Chinese Telecoms Kit Makers, Huawei, ZTE, Should Be Shut Out Of U.S., Says Draft Congress Report

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A U.S. House of Representatives Intelligence Committee report recommends that top Chinese telecoms equipment makers Huawei and ZTE are shut out of the U.S. market because of the risk of espionage, Reuters is reporting. This follows an 11-month investigation of the two firms. The draft report is due to be released later today.

Huawei is the second largest global maker of telecoms equipment, while ZTE is fifth-largest. Both companies also make mobile phones and smartphones. The pair are keen to expand their presence in Western markets, and Huawei reportedly quadrupled its spend on Washington lobbyists this year. According to a Washington Post report from August, Huawei spent $820,000 on lobbying in the first six months of 2012 — up from $200,000 for the same period in 2011.

But despite lavishing all this cash in a bid to influence political opinion in Washington, the suspicion that Chinese telecoms companies are not pure-play profit seekers but are in fact high tech eyes and ears for the Chinese government is proving hard for them to unseat.

The Intelligence Committee’s draft report notes that while Huawei and ZTE may not be the only companies that present a risk to U.S. infrastructure, they are the two largest Chinese-founded, Chinese-owned companies seeking to market critical network equipment to the U.S., and noting that the Chinese government has the “means, opportunity and motive” to use them for its own ends.

The report cites “long term security risks” purportedly linked with the two companies’ equipment and services — albeit the unclassified version of the document seen by Reuters does not provide detailed evidence of the specific allegations. Based on classified and unclassified information, the two Chinese companies “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 report adds.

According to Reuters, the report also finds fault with both companies for failing to satisfy its requests for documents — including detailed information about formal relationships or regulatory interaction with Chinese authorities.

The committee also claims to have received credible allegations from unnamed industry experts and current and former Huawei employees suggesting Huawei, in particular, may be guilty of bribery and corruption, discriminatory behavior and copyright infringement. The committee plans to refer such allegations to the Justice Department and Department of Homeland Security, according to the draft report made available to Reuters.

Rejecting the allegations against it in a statement emailed to the news agency, a Huawei spokesman said: “Baseless suggestions otherwise or purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignore technical and commercial realities, recklessly threaten American jobs and innovation, do nothing to protect national security, and should be exposed as dangerous political distractions from legitimate public-private initiatives to address what are global and industry-wide cyber challenges.”

ZTE also refuted suggestions it is somehow directed or controlled by the Chinese government, releasing a copy of the letter it sent to the committee after a hearing in September stating it “profoundly disagrees” with the claims. “ZTE should not be a focus of this investigation to the exclusion of the much larger Western vendors,” the letter added.

In the U.K., Huawei’s efforts to convince the government its kit is secure enough for use in critical national infrastructure led the company to open a certification and testing centre in Banbury, Oxfordshire, in 2010. Last year Huawei also recruited the former U.K. government CIO, John Suffolk, to be its global cyber security officer.

Update: Huawei has now published a statement effectively accusing the committee of bias and economic protectionism — noting: “We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market.”

The statement follows below in full

The United States is a country ruled by law, where all charges and allegations should be based on solid evidence and facts. The report conducted by the House Permanent Select Committee on Intelligence (the Committee), which took 11 months to complete, failed to provide clear information or evidence to substantiate the legitimacy of the Committee’s concerns.

We had hoped to ensure that the investigation would be fact-based and objective in its review of our business activities and the global issue of cyber-security. 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 D.C., 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. 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 ranking member of the Committee stated at the hearing that the investigation by the committee “is not political jousting or trade protectionism masquerading as national security”. Unfortunately, the Committee’s report not only ignored our proven track record of network security in the United States and globally, but also paid no attention to the large amount of facts that we have provided. Even before the investigation began, the Chairman of the committee advocated to media that “I stand by my caution to the American business community about engaging Huawei technology until we can fully determine their motives”.

The report released by the Committee today employs many rumors and speculations to prove non-existent accusations. This report does not address the challenges faced by the ICT industry. Almost every ICT firm is conducting R&D, software coding and production activities globally; they share the same supply chain, and the challenges on network security is beyond a company or a country. The Committee’s report completely ignored this fact. We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market.

Huawei is a global Fortune 500 company owned by its employees. For the past 25 years, we have held an upstanding record. Our customers and partners are fully aware that this report cannot change the fact that the safety and integrity of Huawei’s solutions are well-recognized by the industry. Currently, the integrity of Huawei’s operations and the quality and security of our products are world-proven across 140 countries around the world. They are deployed by over 500 operators and our products have served almost 3 billion people worldwide. These customers know and trust Huawei and they know our commitment to their company and to their customers who rely on them for their communications service. Huawei has introduced best practices of Western management to construct standardardized and process-oriented operational management systems, including product development, supply chain management, financial management, human resources, and quality control. Huawei’s annual financial reports are audited by KPMG.

The United States has become the world’s largest economic entity in a short period of time due in large part to the open policy it has been implementing over the past 200 years. We believe that the United States will continue with this spirit. Huawei is no different from any start-up enterprises in Silicon Valley, and our growth and development relies very much on our entrepreneurial spirit, the commitment and hard work of our employees, as well as our unwavering dedication to innovation. Moving forward, we will continue to do the best we can to provide our customers with safe, convenient, and equal access to information and communications services.