Panel: Chinese firms a threat

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 today.

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 cyberattacks 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.

The committee made the draft available to reporters in advance of public release today, but only under the condition that they not publish stories until the broadcast Sunday of a CBS’ “60 Minutes” report on Huawei. In the CBS report, the committee’s chairman, Rep. Mike Rogers, R-Mich., urges American companies not to do business with Huawei.

“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 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.