US telecommunications operators should not do business with China’s top telecom gear makers because potential Chinese state influence on the companies poses a security threat, the US House of Representatives Intelligence Committee said in a report on Monday. The report follows an 11-month investigation by the committee into Huawei Technologies Co Ltd and ZTE Corp.
The companies have been fighting an uphill battle to overcome US lawmakers’ suspicions and expand in the United States after becoming key players in the worldwide market.
The House Intelligence Committee’s concerns are bound to set back the companies’ US prospects and may also lead to strains in ties between the United States and China, the world’s two biggest economies.
Committee Chairman Rogers, at a press conference to release the report, said the panel was stopping short of urging a US boycott of mobile phones and other handheld devices made by Huawei and ZTE.
The panel’s warning pertains only to devices that involve processing of data on a large scale, Rogers said in reply to a question.
Employee-owned Huawei is the world’s second-biggest maker of routers, switches and other telecommunications equipment after Sweden’s Ericsson. ZTE ranks fifth.
The committee warning comes as Huawei considers a possible initial public offering, sources said, as part of an effort to overcome suspicions that have all but blocked its US efforts, including business tie-ins.
Huawei spokesman William Plummer rejected the committee’s allegations in a statement emailed to Reuters.
“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,” he said.
For its part, ZTE released a copy of a letter it sent to the committee last month, stating it “profoundly disagrees” with allegations that it is directed or controlled by the Chinese government.
“ZTE should not be a focus of this investigation to the exclusion of the much larger Western vendors,” it said.
ZTE’s Hong Kong-listed shares fell as much as 3.4 per cent early on Monday.
It was not immediately clear whether the committee warning would curb mobile phone sales that Huawei and ZTE do with customers such as Verizon and Sprint.
The panel’s report faulted both companies for failing to fully satisfy the committee’s requests for documents to allay its security concerns, including detailed information about formal relationships or regulatory interaction with Chinese authorities.