U.S. Export-Import Bank Shifts Focus to Challenge China on 5G
The U.S. Export-Import Bank said Thursday the U.S. doesn’t have comparative leadership in telecom equipment manufacturing and agreed to move forward on a long-term project to restore it. The Ex-Im board supported 4-1 a policy change to potentially provide additional support for gear made outside the U.S., to better compete with China, and to promote open radio access networks.
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“The country that invented the telephone is losing,” said Adam Frost, Ex-Im senior vice president-China and transformational exports, at Thursday's board meeting. Frost asked the Ex-Im board to approve “a limited, measured” approach “to a problem not of Ex-Im’s making, but one for which we are one of the few government agencies that can make a difference.”
Chinese telecom equipment revenue is more than four times that of the U.S., exports are 3.5 times larger, and the largest Chinese companies are 4.4 times larger by market cap than U.S. firms, Frost said. China supplies gear for about 70% of networks in Africa and heavily subsidizes exports worldwide, allowing Huawei to set prices that are 30% below market, he said.
“This will not be fast,” Frost warned: “It will take years to mitigate the damage.”
In vetting 5G investments over the past two years “it has become clear that Ex-Im cannot offer commercially meaningful levels of financing to such projects” in the U.S., said Scott Condren, senior analyst in the Ex-Im Office of Policy Analysis: “Decades of unfair competition have hollowed out our manufacturing base for this sector and consolidation has limited the number of U.S. companies that can participate. ... In certain sectors, there are really no U.S. participants.”
Director Owen Herrnstadt, a former union leader, opposed the policy change. “Serious concerns remain, some of which regard how this proposal … would effectively support specific U.S. exports and contribute to the employment of U.S. workers in the form of specific U.S. jobs,” Herrnstadt said.
The Ex-Im Bank is an economic security agency, not a security agency per se, said Reta Jo Lewis, president and chair. “These issues are now very well intertwined,” she said: “5G is a priority for EXIM. It is a priority for our nation. Telecommunications, we all know, has a very outsized role in the lives of people around the world.” Lewis said promoting U.S. jobs remains a priority.
“This is a national security problem,” said Director Spencer Bachus, a former Republican U.S. House member from Alabama. The steps taken “are the response to a bad situation that none of us wish we were in,” he said. “Anything we do is almost experimental,” he said. The choice is between China and “our European allies,” he said.
“It’s clear that 5G is an important security concern,” said Judith Pryor, Ex-Im vice chair. “It’s also clear there’s a strong desire within the United States government to support trusted [information and communications technology] solutions,” she said. The board will still consider each transaction “on its own merits -- that’s very important,” she said. Pryor said it remains to be seen whether industry will look to the U.S. for support and other nations will provide similar funding: “Ex-Im simply cannot single-handedly compete with China, particularly in this sector.”
Other U.S. officials supported Ex-Im’s shift during the meeting.
Administration Supports Change
The changes the bank is making “would allow Ex-Im, we think, to more effectively engage in the effort to strengthen U.S. domestic contributions of advanced wireless technology,” including 5G and ORAN technology, said Commerce Deputy Secretary Don Graves. China “subjects domestic companies to a broad range of intelligence and national security laws and lacks the type of independent judiciary and rule of law that protects companies and consumers,” he said.
The U.S. should support “trusted” vendors, who need access to U.S. capital, including through the bank, Graves said. “Ex-Im support will advance the U.S.’ comparative advantage in research and development, in software development,” he said.
“For various reasons, American telecom manufacturers couldn’t succeed in a global market” and the major players are from China, said Anne Neuberger, White House deputy national security adviser-cyber and emerging technology. That gives China advantages in the markets of the future “and also brings significant national security risks,” she said: “We are responding to a bad situation.”
When an untrusted supplier is part of a network “it is very difficult to have confidence in the security of that network,” Neuberger said. It’s in the U.S. interest to help other Western gear makers “push back on China,” she said. Ex-Im should fund software suppliers and other ORAN companies as well as non-Chinese gear makers and integrators. ORAN technology is ready, she said, urging the bank to make supporting open networks “priority one.”
“In my travels, and in my meetings with partners around the world, I frequently raise our concerns about untrusted suppliers,” said Jose Fernandez, undersecretary of state-economic growth, energy and the environment. “When I do so, I consistently hear” other countries “understand the risks and would prefer alternative options, but that the cost difference is just too great,” he said. The recurring question is what financial support the U.S. can provide to address differences in costs, he said.