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THE CHINA CONNECTION | U.S. companies -- Qualcomm of
San Diego among them -- see a fortune at the finish line in
China, although critics say we're paying too hig a price just
to be in the running | Telecom's Space Race
The San Diego Union-Tribune
At Chinasat's expansive headquarters near
Beijing, a bank of huge metal dishes are trained
on a set of satellites 750 miles into space.
Using technology from Qualcomm in San Diego,
China's state-owned satellite company is linked to Globalstar, the network
of communications satellites created by Qualcomm and Loral Space
Systems. It's the '90s version of the space race: Globalstar vying with other
satellite competitors -- Iridium by [ Motorola ] and ICO Global
Communications by [ Hughes Electronics ] -- to bring China into its
worldwide phone system. Like the old space race, some Cold War fears
remain.
Over the last six months, Bernard Schwartz, the New York magnate who
heads both Loral and Globalstar, has figured prominently in a congressional
investigation to determine if his engineers passed sensitive rocketry
information to the Chinese.
At the same time, the National Security Committee in the House has been
investigating whether satellite ground stations in China, such as those that
Qualcomm is building in Beijing, Guangzhou and Lanzhou, can be adapted
to handle secure military communications for the People's Liberation Army.
"Generally speaking, we're concerned whenever there's (been) an export of
satellite equipment to China that contains encrypted technology," says Bill
Klein, a military affairs adviser to Rep. Tillie Fowler, R-Fla., who has been
spearheading the investigation.
A spokesman for Globalstar, John Cunningham, bristles when he hears such
talk. "This whole issue of technology transfer to China is becoming too
politicized," he says.
Nevertheless, the government is clamping down on the export of satellite
technology.
Late last month, the Defense and State departments and the U.S. Arms
Control and Disarmament Agency, citing security concerns, denied
permission for Hughes Electronics to launch a satellite in China. The only
government agency to favor the launch was the Commerce Department,
which has long been criticized for supporting such high-tech exports.
Globalstar seems to be an unlikely target for a clampdown for it essentially is
a satellite phone network, which allows people to make calls and send faxes
and e-mail from almost any spot on earth.
The system relies on technology developed for the U.S. military during the
Cold War and was launched in 1993. It is a joint venture between
Qualcomm and Loral: Qualcomm provides cellular phones and ground
stations -- or "gateways" -- for the system; Loral is in charge of the satellite
launches. Over the last six years, Globalstar has become a key component
of Qualcomm's business, ordering $792 million in cellular phones and
gateways. The system is committed to spending $870 million more with
Qualcomm as sales get rolling.
With the help of a dozen partners -- AirTouch, Alcatel, Daimler-Benz and
France Telecom are among them -- Globalstar serves more than 100
nations, creating a network that can reach the entire globe outside the polar
regions.
Because of the potential size of its market, China has become the biggest
sales target in Globalstar's space race.
Globalstar sees China as an untapped market, where fewer than 5 percent
of people have phones, where 5 million are on the waiting lists for phones.
"China is installing 15 million lines of switching capacity and 100,000
kilometers of fiber-optic cables each year, but the built-up demand cannot
be satisfied," Schwartz says.
Just weeks after it was founded, Globalstar was holding seminars in China,
outlining plans to bring phones to the masses. Schwartz told the Chinese that
Globalstar could be "an efficient, affordable and timely solution" for meeting
the demand for phones, since it does not require the time or expense of
laying ground lines used by traditional phone networks. However, because
U.S. export laws tightened after the Tiananmen Square massacre in 1989,
Globalstar and its U.S. competitors at that time could not export satellites
and ground stations to China without obtaining waivers from the State
Department.
Schwartz, a lifelong Democrat, succeeded in getting waivers from both the
Bush and Clinton administrations to export some goods to China.
In the spring of 1994, Schwartz successfully urged Ron Brown, the late
Commerce secretary, to lift restrictions on transfers of technology, permitting
Schwartz to launch satellites in Russia and China. He accompanied Brown
on a trade mission to China, where he met with leaders in the Chinese
aerospace and telecommunications ministry, as well as the military, to lay the
groundwork for the push into China.
Schwartz wasn't alone in lobbying to relax export controls.
One of the most active companies pushing to end trade barriers was
Motorola, part-owner of Iridium and one of Globalstar's biggest
competitors.
Richard Barth, assistant director of international trade at Motorola, wrote to
the State Department that controls put U.S. companies "at a significant
competitive disadvantage" in China.
Barth, a former national security adviser to President Bush, and other
Motorola executives lobbied the Clinton administration to shift oversight
over high-tech exports from the Defense and State departments to the
Commerce Department, which generally takes a pro-trade stance. Over the
next few years, the administration relaxed its trade
restrictions, shifting control over many products toward Commerce, even
though all government departments seemingly were becoming more open to
trade.
In 1996, for instance, when Schwartz applied for a White House waiver to
launch a Globalstar satellite from China and set up Qualcomm's gateways,
he received approval from State, Defense, Commerce and the
administration's Office of Science and Technology Policy.
Schwartz' plans to launch Globalstar's first set of satellites from a Chinese
Long March rocket in 1996 went up in flames, however, when one rocket,
carrying several Loral satellites, plummeted to earth and killed 200 villagers.
Such explosions were not rare. At that time, one out of every four Long
March rockets failed, but the crash compelled Schwartz to shift Globalstar's
launches to Russia and the United States.
By moving Globalstar's launches out of China, Schwartz unknowingly saved
the company from becoming the flash point in a major controversy. It was
the 1996 crash that sparked much of the interest into the technology transfer
to China.
After the crash, Loral launched an investigation and reportedly shared its
findings with the Chinese. That action, the Defense Department says,
provided the Chinese with the information needed to improve their missiles.
Schwartz says Loral's probe merely confirmed the findings of a Chinese
investigation that determined the crash was caused by a failed solder joint.
Nevertheless, when the Defense Department's findings were made public
last spring, they spurred congressional investigations, which also are
examining whether Iridium's three launches in China aided Chinese rocket
telemetry. Rep. Duncan Hunter, R-El Cajon, has led the charge against
further satellite launches, saying Loral had revealed "highly sensitive aspects
of the rocket's guidance and control systems, an area of weakness in China's
missile programs."
Fearing that information gained by the Chinese could be used to improve
weapons launches, Hunter submitted a bill to ban all U.S. satellite launches in
China. The bill overwhelmingly passed the House with bipartisan support,
although it was rejected by the Senate, which feared the measure would
impose too many limits on exports to China. Meanwhile, Schwartz continued
to create inroads for Globalstar in China. In November 1997, Schwartz
signed a deal bringing Chinasat into the system, allowing it to own and
operate the gateways once they became operational. Last April, China
Telecom, the national phone service, paid $37.5 million to become a 1.6
percent owner of Globalstar and will handle all land-based hookups for the
network in China.
Globalstar estimates that in the next three years it will have 200,000
customers in China, representing about 8 percent of its worldwide clientele.
The company hopes to make $250 million a year in China. Still, it's doubtful
that Chinese villagers will be buying Globalstar cellular phones any time
soon. The Qualcomm-built phones carry a price tag of around $1,000 to
$1,500, making them much too pricey for the average Chinese farmer, who
make as little as $125 per year.
One solution is to set up Globalstar phone booths, bringing the service to
people who cannot afford the full price of a phone. Even then, the calls will
cost about $1.50 per minute.
So, who will be Globalstar's primary customers?
Ming Louie, chief of Globalstar's operations in the Asia-Pacific region, says
users will include government ministries as well as China's emerging upper
class.
Louie contends the system is intended for civilians, not the military, but
Globalstar will have no control over that. Such decisions will be in the hands
of its partner, China Telecom, whose other duties include security in
telecommunications, building the government's networks and handling
emergency communications in wartime. Congressional critics of
ground-station exports focus on whether they contain encrypted technology,
which is designed to protect calls from eavesdropping.
Fowler notes that some recent exports of satellite ground stations with
encrypted technology have gone to China Electronic Systems Engineering, a
trading company operated by the People's Liberation Army. She is worried
that other exports could also be used for military purposes. "When you're in
a situation like what we had two years ago, when China was test-firing
rockets over Taiwan and there were two U.S. carrier groups headed into
the South China Sea, you don't want the Chinese to easily keep their
messages coded," says Klein, Fowler's military aide. A spokesman for
Globalstar, Kerriann Hartman, declines to say whether Qualcomm's
gateways in China are encrypted.
In general, she says, the calls do not need encryption, since Qualcomm's
standard Code Division Multiple Access technology, or CDMA, does an
adequate job in protecting conversations.
Even some critics of trade to China concede that there are legitimate reasons
for exporting encryption there.
"If a business in Beijing wants to transmit information to one of its offices on
the other side of the country, it makes sense that it might want its messages
encrypted," Klein says.
Klein is not alone, though, in fearing that the security features used in a
satellite system could end up in the hands of the army.
"Western companies say they're helping the Chinese people through their
investment and technology, but most people don't have the money to use the
technology," says Chinese dissident Harry Wu. "In China, high-technology is
controlled by the government. And that usually means it is being used by the
military."
(Copyright 1999)
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