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House Report Flags Chinese Telecom Firms on Espionage Fears

A receptionist sits behind the counter at the Huawei office in Wuhan, central China’s Hubei province on October 8, 2012. Photo by STR/ AFP/ GettyImages.

The U.S. House Intelligence Committee announced Monday that the country’s national security could be placed at significant risk if two of the world’s leading telecommunications producers are allowed to take further root on American soil.

The announcement, part of an 11-month investigation into two of China’s largest suppliers of routers, switches and other vital communications equipment, said that evidence and a shortage of information regarding each companies’ history and ties to the Chinese government left the strong possibility that their goods could be used for spying in the U.S.

“To the extent these companies are influenced by the state, or provide Chinese intelligence services access to telecommunication networks, the opportunity exists for further economic and foreign espionage by a foreign nation-state already known to be a major perpetrator of cyber espionage,” the Committee wrote in a 52-page report.

Specifically, the committee outlined the threat of “malicious” computer technology being used to access U.S. trade secrets, research and development data and negotiating platforms “China would find useful in obtaining an unfair diplomatic or commercial advantage over the United States.”

For years, suspicion has been mounting over one of the companies in particular: Huawei Technologies, a private firm that already sells some goods to U.S. consumers via companies like Sprint and Verizon and is lobbying hard to expand here into larger, more lucrative network-based operations. Several experts and government officials fear that, given China’s murky legal structure and the intrinsically close relationship between Beijing and the Chinese private sector, even without direct ties the Politburo could still coerce Huawei into acting on its behalf.

“If the Chinese government told Huawei they wanted them to spy on U.S. telecommunications systems and extract information, could Huawei say no?” 60-Minutes correspondent Steve Kroft asked Chris Johnson, a former senior China analyst at the CIA, in a segment on the company that aired Sunday.

“It would be very difficult for them, given the nature of [China’s] system,” Johnson replied.

Huawei denies the claims about espionage and clandestine ties to the government. “The report released by the Committee today employs many rumors and speculations to prove non-existent accusations,” the company wrote in a statement. “Huawei is a global Fortune 500 company owned by its employees. For the past 25 years, we have held an upstanding record.”

Bill Plummer, the company’s U.S. vice president of external relations, said it more simply, in an interview with Kroft: “Huawei is a business in the business of doing business.”

But questions still swirl, especially around the company’s founder and president, Ren Zhengfei, a former officer of the People’s Liberation Army and military technology researcher who is not fond of the media spotlight. The Committee’s report said that many experts believe Zhengfei still harbors connections to the military.

At one time the U.S. dominated the global telecommunications industry. But in recent decades, American-led investment and technology has lagged behind that of foreign competitors like Huawei, the French company Alcatel-Lucent, and Ericsson, based in Sweden. Cisco Systems, a California-centered firm, remains a major player in the industry, but unlike foreign competitors it lacks the ability to install sophisticated “4-G” networks, according to Jim Lewis of the Center for Strategic and International Studies, in an interview during the 60-Minutes piece.

What impact the report will have on Huawei’s attempts to gain ground in the U.S. market remains unclear. It advises the government to block domestic firms from carrying out acquisitions or mergers with Huawei or the second firm, ZTE Inc., and to directly avoid using their equipment on future projects.

Michael Pillsbury, a defense policy adviser and China expert, told the PBS NewsHour that the report could influence President Obama’s ultimate decision to block Huawei’s access. “This adds to the momentum to block Huawei to all but the most innocuous acquisitions,” he said in an interview.

For more on the Huawei conundrum, check out these reports from the New York Times and The Wall Street Journal.

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