John Chambers, the CEO of US-based Cisco Systems Inc, recently downplayed last month's high-profile clash between Huawei Technologies Co and a congressional panel by saying that China and the US can likely come to terms about the potential security risks posed by the Chinese telecoms giant without a trade war between the world's two largest economies.

Prior to these muted remarks, Chambers had branded Huawei as its biggest competitor and many believe that Cisco had a hand to play in crafting the US congressional report which concluded that Huawei could compromise the national security of the US. The milder stance recently displayed by Chambers could mean that Cisco execs have realized that antagonizing its largest peer may not be in its best interest.

Since entering the Chinese market in 1994, Cisco has built up a large customer base in the country, which now contributes some 16 percent of its total revenue. As Beijing focuses on expanding the application of IT technology in both its pillar and emerging industries, the demand for telecommunication equipment in China is expected to explode in the near future, and Cisco is well placed to capitalize on the boom.

Currently, the majority of Cisco's customers in China have ties with the central government - including State-owned enterprises, like the country's telecoms network providers (China Telecom and China Unicom), the country's largest oil and gas companies (China Petrochemical Corporation) and government institutions, like the central bank (the People's Bank of China) and the Beijing Municipal Government. In total, data show that Cisco has provided telecommunications equipment to 70 percent of China's financial institutions, 50 percent of its government agencies and nearly 100 percent of its civil aviation projects.

In other words, Cisco has built much of its success in China by tapping into sensitive sectors vital to the country's national security.

Meanwhile, Huawei has also grown quickly in the Chinese market thanks to efforts from the central government to spur homegrown technology and innovation. The strength of Huawei could allow Beijing to fire back against the US for blocking Cisco from its own market, just as the US did with Huawei.

Losing the good graces of Beijing could cost Cisco dearly, especially at a time when the company's financials are looking increasingly rocky. Cisco, after all, has trimmed its payroll by more than 7,000 employees over the past two years in the face of sluggish demand from developed markets.

Every top executive at Cisco is undoubtedly aware of how much the company has at stake in China and recent statements from its CEO could be a move to brush the confrontation between Huawei and US politicians under the rug now that the ball is in Beijing's court.

Based on an interview with a senior IT industry researcher from Analysys International, a Beijing-based consulting company. sunpeilin@analysys.com.cn