately on the ground, particularly in the country’s strategic rivalry with the U.S.

“China is working every angle possible to push the U.S. out of the Pacific Rim; they can’t do it militarily, at least not yet, but they are doing everything they can to tweak us around the margins outside of the Pacific Rim,” Harmer said.

The Middle East may be a long way to go to poke at Washington, but insofar as the Obama administration hasn’t forcefully intervened to stop Russia’s intervention, it creates an opening for other rivals, like China and its industry, to assert their own influence.

China’s government is not the reliable state sponsor of Syria that Russia is. The country hasn’t been funneling weapons to the regime, as Russia has for years, and it’s not sending in troops or aircraft.

However, Russia and China have teamed up to keep the Assad regime in place. In 2012, the two countries joined in a veto of a United Nations Security Council Resolution that called on Assad to resign. Keeping him in power provided at least the patina of political legitimacy as Assad cracked down on rebels and eventually used chemical weapons against unarmed Syrian civilians. (Iran and North Korea also voted against the resolution that called on Assad to step down.) 

“China would be happy to see Assad survive, simply to embarrass the U.S.,” Harmer said. And he noted that Beijing has been “increasingly committed to the Iranian regime, so they have a bit of an adoptive relationship with Syria via Iran.”

In that respect, the early pieces of a Russia-China-Iran axis may be coming into focus in Syria and the Middle East, with Russia’s interests weighted toward military and geopolitical gains, and China’s more about making sure Syria is a suitable place for its companies to do business.

The Huawei deal is a signal that powerful interests in China are committed to just that.