House panel: China tech giants Huawei, ZTE a security threat to U.S.
Sept. 13 file photo shows Charles Ding, Huawei's senior vice president for the U.S., left, and Zhu Jinyun, ZTE's senior vice president for North America and Europe, being sworn in before testifying to House Intelligence Committee / AP Photo/J. Scott Applewhite
WASHINGTON 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 in this country 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.
A U.S. executive of one of the companies said the firm cooperated with investigators, and defended its business record. Huawei is a "globally trusted and respected company," said William Plummer, vice president for external affairs.
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.
Huawei probed for security, espionage risk
The committee made the draft available to reporters in advance of public release Monday, but only under the condition that they not publish stories until the broadcast Sunday of a CBS News "60 Minutes" report on Huawei. In the "60 Minutes" report, the committee's chairman, Republican Rep. Mike Rogers, urges American companies not to do business with Huawei.
The panel's recommendations will likely hamper Huawei and ZTE's ambitions to expand their business in America. Their products are used in scores of countries, including in the West. Both deny being influenced by China's communist government.
"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 says.
The report says the committee received information from industry experts and current and former Huawei employees suggesting that Huawei, in particular, may be violating U.S. laws. It says the committee will refer the allegations to the U.S. government for further review and possible investigation. 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.
Huawei is a private company founded by a former Chinese military engineer, and 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. While their business in selling mobile devices has grown in the U.S., espionage fears have limited the companies from moving into network infrastructure.
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.
"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," it says.
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.
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 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.
It warned 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 concluded that Huawei likely has substantially benefited from the support of the Chinese government.
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. However, 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. 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 serve on the Chinese Communist Party committee within the company. ZTE's citing of China's state secrecy laws for limiting information it could release only added to concern over Chinese government influence over its operations, the report says.
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Wouldn't it be More Productive if Our Elected Leaders Started Working Together as AMERICANS for AMERICANS and AMERICA, instead of just bickering, stalling and posturing for the next election as democrats and republicans! The American People have had it with this unproductive BS! The sad thing is that both parties stink! Neither party is really looking out for the best interest of the US citizens who elect them and who they're supposed to represent.
If they (Both Parties) don't start addressing the real problems in our country like "out-sourcing", illegal immigration and the out of control costs of health care insurance, by the next election - American citizens may just have to run a nation-wide campaign to vote every single incumbent elected official out of office, so that maybe they'll finally get the message.
Sombody figured this out in there own wittle heads?
How much longer do we "offshore" jobs and technology before we figure out that we will need to buy the latest in military technology from the Chinese? I agree with the person who pointed out that the traitors in this country are all in the corporate boardrooms. Shoot the suits!
It does not escape notice that whenever US corporations wish to commit acts of BS, they hide behind the "free market" phrase, then they squeal for "the nanny government" to protect them whenever someone becomes able to play the game better than they.
China at this point makes networking equipment, including wi-fi dongles and HSPDA/CDMA/3-4-and-5G wireless modems for laptop computers, They make tablets, PDAs, GPS trackers, and many other components, and they make them cheaper than in the US.
China is indeed becoming a giant in the telecommunications industry, and Huawei is becoming a giant in China. The US wants to stop that, but can state no real concrete evidence that Huawei is doing anything illegal or dangerous.
As for embedded code in the hardware, that is the most ridiculous idea ever printed, it would be simple to check for the existence of such code, and even easier to disable any such code that might be found.
There is literally no way the Chinese government can remotely "shut down" any US network that uses Huawei parts. Some of these idiots in DC should consult with a real IT pro before making themselves look like idiots, incapable of governing in an increasingly digital world.
The absurd paranoia, and ridiculous accusations of technically impossible scenarios coupled with a willingness to flip-flop on their own advocacy of "free markets" exhibited by the house committee suggests that it is controlled by the GOP.
Criteria? In case you don't know what it is, here is the link: http://en.wikipedia.org/wiki/Common_Criteria. The report states that Huawei and ZTE proposed to use the international standard to evaluate their products by independent security companies. Those third-party security evaluations are done by trusted western companies. The clowns who made the report think they know better than the security professionals. If you have any background in information security, the report is an amusing read.
Which is basically absolutely nothing at all.