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Another Chineese buyout in trouble.


Huawei, ZTE Threaten U.S., Congress Panel Says


WASHINGTON--Chinese telecommunications giants Huawei Technologies Co. and ZTE Corp. (000063.SZ) pose a security threat to the U.S. and should be barred from U.S. contracts and acquisitions, a yearlong congressional investigation has concluded.

A draft of a report by the House Intelligence Committee obtained Sunday said the two firms "cannot be trusted" to be free of influence from Beijing and could be used to undermine U.S. security.

"Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems," the draft document said.

The congressional panel had launched its probe over concerns that Beijing could use the fast-growing firms for economic or military espionage, or cyber attacks.

The committee said both companies failed to provide adequate answers to lawmakers' questions about their relationship with the Chinese government.

"China has the means, opportunity and motive to use telecommunications companies for malicious purposes," said the report, due to be published Monday on the committee's website.

Based on its investigation, the panel said U.S. authorities "must block acquisitions, takeovers or mergers involving Huawei and ZTE given the threat to U.S. national security interests."

The panel said the U.S. should even consider extending the authority of a super-secret panel that reviews foreign acquisitions to include purchasing agreements.

U.S. government systems, particularly sensitive ones, shouldn't include Huawei or ZTE equipment--not even component parts--nor should those of government contractors working on sensitive U.S. programs, it said.

The report also said U.S. private-sector entities "are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services."

Because of the lack of clear information on how the companies operate, the committee report said they could be used for "malicious Chinese hardware or software implants' that could serve as "a potent espionage tool for penetrating sensitive U.S. national security systems, as well as providing access to the closed American corporate networks."

Both Huawei and ZTE have denied any ties with the Chinese government. Top executives of the firms appeared at a hearing held by the panel last month, stressing that they were focused on business, not politics.

Huawei reiterated that position in response to queries.

"The integrity and independence of Huawei's organization and business practices are trusted and respected across almost 150 markets," Huawei vice president William Plummer said in an emailed statement.

"Purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignores technical and commercial realities, recklessly threatens American jobs and innovation, does nothing to protect national security, and should be exposed as dangerous political distractions."

ZTE didn't immediately respond to requests for comment.

The 59-page draft report cited a host of other potential issues with the two firms, including unfair subsidies, allegations of bribery or corruption, dealings with Iran and ties with China's military and Communist Party.

In addition to the concerns cited by the lawmakers, the report said an unpublished, classified annex includes even more.

"The classified annex provides significantly more information adding to the committee's concerns," it said. "That information cannot be shared publicly without risking U.S. national security."

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