2 Chinese firms dubbed a 'threat'

House panel: Telecom firms’ equipment could be spyware

New York TimesOctober 8, 2012 

CHINA TELECOM THREAT

Representatives Mike Rogers, a Republican from Michigan and chairman of the House Intelligence Committee, left, and Dutch Ruppersberger, a Democrat from Maryland, address the media during a news conference in Washington, D.C., U.S., on Monday, Oct. 8, 2012. U.S. companies should avoid business with Huawei Technologies Co., China’s largest phone-equipment maker, to guard against intellectual-property theft and spying, Rogers said. Photographer: Jay Mallin/Bloomberg *** Local Caption *** Mike Rogers; Dutch Ruppersberger

JAY MALLIN — Bloomberg

— The House Intelligence Committee recommended Monday that U.S. companies should be blocked from carrying out mergers and acquisitions involving two Chinese telecommunications firms, saying their equipment could be used for spying in the United States. The recommendations, the result of a yearlong investigation, also said the U.S. government should not use equipment from the companies, the giant Huawei Technologies and ZTE Inc., and that U.S. companies should find alternative suppliers as well.

A report on the inquiry described the companies as a “national security threat” to the United States, saying that the committee had obtained internal documents from former employees of Huawei that show it supplies services to a “cyberwarfare” unit in the People’s Liberation Army. The committee said the U.S. government should go through the federal Committee on Foreign Investment to carry out its recommendations to block any business or other transactions involving the Chinese companies.

The report was presented by Rep. Mike Rogers, R-Mich., the chairman of the House Intelligence Committee, and Rep. C.A. Dutch Ruppersberger of Maryland, the top Democrat on the committee.

It was the latest development to highlight the sensitive terrain that the United States and China are navigating as they try to build their commercial ties.

Those efforts have formed part of the political dialogue just weeks ahead of the presidential elections, as both candidates have spoken of the importance of U.S. ties with China and have promised to act strongly on Chinese currency and trade practices that are damaging to U.S. business interests.

Mitt Romney, the Republican presidential candidate, has called repeatedly during his campaign for a more confrontational approach to China on business issues, although he has focused his warnings more on Chinese currency market interventions than on the business activities of Chinese telecommunications companies.

President Barack Obama has also taken a tougher stance on China recently. Late last month, Obama, through the Committee on Foreign Investment, ordered a Chinese company to divest its interest in four wind farm projects near an Oregon Navy base where drone aircraft training takes place. It was the first time a president had blocked such a deal in 22 years.

And this month, the Obama administration filed a case at the World Trade Organization in Geneva accusing China of unfairly subsidizing its exports of autos and auto parts, the ninth trade action the administration has brought against China.

The report Monday opened up the potential for a new salvo, broadening the discussion of China’s expansion plans in the telecommunications sector.

The report included a classified annex, but several cybersecurity officials said they did not know whether the Congressional Committee had discovered evidence that the telecommunications firms had added “backdoors” making it possible to surreptitiously gain access to the products.

In testimony before the Committee in September officials from both Huawei and a second Chinese telecommunications vendor, ZTE, said that alleged backdoors were actually software flaws and not intentional vulnerabilities.

Huawei has been the subject of many criticisms and security warnings for years, including by the Defense Department, and the company’s expansion plans in the United States have faced resistance from Congress over questions about its ties to the military in China.

Huawei denies being financed to undertake research and development for the Chinese military, and its executives have repeatedly insisted that they have nothing to hide. The company issued an open letter to the U.S. government in February 2011, asking to be investigated so as to clear up what the company characterized as misperceptions about its history and business operations.

At a news conference, Rogers and Ruppersberger said they told the Chinese companies that they had to be more transparent but were disappointed by incomplete and contradictory responses to their questions. Rogers said the committee was concerned that the companies were extensions of the Chinese government because they were so heavily financed by it.

He said the companies had been told to tell the Chinese government to “stop hacking” into U.S. companies and infrastructure if they wanted to do business in the United States.

“The world is a changed place,” Rogers said. “We better have faith and confidence in our network.”

In a statement released at the time scheduled for the start of the committee’s news conference, Huawei condemned the committee’s investigation and report. The company said it had tried for 11 months to work with the committee, but that the committee had proceeded on a predetermined track anyway.

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