(TheBlaze/AP) — American companies should avoid doing business with China’s two leading technology firms because they pose a national security threat to the United States, the House Intelligence Committee is warning in a report to be issued Monday.
The panel says U.S. regulators should block mergers and acquisitions by Huawei Technologies Ltd. and ZTE Corp, among the world’s leading suppliers of telecommunications gear and mobile phones. Reflecting U.S. concern over cyber-attacks traced to China, the report also recommends that U.S. government computer systems not include any components from the two firms because that could pose an espionage risk.
“China has the means, opportunity, and motive to use telecommunications companies for malicious purposes,” the report says.
The recommendations are the result of a yearlong probe, including a congressional hearing last month in which senior Chinese executives of both companies testified, and denied posing a security threat.
The bipartisan report is likely to become fodder for a presidential campaign in which the candidates have been competing in their readiness to clamp down on Chinese trade violations. Republican Mitt Romney, in particular, has made it a key point to get tougher on China by designating it a currency manipulator and fighting abuses such as intellectual property theft.
The panel’s recommendations will likely hamper Huawei and ZTE’s ambitions to expand their business in America, but their products are still being used in scores of countries.
A private company founded by a former Chinese military engineer, Huawei has grown rapidly to become the world’s second largest supplier of telecommunications network gear, operating in more than 140 countries. ZTE Corp is the world’s fourth largest mobile phone manufacturer, with 90,000 employees worldwide.
The congressional report states that malicious hardware or software implants in Chinese-manufactured telecommunications components and systems headed for U.S. customers could allow Beijing to shut down or degrade critical national security systems in a time of crisis or war.
The committee reportedly received information from industry experts and current and former Huawei employees suggesting that Huawei, in particular, may be violating U.S. laws. The report mentions allegations of immigration violations, bribery and corruption, and of a “pattern and practice” of Huawei using pirated software in its U.S. facilities.
“The committee finds that the companies failed to provide evidence that would satisfy any fair and full investigation. Although this alone does not prove wrongdoing, it factors into the committee’s conclusions,” the report reads.
But Plummer complained that the volume of information sought by the committee was unreasonable, and it had demanded some proprietary business information that “no responsible company” would provide.
In Washington, Huawei executive Plummer said Friday the company cooperated in good faith with the investigation, which he said had not been objective and amounted to a “political distraction” from cyber-security problems facing the entire industry.
All major telecommunications firms, including those in the West, develop and manufacture equipment in China and overlapping supply chains require industry-wide solutions, he added. Singling out China-based firms wouldn’t help.
In justifying its scrutiny of the Chinese companies, the committee contended that Chinese intelligence services, as well as private companies and other entities, often recruit those with direct access to corporate networks to steal trade secrets and other sensitive proprietary data.
“The investigation concludes that the risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests,” the report summarizes.
The committee determined that Huawei, specifically, has likely benefited substantially from the support of the Chinese government.
However, ZTE has also enjoyed growth in its sale of mobile devices– though in recent months it has faced allegations about banned sales of U.S.-sanctioned computer equipment to Iran. The FBI is probing reports that the company obstructed a U.S. Commerce Department investigation into the sales.
The intelligence panel says ZTE refused to provide any documents on its activities in Iran, but did provide a list of 19 individuals who currently serve on the Chinese Communist Party committee within the company. ZTE’s citing of China’s state secrecy laws for limiting the information it is allowed to release only added to concern over Chinese government influence over its operations, the report adds.