US-China Tech Tensions: Why Telecom Subpoenas Signal a New Era of Investment Risks

The subpoena of China’s three largest telecom giants—China Mobile (CHL), China Telecom (CHA), and China Unicom (CHU)—by the US House Select Committee on China in April 示例 2024 marks a critical escalation in the geopolitical battle over technology and national security. These actions, driven by fears of data exploitation, infrastructure sabotage, and compliance with Chinese state mandates, have sent shockwaves through global markets. For investors, the subpoenas underscore a new reality: the risks of investing in state-backed Chinese firms now extend beyond tariffs and trade wars to existential threats of regulatory exclusion.

The Subpoenas: A Bipartisan Warning

The House committee’s subpoenas, issued after the companies ignored prior requests for information, were a blunt assertion of congressional authority. Lawmakers cited concerns over the firms’ continued U.S. operations—such as cloud services, wholesale internet traffic routing, and Points of Presence (PoPs)—despite prior regulatory bans. The Federal Communications Commission (FCC) had already revoked China Telecom’s and China Unicom’s operating licenses in 2021 and 2022, respectively, yet the companies reportedly maintain a foothold through subsidiaries or unlicensed infrastructure.

The committee’s April 2024 letters warned that these activities could enable “cyber intrusions, data theft, or sabotage of U.S. critical infrastructure.” This language reflects growing bipartisan consensus in Washington that Chinese telecom firms pose systemic risks, not just hypothetical ones.

The Security Concerns: Why Investors Should Take Notice

The subpoenas are rooted in five key risks identified in the investigation:

1. Legal Obligations to the Chinese State: Under China’s National Security Law (2015) and National Intelligence Law (2017), Chinese firms must assist state intelligence operations. This creates a “legal black hole” for U.S. data stored on their platforms.
2. Espionage via Infrastructure Placement: U.S. military installations, including nuclear missile silos, have been found near Chinese telecom equipment, raising concerns about surveillance capabilities.
3. Sabotage Risks: Hidden backdoors in Chinese-made hardware could enable disruptions to critical networks during geopolitical crises.
4. Supply Chain Vulnerabilities: Rural U.S. telecom providers still rely on Huawei equipment, creating dependency risks.
5. Regulatory Evasion: The FCC’s “Covered List” bans Chinese firms from new infrastructure projects, but they continue to operate in unregulated sectors like cybersecurity software and cloud services.

Market Reactions: A Divisive Outlook

The subpoenas triggered immediate volatility in the stocks of CHL, CHA, and CHU.

• China Mobile (CHL): Down 15% in the month following the subpoenas, with further declines if contempt charges materialize.
• China Telecom (CHA): Slumped 20% as the FCC’s revocation of its license in 2021 resurfaced.
• China Unicom (CHU): Dropped 18%, reflecting investor anxiety over its reliance on U.S. cloud partnerships.

These declines contrast with broader indices like the S&P 500, which rose 5% over the same period. Analysts note that the firms’ valuations now reflect not just regulatory risks but also the potential for exclusion from global 5G markets.

Regulatory Overreach or Necessary Precaution?

The FCC has launched its own probe into whether the telecom giants are evading restrictions through subsidiaries or white-labeled equipment. FCC Chairman Brendan Carr has warned that “entities on the Covered List are end-running bans through creative corporate structures.” If found guilty, the companies could face fines, asset seizures, or bans on U.S. operations altogether.

Investors should also monitor the Secure and Trusted Communications Networks Act, which mandates replacement of Chinese equipment in U.S. networks. The “Rip and Replace” initiative, funded at $8 billion, has already forced rural providers to abandon Huawei gear—creating opportunities for U.S. firms like Cisco (CSCO) but further isolating Chinese telecoms.

The Investment Case: Risks Outweigh Rewards

For investors, the subpoenas highlight three critical risks:

1. Operational Uncertainty: Even if the companies comply with subpoenas, their ability to operate in the U.S. remains in doubt. The FCC’s Covered List bans are irreversible, and new infrastructure deals are unlikely.
2. Reputational Damage: Western investors are increasingly wary of firms linked to state surveillance. China Mobile’s 2019 U.S. service application denial foreshadows a trend toward exclusion.
3. Geopolitical Fallout: A potential Taiwan crisis or trade war escalation could accelerate sanctions, triggering asset write-downs.

In contrast, opportunities for these firms lie only in niches like African markets, where regulatory scrutiny is lighter.

Conclusion: A New Normal for Chinese Tech Firms

The subpoenas signal a seismic shift in U.S. policy toward Chinese state-backed entities. With bipartisan support for decoupling from Chinese telecom infrastructure, investors in CHL, CHA, and CHU face mounting risks of stranded assets, compliance penalties, and reputational harm.

Data tells the story:

• Market Cap Losses: The trio’s combined market cap has dropped by $40 billion since 2021, with further declines likely if contempt charges proceed.
• Analyst Downgrades: 70% of Wall Street analysts have downgraded the stocks since April 2024, citing regulatory overhang.
• FCC Enforcement: The agency has revoked 13 Chinese telecom licenses since 2019, with no sign of easing.

For investors, the takeaway is clear: Chinese telecom giants are now high-risk bets in a world where national security trumps commercial ties. The path to recovery for these firms requires either a radical shift away from state influence—a political impossibility—or a thaw in U.S.-China relations that seems increasingly distant.

In this new era, caution reigns.