Calling Foul On Exim's Huawei FUD

In a speech at the Center for American Progress in Washington, D.C. on June 15, 2011 (yesterday), Fred Hochberg, the Chairman and President of the Export-Import Bank of the United States, detailed "How the U.S. Can Lead the World in Exports: Retooling Our Export Finance Strategy for the 21st Century." Among other things, Hochberg bemoans "the proliferation of state-directed capital into the global marketplace" as disadvantaging U.S. firms. To the extent that such concerns are fact-based, they are legitimate. However, the legitimacy of Hochberg's arguments is effectively gutted by his willy-nilly parroting of what would seem to be competitor-inspired talking points.

Hochberg's speech (full text linked here), makes a number of factually false references to global telecom giant Huawei (recall, I work there).

Per Hochberg: "...One of the central reasons the company’s growth has been so dramatic – is that it’s backed by a $30 billion credit line from the Chinese Development Bank. This backing allows Huawei to significantly reduce its cost of capital and to offer financing to their buyers at rates and terms that are better than their competitors. This financing model not only affects the bottom line of companies trying to compete, but it also affects the bottom line of our economy – particularly as exports play an increasingly important role in our economic recovery and job creation. The reality is opaque state-directed capital allows foreign governments to target their financing at specific sectors and companies, while aggressively grabbing market share in an attempt to dominate a market."

All of that would be disturbing, if it were true. But it's not. And it is increasingly disturbing to hear U.S. government voices repeating statements that are patently false, and known to be so.

The facts:

The China Develop Bank (CDB) and Huawei have signed Memoranda of Understanding (MOUs) under which the CDB has indicated its willingness to make available export credits to potential Huawei customers. Such MOUs, which serve as marketing vehicles for the CDB to gain overseas business, are not the same as Lines of Credit because there are no funds actually committed by the CDB. One such MOU was signed in 2004 referencing $10 billion in credits with a five year validity period. A second MOU was signed in 2009 referencing $30 billion, also with a five year validity period. Since 2005, 35 Huawei customer projects have tapped the CDB export credits, with the aggregate amount of financing agreed to totalling $4.25bn, but with only $2.99bn having actually been extended to Huawei customers - at going market rates and according to open market-based practices. Huawei’s global sales over the same period exceeded $110 billion. Clearly, Huawei's growth is not driven by CDB or other "state-directed" support.

So, while we're at it, let's consider some additional facts. How does Huawei finance itself? Well, in terms of external financing,mainly through loans from commercial banks. Since 2000, with the growth in international markets and in order to prevent systemic risks, Huawei has adopted a diversification strategy in terms of financing resources, types and terms. Huawei now collaborates with 28 banks: 10 China-based and 18 non-China-based banks (Note: Huawei is now one of the top 50 global platinum customers of HSBC Bank, Citibank and Standard Chartered Bank). In total, these commercial banks have granted $25 billion in credit facilities to Huawei, at going market rates and terms, in compliance with the credit policies of each commercial bank, and in accord with relevant national and international laws and regulations. To date, Huawei has utilized $3.58 billion of the $25 billion, over 50% drawn from non-China-based banks.

Facts. They can be fun. Indeed, let me repeat one more set (verbatim from my June 5, 2011 post - linked here):

In his speech at the Center for American Progress, before blasting Huawei, Hochberg poses a number of rhetorical questions about America's long-term economic growth, quality of life and competitiveness. Perhaps Hochberg and others that view companies like Huawei through the complex geo-political prism of the U.S.-China relationship should jettison the politics and actually consider the answers to those very questions that he poses. Consider, for instance, the significant contributions Huawei makes to American innovation and livelihoods. In order to fuel Huawei’s global supply chain, in 2010 alone Huawei purchased more than $6.1 billion from major U.S. technology companies, indirectly sustaining over 30,000 U.S. jobs in addition to the 1,100 U.S.-based workers Huawei employs directly. Beyond that, each year, Huawei invests about 20% of its North American revenues into local R&D, totaling $135 million in 2010 alone. Yet further, Huawei is committed to university partnerships to foster the next generation of American telecommunications experts, investing more than $10 million in 2010 to support programs at Georgia Tech, Harvard, MIT, Stanford, UC Berkeley, UC Irvine, UCLA, UC San Diego, UT Austin, UT Dallas, Washington University and Yale University.

Food for thought...