Lawmakers to Biden Administration: Sanction Chinese Internet Device Company

Lawmakers to Biden Administration: Sanction Chinese Internet Device Company

A bipartisan congressional committee set up to counter China’s superpower ambitions is calling for a Shanghai-based tech giant that mass produces ubiquitous electronic parts to be put on U.S. sanctions lists because of its connections with Beijing’s military.

Quectel is the largest Chinese manufacturer of cellular internet modules, the cigarette pack-sized components that provide mobile connectivity to a new generation of internet-connected devices such as smart home appliances, security cameras and connected cars, known as the Internet-of-Things or IoT.

Last year, Newsweek reported exclusively that the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party had written to the Federal Communications Commission (FCC), warning of security risks posed by Chinese-made modules such as those made by Quectel, especially in IoT devices used by law enforcement or in vital industries such as electricity generation or water and sewage.

Now, committee Chairman Mike Gallagher, a Republican from Wisconsin, and ranking member Raja Krishnamoorthi, a Democrat from Illinois, have written to Secretary of Defense Lloyd Austin and Treasury Secretary Janet Yellen about Quectel, too.

The letter says the lawmakers have “significant evidence suggesting Quectel may contribute to the [Chinese] defense industrial base,” which would qualify it to be placed on two U.S. government lists that aim to sanction civilian companies forming a semi-covert part of China’s sprawling military industrial complex.

Krishnamoorthi told Newsweek the committee leaders wrote the letter because they want to make sure the two departments know about Quectel’s links to the military. But they made it public to help highlight the issue.

Krishnamoorthi, who responded to questions by email, called the cellular modules “under-the-radar” technology. “Most people haven’t heard of these modules,’ he acknowledged, “but they are inside a vast array of the internet-connected devices we all depend upon.”

If the Treasury Department puts Quectel on its Chinese Military-Industrial Complex Companies List, it would effectively bar Americans and U.S. companies from buying or selling publicly traded securities in the company, according to Michael J. Walsh, Jr., a sanctions attorney at the New York law firm Shearman and Sterling.

Walsh told Newsweek the Treasury Department list was set up pursuant to a presidential executive order to limit access to U.S. investment funds and capital markets by Chinese military suppliers—and other Chinese companies assisting the People’s Liberation Army, or PLA.

The Defense Department list is called 1260H after the section of the law that created it. That law doesn’t currently lay out any consequences for the companies on the list, Walsh said. But once the Defense Department has publicly identified them, “there are plenty of other mechanisms throughout the U.S. government for the imposition of economic consequences on those companies,” he said.

A firefighter talks on the radio while he watches a fire spot on a smoldering hillside on February 10, 2022, in Laguna Beach, California. First responder communications equipment with Chinese-made connectivity modules may pose a security risk, experts say.
Apu Gomes/Getty
Asked about the move to sanction Quectel, Liu Pengyu, a spokesman for the Chinese embassy in Washington, D.C., said that the U.S. was pushing the concept of national security too far.

“We urge the U.S. side to earnestly respect the principles of market economy and fair competition and provide an open, fair, just and non-discriminatory environment for foreign companies,” Liu said in an email.

The letter is the latest effort by U.S. lawmakers to address the security and economic risks experts say are posed by these Chinese-manufactured components in the IoT and other networks.

Last August, Newsweek revealed that the Chinese government had extensively supported Quectel via subsidies worth hundreds of millions of dollars in total. Newsweek also reported that the committee had asked the FCC to consider putting the company on its “Covered List.” That would bar Quectel products or services from being used in U.S. telecommunications systems or equipment.

The FCC subsequently wrote to eight federal government departments and agencies, including the FBI, the Office of the Director of National Intelligence, the National Security Agency, the Office of Management and Budget and the Department of Commerce, requesting their views and assessments whether the company should be added to the Covered List.

An email sent to Quectel requesting comment was answered by the company’s D.C.-based public relations and government affairs company, BGR, which was also hired in August, according to Senate lobbying records. The records say the company is initially being paid $60,000 a month.

Many body cameras used by police rely on Chinese-made cellular connectivity modules.
George Frey/Getty
“We are disappointed that members of the U.S. Congress would sign a letter making false accusations about Quectel,” BGR said in an emailed statement attributed to Norbert Muhrer, Quectel’s president and chief sales officer. “Our products are designed only for civil use cases and do not pose any threat to the national security of the United States. There is no basis to add Quectel to any U.S. government restricted list.”

The company, with global research facilities and just under 6,000 employees, had annual operating revenue of nearly $2 billion in 2022 and owns 38.5 percent of the global market for cellular IoT modules by volume, according to the IT market and analysis company Counterpoint Research. That makes it the backbone of China’s burgeoning global dominance in the sector.

In a statement responding to the letter on its website, the company said that it complied with U.S. and international export control and sanctions laws.

“We do not sell to any person or entity in Russia, Belarus, Cuba, Iran, North Korea, Syria or Crimea, nor do we sell to military manufacturers anywhere.”

In the letter, Gallagher and Krishnamoorthi say that Quectel is “a contributor to the [Chinese] military” and that the company is “a key supplier for numerous firms that the Department of Defense has already listed as Chinese military companies.”

They also list its “multiple affiliations” with China’s Ministry of Industry and Information Technology, including a 2019 award in a competition organized by the ministry and other government agencies as part of Chinese President Xi Jinping’s Networked Superpower Strategy. That same year, the ministry designated several Quectel products as “Manufacturing Single Champion Products,” fingering them as possible international leaders in their field. It was the only IoT company to have products honored in this way.

Shaun Waterman can be reached at s.waterman@newsweek.com. Follow him on X at @WatermanReports, and Reddit at u/WatermanReports

Didi Kirsten Tatlow can be reached at d.kirstentatlow@newsweek.com. Follow her on X at @dktatlow

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