Artificial IntelligenceCryptocurrencyMetaverseCybersecurityTech Forward

Why Cisco thinks investing billions in China will spur growth despite tensions

June 18, 2015, 7:56 PM UTC
Cisco CEO John Chambers at Fortune Brainstorm Tech 2014
Cisco CEO John Chambers at Fortune Brainstorm Tech 2014 in Aspen, Colo.
Photograph by Stuart Isett — Fortune Brainstorm TECH

Cisco Systems said it plans to invest $10 billion in China amid slumping sales there tied to an international tech trade war.

The networking giant gave few details in Wednesday’s announcement. The company only said that the money will be spent “over the next several years” and that it will be used to “support the growth of local economies and businesses.”

Under the terms of the deal, Cisco’s investment will be used to spur Chinese job growth, research and development, and contribute to China’s plans to create a booming high-tech industry.

The investment comes at a time when Cisco (CSCO) has seen slumping sales in China. In an earnings call in May, CEO John Chambers told analysts that its China business fell 20% in the third quarter.

The slump started soon after the U.S. government raised the alarm bells in 2012 about buying networking gear from Chinese tech giant Huawei because of security concerns. Soon after, China started voicing fears that U.S. spy agencies had installed so-called backdoors into U.S.-made networking gear.

Eventually, China removed Cisco—along with Apple (AAPL), Citrix (CTXS), and McAffee—from a government approved purchase list for small contracts. Sales in China for Cisco’s core products started to steadily decline.

The alleged espionage by the U.S. government has troubled Chambers. In 2014, he reportedly wrote a letter to President Obama asking him to ease back on government surveillance tactics because “these actions will undermine confidence in our industry and in the ability of technology companies to deliver products globally.”

With the new investment into China, Cisco seems to be working on rebuilding trust in the country and spur more sales of its products. By manufacturing more hardware in China and hiring more Chinese workers, the company may be able to curry favor with the Chinese government and dampen concerns about the U.S. potentially booby trapping its products.

In a statement, Cisco said Chambers, who is retiring in July, and his replacement, Chuck Robbins, met with Chinese government officials about the investment and signed a memorandum of understanding with China’s National Development and Reform Commission, a Chinese economic planning agency.

In June, Cisco reportedly shook up its senior leadership in China as part of its global restructuring that included Robbins stepping in as CEO.

For more on Cisco, check out the following Fortune video: