Gallagher, Krishnamoorthi Urge Administration to Blacklist Quectel as a 'Chinese Military Company'

Letter

Dear Secretary Austin and Secretary Yellen,

We write to ask about the potential inclusion of Quectel Wireless Solutions Co. Ltd. (Quectel) on the Department of Defense's list of Chinese Military Companies (1260H list) and the Department of Treasury's Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List). We have obtained information about Quectel that raises questions about whether Quectel may meet the legal requirements to be added to the lists, and accordingly respectfully request to be briefed on this matter.

Quectel, based in the People's Republic of China (PRC), is the world's largest supplier of cellular IoT modules and is currently gaining market share in the U.S. With tens of millions of Quectel modules in smart devices across the country, its status as a contributor to the PRC military--the People's Liberation Army (PLA)--is highly relevant.

Under Section 1260H of the National Defense Authorization Act of 2021, the Secretary of Defense publishes a list of "Chinese military companies." Such companies are defined to include any non-natural person entity that is "identified as a military-civil fusion contributor to the Chinese defense industrial base" and is "engaged in providing commercial services, manufacturing, producing, or exporting." Among other qualifying considerations, a company is a "military civil fusion contributor" if such company is "affiliated with the Chinese Ministry of Industry and Information Technology, including research partnerships and projects."

The Ministry of Industry and Information Technology (MIIT) was formed in 2008 and is key to the PRC's military-civil fusion strategy. Quectel's multiple affiliations with MIIT, taken in their totality, would seem to make Quectel a "military-civil fusion contributor" under Section 1260H. In 2017, Quectel won an award at a Conference organized by MIIT and the Ministry of Science and Technology. The Chinese media reports on the award described Quectel as engaged in formulating standards and cooperating on testing with MIIT.4 In 2019, Quectel attended, and Quectel's marketing director spoke at, at a conference focused on supporting the IoT industry in China, which was put on by MIIT and the Shenzhen municipal People's Government. In 2019, Quectel won a 5G Application award in a competition organized by MIIT and other PRC entities as part of Xi Jinping's Network Great Power Strategy. Most important, in 2019, the MIIT designated several "Manufacturing Single Champion Products," which consist of certain products that have the capacity to be international leaders. Quectel's cellular IoT modules were designated. Quectel was the only IoT module maker to have a product designated. In 2020, MIIT invited Quectel to participate in a 5G symposium, and in the same month Quectel partook in another 5G conference organized by MIIT and a provincial government.

There is also significant evidence suggesting Quectel may contribute to the defense industrial base, even apart from its MIIT ties. Quectel supplies IoT modules for Beidou, the PRC's GPS alternative, which the PRC views as critical to its military operations. Quectel is a key supplier for numerous firms that the Department of Defense has already listed as Chinese military companies under 1260H. Quectel has an ongoing relationship with China Mobile, China Telecom, and China Unicom. In 2020, the last of this trio even awarded Quectel the title "Best 5G Module Partner."11 Quectel has not only been a major supplier of Huawei, but also has worked to develop technical standards with Huawei and has designed modules to integrate into Huawei's platforms. PRC media even touted Huawei's use of Quectel modules as reducing Huawei's reliance on Western companies and thus lessening Huawei's vulnerabilities to U.S. export controls and sanctions.13 Quectel supplies modules to certain DJI drones. Ties are also deep between Quectel and ZTE. A former executive of ZTE, Qian Penghe, is now the Chairman and CEO of Quectel.

Companies must meet a slightly different threshold to be added to the NS-CMIC List. Per President Biden's Executive Order 13959, the Secretary may add companies to the list if a company "operate[s] or ha[s] operated in the defense and related materiel sector or the surveillance technology sector of the PRC."16 The information listed above, especially Quectel's contracts with other firms on the NS-CMIC list, seems to indicate that Quectel may meet this definition and thus should be listed as a PRC military company restricted from accessing U.S. capital.

We respectfully request a briefing with Select Committee staff as soon as possible to discuss this matter in detail.

Thank you for your attention to this important matter and work on behalf of the American people.

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