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Originally published Sunday, October 7, 2012 at 8:06 PM

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U.S. panel: Chinese tech giants pose security threat

The House Intelligence Committee said U.S. regulators should block mergers and acquisitions in this country by China's two leading technology firms because they pose a national- security threat to the United States.

Tribune Washington Bureau

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WASHINGTON — The federal government should "view with suspicion" attempts by two Chinese telecommunications companies to expand in the U.S. market because of a strong risk that they would aid spying and cybertheft by China, a yearlong investigation by the House intelligence committee concluded.

House investigators working for Democrats and Republicans said in a report that Huawei Technologies Co. and ZTE Corp., two private companies with deep ties to the Chinese government, had not satisfied security concerns.

"Despite hours of interviews, extensive and repeated document requests, a review of open-source information, and an open hearing with witnesses from both companies, the committee remains unsatisfied with the level of cooperation and candor provided by each company," the report says. "Neither company was willing to provide sufficient evidence to ameliorate the committee's concerns."

The report recommended that the U.S. government block the companies from access to any sensitive U.S. networks, and from acquiring U.S. assets. The companies make routers, switches and other parts used in telecommunications systems.

Huawei has hired lobbyists in Washington, including several former congressional aides, as it seeks to sell products to U.S. telecoms and otherwise gain a toehold in the American market. ZTE officials have also said they want to do significant business in the United States. But large U.S. telecoms are not likely to engage the Chinese firms if U.S. officials warn against it.

Rep. Mike Rogers, R-Mich., the intelligence committee chairman, and Rep C.A. Dutch Ruppersberger, D-Md., the panel's ranking minority member, appeared on CBS's "60 Minutes" Sunday to discuss their inquiry.

"If I were an American company today, and you are looking at Huawei, 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," Rogers said.

With $32 billion in annual revenue, Huawei is the world's largest telecommunications-equipment maker, while ZTE has $13.7 billion in revenue and is the fifth-largest. The firms specialize in technology that can be easily manipulated for electronic eavesdropping in ways that are extremely difficult to detect, the report says.

Huawei "exhibits a pattern of disregard for the intellectual property rights" of other companies, the report says, urging private companies "to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services."

The report was tougher on Huawei than on ZTE. It charges that "during the investigation, the committee received information from industry experts and current and former Huawei employees suggesting that Huawei, in particular, may be violating United States laws. These allegations describe a company that has not followed United States legal obligations or international standards of business behavior."

The allegations, including bribery and corruption, will be referred to the Justice Department, the report says.

Aside from those unspecified allegations, however, the unclassified version of the report does not specifically link either company to wrongdoing or spying for China. U.S. intelligence officials say China has mounted a brazen state-sponsored campaign to steal the intellectual property of American and other Western companies, often through cyberattacks that siphon information out of poorly defended computer networks.

Although the U.S. engages in extensive electronic spying, it does not undertake economic espionage, U.S. officials insist. At the same time, they contend, China has a strategy of bypassing research and development by stealing it. China denies this.

The report focuses mainly on questions neither company answered to the committee's satisfaction about ties to China, its government, and its defense and intelligence services.

Although Huawei is a private company, it receives significant support from state-owned Chinese banks that it refuses to detail, the report says. ZTE would not discuss its work for Chinese military and intelligence services, the report says.

At a September hearing of the intelligence committee, both companies denied that they would do anything improper on behalf of China.

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