WASHINGTON -- Huawei Technologies Co. and ZTE Corp., China's two largest phone-equipment makers, provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying, according to a congressional report released Monday.
The House intelligence committee report said the companies failed to co-operate with a year-long investigation and to adequately explain their U.S. business interests and relationship with the Chinese government.
"Huawei and ZTE seek to expand in the United States, but as a result of our investigation, we do not have the confidence that these two companies with their ties to the Chinese government can be trusted with infrastructure of such critical importance," said the committee's chairman, Rep. Mike Rogers of Michigan.
The U.S. government should block acquisitions or mergers by Huawei and ZTE, the report said. Government agencies and contractors shouldn't use equipment from the companies, and U.S. intelligence agencies should "remain vigilant and focused on this threat," the report recommended.
The House investigation found credible reports of illegal behaviour by Huawei, including immigration violations, bribery and corruption, based on statements from current and former employees, according to the report. Allegations will be referred to federal agencies including the Homeland Security and Justice departments, according to the report, which didn't provide full details or identify the accusers.
The committee will forward information on a "clear case of bribery in order to get a contract here in the United States" to the FBI, probably Tuesday, Rogers said at a U.S. Capitol news conference with the panel's top Democrat, Rep. C.A. "Dutch" Ruppersberger of Maryland.
Huawei, in a statement Monday, said the report "employs many rumours and speculations to prove non-existent accusations." The committee predetermined the outcome of its investigation, the company said.
"The quality, the integrity of our products are world proven," William Plummer, a Washington-based spokesman for the company, said in an interview after the committee members spoke. "It is a political distraction, it is a dangerous thing, to suggest that you can solve these vulnerabilities by embargoing a company. It's a false sense of security. It ignores the fact that this is a global industry."
Dai Shu, a ZTE spokesman, called it "noteworthy" that "after a year-long investigation, the committee rests its conclusions on a finding that ZTE may not be 'free of state influence.' " That standard "would apply to any company operating in China," Dai said in an emailed statement.
Almost all telecommunications-infrastructure equipment sold in the U.S., by any company, contains Chinese-made components, Dai said. "ZTE recommends that the committee's investigation be extended to include every company making equipment in China," including western companies that use equipment made by Chinese joint-venture partners and suppliers, Dai said.
ZTE shares fell six per cent to HK$12.60 at the close of Hong Kong trading, the biggest decline since Aug. 27. The stock has lost 48 per cent this year, compared with a 13 per cent gain for the benchmark Hang Seng Index.
Rogers and Ruppersberger announced the probe of the companies last November, citing concerns about hacking into U.S. systems and theft of intellectual property. U.S. counter-intelligence officials called China the world's biggest perpetrator of economic espionage in a report last year, saying the theft of sensitive data is accelerating and jeopardizing an estimated $398 billion in U.S. research spending.
"Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services," the report says.
-- Bloomberg News