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US panel: China tech giants pose security threat

Associated Press Modified: October 8, 2012 at 2:01 pm •  Published: October 8, 2012
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Huawei, founded in 1987 has grown rapidly to become the world's second largest supplier of telecommunications network gear, operating in more than 140 countries. ZTE Corp, which is partly state-owned, is the world's fourth largest mobile phone manufacturer, with 90,000 employees worldwide.

The report says the companies failed to provide responsive answers about their relationships and support by the Chinese government, and detailed information about their operations in the U.S. It says Huawei, in particular, failed to provide thorough information, including on its corporate structure, history, financial arrangements and management.

Plummer said it wasn't clear what Rogers was referring in the allegations of "beaconing." He said Huawei had provided "endless data" to the investigation, which he contended was not objective. He said its recommendations could create "market-distorting trade policy" and risk the tens of thousands of American jobs Huawei helps to support through procurement from U.S.-based suppliers that totaled $6.6 billion last year.

The recommendations "undermine competition, which undermines innovation which drives up the price of your broadband," he said.

ZTE said a Sept. 25 letter to the committee, released Monday, that China's government had never requested access to ZTE's equipment.

"Direct exclusion of one or two identifiable Chinese companies is an obvious unfair trade practice and, as a practical matter, would not provide meaningful security for US telecom infrastructure systems," the letter says.

In justifying its investigation, 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 data.

It warned that malicious hardware or software implants in Chinese-manufactured telecommunications components and systems could allow Beijing to shut down or degrade critical national security systems in a time of a crisis.

Huawei denies being financed to undertake research and development for the Chinese military, but the committee says it has received internal Huawei documentation from former employees showing the company provides special network services to an entity alleged to be an elite cyber-warfare unit within the People's Liberation Army.

The intelligence committee recommended that the government's Committee on Foreign Investment in the United States, or CFIUS, bar mergers and acquisitions by both Huawei and ZTE. A multi-agency regulatory panel chaired by Treasury Secretary Timothy Geithner, CFIUS screens foreign investment proposals for potential national security threats.

Last year, Huawei had to unwind its purchase of a U.S. computer company, 3Leaf Systems, after it failed to win CFIUS approval. Still, Huawei employs 1,700 people in the U.S., and business is expanding. U.S. revenues rose to $1.3 billion in 2011, up from $765 million in 2010.

ZTE has also enjoyed growth in its sale of mobile devices, although 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. government investigation into the sales.

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AP researcher Zhao Liang in Beijing contributed.