October 8th, 2012
12:14 AM ET

Congressional report: U.S. should 'view with suspicion' two Chinese companies

By Pam Benson

The United States faces a potential security threat from two Chinese telecommunication companies operating inside the United States, according to a congressional report to be released Monday.

CNN obtained a draft report of the nearly year-long probe by the House Intelligence Committee into the business practices of Huawei and ZTE telecommunications firms.

Huawei and ZTE respond

The report concluded, "the United States should view with suspicion the continued threat of the U.S. telecommunications market" by the Chinese companies.

Huawei is a nearly $30 billion Chinese company employing 120,000 people worldwide with approximately 1,500 in the United States. It is one of the top three providers of telecommunications equipment and information communications technology in the world. ZTE is a similar but smaller firm.

When Intelligence Committee Chairman Mike Rogers, R-Michigan, announced the probe last November, he said he feared the phones Americans use and other communications systems the United States depends on could be a Trojan horse giving the Chinese government access to the United States critical infrastructure so it can carry out economic and military espionage. He referred to China's "voracious appetite" for stealing commercial intellectual property.

The report faults Huawei and ZTE for failing to satisfactorily cooperate with the committee's investigation and provide details about the company's operations and connections to the Chinese government.

"Neither company was willing to provide sufficient evidence to ameliorate the Committee's concerns. Neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities. Neither company provided specific details about the precise role of each company's Chinese Communist Party Committee. Furthermore, neither company provided detailed information about its operations in the United States," the report stated.

Huawei took the brunt of the criticism in the report, a company Rogers previously referred to as "the 800-pound gorilla in the room."

In an interview with CBS' "60 Minutes" on Sunday night, Rogers warned American companies to think twice about doing business with Huawei.

"I would find another vendor if you care about your intellectual property, if you care about your consumer's privacy and you care about the national security of the United States of American," Rogers said on the program.

Although the report indicates there is no proof of wrongdoing by the companies, their failure to satisfactorily respond to the committee's questions factored into five recommendations:
- The U.S. government should block any acquisitions, takeovers or mergers involving the two companies as well as ban using any of their equipment in U.S. government systems
- U.S. companies should consider the long-term security risk with doing business with the Chinese firms
- Congress and law enforcement agencies should further investigate the companies
- The Chinese companies should become more transparent and responsive to U.S. obligations
- Congress should consider legislation to improve information-sharing on the risk posed by suspect telecommunication companies

In addition to the 59-page draft report there is a classified annex that is said to contain more detained information about the committee's concerns.

There was no immediate response from the Chinese companies or the Chinese government Sunday night.

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Filed under: China • Congress • Intelligence
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