International intrigue: Congress sees ZTE, Huawei as U.S. security threats

Two Chinese telecom vendors—Huawei Technologies and ZTE—present a security risk and should be shut out of the U.S. market, the U.S. House of Representatives Intelligence Committee said in a report to be released today.

According to multiple reports, the committee's 11-month investigation of the two giant vendors revealed that the companies pose an espionage threat because of their purported relationships with their government. A draft copy of the report faulted both vendors for failing to provide detailed information about "formal relationships or regulatory interaction with Chinese authorities," a Reuters story said.

The report concluded that the two companies "cannot be trusted" to be free of Chinese government influence and that they could be used to undermine U.S. security, according to a story by the AFP news service.

The impact of the report's recommendations could be widespread. Huawei is the world's second largest manufacturer of routers, switches and telecoms equipment behind Ericsson (Nasdaq: ERIC), and ZTE ranks fifth. Both are also huge players in the mobile space.

Both companies—and the Chinese government—vigorously denounced the report, which is still only available in draft form.

"Baseless suggestions otherwise or purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignore technical and commercial realities, recklessly threaten American jobs and innovation, do nothing to protect national security and should be exposed as dangerous political distractions from legitimate public-private initiatives to address what are global and industry-wide cyber challenges," Huawei spokesman William Plummer said in a statement emailed to Reuters.

ZTE, meanwhile, released a copy of a letter it sent to the committee after a September hearing in which it said it "profoundly disagrees" with any claims that it is directed or controlled by the Chinese government and that it "should not be a focus of this investigation to the exclusion of the much larger Western vendors," the Reuters story continued.

Even more ominous than the expected vendor responses, the Chinese government itself jumped into the fray this morning suggesting that "prejudices" might be at the core of the matter.

"We hope the U.S. Congress will set aside prejudices, respect the facts and do things that will benefit China-U.S. economic cooperation instead of the contrary," foreign ministry spokesman Hong Lei said in a story reported by the AFP news service.

"China's telecom enterprises have been engaged in international cooperation according to market economy rules and their investment has demonstrated the mutually beneficial nature of China-U.S. economic ties," he continued.

The U.S. is not the first country to worry about links between Chinese firms and their government. Earlier this year Australia blocked Huawei from bidding on contracts for its broadband plan.

For more:
- Reuters carried this report
- and the AFP has this story

Related articles:
Report: Huawei mulling IPO
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Huawei, ZTE face Congress in national security probe

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