Government Warns Against Doing Business With Huawei And ZTE
October 8, 2012

House Intelligence Committee Suggests Chinese Companies Could Spy On American Activity

Michael Harper for — Your Universe Online

A year-long report conducted by the House Intelligence Committee has ended with a warning to American companies: Do not get in business with Chinese tech firms Huawei and ZTE.

These two telecommunications companies are planning on expanding their markets into the US, but according to the agency report, they pose a serious security risk to the United States. The committee is concerned that the Chinese government will use these telecommunications components to spy on American activity, giving them a direct line to a very critical backbone of our nation´s infrastructure.

While the threat of a Chinese cyber-attack has been suggested before, this report marks the first time the government has been willing to make these direct warnings against these Chinese companies.

According to Reuters, Huawei is the world´s second-leading manufacturer of telecommunications equipment – such as routers and switches – all while remaining privately and employee-owned. Huawei's business practices specifically raise concern for the American government as they´re able to significantly undercut competitors. This kind of maneuvering could make for a rapid expansion onto American soil by Huawei.

ZTE is the 5th largest telecoms maker in the world, though they are 4th in the global mobile phone market, where Huawei is 5th.

While both companies sell equipment to power the back-end of the telecommunications grid, they currently earn most of their money in the States by selling mobile phones to American carriers such as Sprint and Verizon. American sales accounted for 4% of Huawei´s earnings last year according to the Reuters report, while ZTE was able to pull in 2 to 3%. Lost sales of routers and switches could be damaging to these businesses, but losing the profitable mobile phone sector could inflict the most harm.

Both companies have been lobbying Washington to deny any claims they´re being used by the Chinese government to spy on other countries. Furthermore, Huawei and ZTE claim to have fully cooperated with this report, responding to any requests.

Now that the report is concluded, a Huawei spokesperson has said these allegations against the companies are not only without merit, but also says that the allegation 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."

ZTE is also arguing against these claims, saying that as a publicly traded company, they´ve been held to a higher standard of transparency.

"ZTE has set an unprecedented standard for cooperation by any Chinese company with a congressional investigation," said ZTE´s director of global public affairs, David Dai Shu, according to the Wall Street journal.

This matter was discussed during the October 7th episode of 60 minutes, wherein the House Intelligence Committee chairman and Michigan representative Mike Rogers spoke about the potential dangers these two companies could pose against National Security.

“If I were an American company today... I would find another vendor if you care about your intellectual property, if you care about your consumers' privacy, and you care about the national security of the United States of America.”

This report only acts as a warning to Americans, as the House Intelligence Committee has no authority to come to any conclusions about violations of the federal law. According to the Wall Street Journal, the committee does plan to take this report to both the Departments of Justice and Homeland Security.