Huawei and ZTE (Shenzhen: 000063.SZ) may be keen on conquering the U.S. telecom market, but they are now facing yet another setback as the House Intelligence Committee has launched an investigation into whether the two Chinese vendors pose a security threat.
Committee chairman Mike Rogers said that there is concern that the U.S. infrastructure market will provide "the Chinese government an opportunity for greater foreign espionage."
This is the latest move by the federal government to prevent the companies from gaining a meaningful presence in the U.S. market.
Reps. Mike Rogers (R.-Mich.), chairman of the House Permanent Select Committee on Intelligence, and Dutch Ruppersberger (D.-Md.), the panel's top Democrat, said that a preliminary investigation "suggests that the threat to the supply chain constitutes a rising national security concern of the highest priority."
The probe follows a recent report that both China and Russia are leveraging "cyber espionage" to enhance their respective countries' economic development.
Not surprisingly, the two companies and the Chinese government denied any wrongdoing and that they are being unfairly targeted.
William Plummer, a Huawei spokesperson, said that the vendor's equipment is used by 45 of the 50 top service providers "with zero security incidents," adding the company welcomed the review because global security issues are real.
Likewise, Mitchell Peterson, a U.S.-based spokesman for ZTE, said it is "wholly committed to transparency" and would be happy to cooperate with the investigation.
Still, ZTE maintains that it is not giving up on the U.S. market. "Although we have been blocked by the U.S. government, we just can't give up breaking into the U.S. market because its size is huge and per-capita spending is high," Richard Ye, senior director of wireless-product operations, told Dow Jones Newswires.
In February, Huawei abandoned its acquisition of segments of U.S.-based cloud server provider 3Leaf due to security concerns cited by the Committee on Foreign Investment in the United States' (CFIUS).
More recently, Huawei was blocked by the U.S. Commerce Department from participating in a nationwide LTE public safety network over what it says were security concerns.
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