U.S. House Intelligence Committee sees Huawei and ZTE as security threats

After an 11-month investigation, the U.S. House Intelligence Committee issued a report yesterday that characterizes Huawei and ZTE as potential threats to U.S. security because of the committee’s belief that the companies are too closely tied to the Chinese government, Reuters and other news services reported. While the committee stopped short of banning U.S. companies from doing business with the two Chinese telecom giants, the report’s recommendation that companies avoid involving the two companies in telecommunications projects only adds to the problems the two companies have had in their efforts to expand their businesses in the U.S.

Oct 9th, 2012

After an 11-month investigation, the U.S. House Intelligence Committee issued a report yesterday that characterizes Huawei and ZTE as potential threats to U.S. security because of the committee’s belief that the companies are too closely tied to the Chinese government, Reuters and other news services reported. While the committee stopped short of banning U.S. companies from doing business with the two Chinese telecom giants, the report’s recommendation that companies avoid involving the Huawei and ZTE in telecommunications projects only adds to the problems the two firms have had in their efforts to expand their businesses in the U.S.

"Throughout the months-long investigation, both Huawei and ZTE sought to describe, in different terms, why neither company is a threat to U.S. national-security interests. Unfortunately, neither ZTE nor Huawei have cooperated fully with the investigation, and both companies have failed to provide documents or other evidence that would substantiate their claims or lend support for their narratives," reads the report.

"Huawei, in particular, provided evasive, nonresponsive, or incomplete answers to questions at the heart of the security issues posed. The failure of these companies to provide responsive answers about their relationships with and support by the Chinese government provides further doubt as to their ability to abide by international rules," the report asserts.

In addition to the security concerns, the report suggests that Huawei may engage in illegal business practices, including bribery and industrial espionage.

The committee’s findings reinforce concerns held by some U.S. companies about doing business with the two Chinese firms, suggest analysts.

“The U.S. government has blocked numerous contracts and acquisition deals between American companies and Chinese equipment makers, usually in an indirect manner,” said Lee Ratliff, principal analyst for broadband & digital home research at IHS. “Because of this intense government scrutiny and the very high risk that a deal will ultimately be nixed after wasting months of time and millions of dollars, many U.S. companies are hesitant to work with Huawei or ZTE. The only difference now is the U.S. government has publicly issued its official findings regarding its investigation of the Chinese telecom equipment vendors.”

Both Huawei and ZTE, which had defended their reputations in testimony before the committee, were quick to condemn the report.

“Over the past 11 months, Huawei has cooperated with the committee in an open and transparent manner, and engaged in good faith interaction: Our top management team carried out multiple rounds of face-to-face communication with the committee members in Washington, DC, Hong Kong, and Shenzhen; we opened our R&D area, training center, and manufacturing center to the committee and offered a wealth of documentation, including the list of members of the Board of Directors and the Supervisory Board over the past 10 years, and the annual sales data since our establishment in 1987; we also made the list of our shareholding employees, the shares they hold, as well as information about our funding resources and financial operations available to the committee,” Huawei asserted in a statement issued today. “We adopted a transparent approach in providing this information to ensure the results are fact-based and unbiased, hoping the committee's objective review of our business activities and the global cyber security issue can clarify the misperception of Huawei.

“However, despite our best effort, the committee appears to have been committed to a predetermined outcome,” the statement read.

“It is noteworthy that, after a year-long investigation, the committee rests its conclusions on a finding that ZTE may not be ‘free of state influence.’ This finding would apply to any company operating in China. The committee has not challenged ZTE’s fitness to serve the US market based on any pattern of unethical or illegal behavior,” said David Dai Shu, ZTE’s director of global public affairs, via a company statement issued Monday.

The company also decried the fact that ZTE and Huwei were the only two companies to come under the committee’s scrutiny. ZTE pointed out that several Western systems providers use components and subsystems provided by other Chinese companies. “Particularly given the severity of the committee’s recommendations, ZTE recommends that the committee’s investigation be extended to include every company making equipment in China, including the Western vendors,” Dai Shu added. “That is the only way to truly protect US equipment and US national security.”

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