US Security Takes Wind Out of Sany 美国考虑安全否决三一重工风电项目

The national security excuse has become the flavor of the day in Washington, with a wind farm funded by an affiliate of heavy machinery giant Sany (Shanghai: 600031) making headlines as the latest US-based Chinese project to be vetoed on grounds it could compromise US security. (English article) Meantime, the bigger news story involving a Congressional report that says telecoms equipment from  Huawei and ZTE (HKEx: 763; Shenzhen: 000063) poses a risk to US security continues to bubble into the headlines, this time with the White House denying that its own investigation into that matter appeared to exonerate Huawei. (English article)

Let’s look at Sany first, since this story is actually new and provides an interesting new angle to the national security debate. I try to take an objective stance in these matters, and have to admit that after reading the first few paragraphs of the news about Sany, I was a bit puzzled why the US might consider a wind farm a threat to national security. After all, Washington is encouraging development of alternate energy, and power production from such a small project certainly doesn’t seem to pose any big risks to US national security.

But then I read further into the story, and saw that this particular project, which was receiving wind turbines from a Sany affiliate called Ralls Corp, just happens to be located in the state of Oregon very close to a highly sensitive military base. Specifically, the site is near a naval site used to test drones, a sophisticated type of unmanned aircraft which have become popular for intelligence gathering in unstable and dangerous areas like Afghanistan.

The only reason the story even made it into the headlines was because the Ralls CEO held a news conference in Beijing to say his company would sue the Obama administration for blocking the deal, and would “fight to the very end” to protect the company’s interests. My main reaction to all this is: “What was Sany thinking when they cooked up this project?” Surely there must be many many sites around the US that would be suitable for wind farm development, and yet the company chose this one particular location that it surely must have realized was close to a sensitive military site.

If the situation were reversed, surely Beijing wouldn’t approve of a western company setting up a major operation so close to a sensitive Chinese military site. So I can only conclude that either the Ralls and Sany people weren’t very smart in choosing the location; or perhaps there could be some truth to concerns that the wind farm might be used as a base for future spying.

Moving on to Huawei, US media are reporting that the Obama administration has denied an earlier report citing White House sources that appeared to exonerate Huawei. That report, run by my former employer Reuters, cited anonymous sources saying an investigation ordered by the White House into whether Huawei equipment could be used for spying appeared to show no apparent risk. (previous post) Not surprisingly, Huawei itself was quick to cite that report earlier this week in trying to prove its case that it should be allowed to sell its equipment into the US market.

This White House denial seems a bit strange to me, since an organization as big and credible as Reuters would rarely run this kind of story unless it was confident of its facts. Perhaps the report, coming so close to the US presidential election, embarrassed the White House. Whatever the case, both Huawei and now Sany probably stand very little chance of winning their cases in the US anytime soon, and will have to think of other means to enter this lucrative but also sensitive market.

Bottom line: The veto of a Chinese-backed US wind farm on national security grounds reflects a lack of due diligence by the Chinese, and shows national security will be a big issue in the future.

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