Huawei, ZTE Face Scrutiny From U.S. House Intelligence Panel

Chinese phone-equipment makers Huawei Technologies Co. and ZTE Corp. (000063) are the focus of a U.S. House intelligence committee investigation into whether the companies’ expansion in the U.S. poses a security threat.

The probe will focus on whether the companies’ presence provides “the Chinese government an opportunity for greater foreign espionage” and imperils the U.S. telecommunications infrastructure, Representatives Mike Rogers, chairman of the House Permanent Select Committee on Intelligence, and Dutch Ruppersberger, the panel’s top Democrat, said in a news release yesterday.

“The Chinese are aggressively hacking into our nation’s networks, threatening our critical infrastructure and stealing secrets worth millions of dollars in intellectual property from American companies,” Ruppersberger, a Maryland Democrat, said in the release. “This jeopardizes our national security and hurts U.S. competitiveness in the world market.”

The investigation is part of increasing U.S. government scrutiny of economic espionage by China. U.S. intelligence officials called China the world’s biggest perpetrator of economic espionage in a Nov. 3 report that said the theft of sensitive data in cyberspace is accelerating. The most targeted industries include pharmaceuticals, information-technology, military equipment and advanced materials, according to the report by the U.S. National Counterintelligence Executive.

Foreign Ministry Responds

Chinese companies operate “totally on market principles” and China hopes the U.S. won’t “politicize” economic relations that bring employment benefits to Americans, Foreign Ministry spokesman Liu Weimin told reporters at a regular briefing in Beijing today.

Huawei, China’s largest phone-network equipment maker, established its U.S. headquarters in Plano, Texas, in 2001. The company has repeatedly seen its efforts to expand in the U.S. run into opposition from lawmakers, who raise concerns about alleged links to China’s military that Huawei has denied.

The Committee on Foreign Investment in the United States forced the company in February to unwind its purchase of Santa Clara, California-based 3Leaf Systems’s patents after U.S. lawmakers said the acquisition could pose “a serious risk” to U.S. computer networks. The committee studies the national security implications of a foreign-owned company investing in a U.S. business.

ZTE Tablet

“The fact that our critical infrastructure could be used against us is of serious concern,” Rogers, a Michigan Republican, said in yesterday’s release.

The Commerce Department said last month it barred Huawei from participating in a nationwide emergency network, citing national security concerns, prompting the company to ask for an explanation.

Huawei welcomes “an open and fair investigation,” William Plummer, a Washington-based spokesman for the company, said in an e-mail yesterday. “The integrity of our solutions has been proven worldwide.”

ZTE, China’s second-biggest maker of mobile-phone equipment, said Nov. 9 it will introduce a tablet computer in the U.S. next year, challenging Apple Inc. and Amazon.com Inc. (AMZN)

“ZTE is wholly committed to transparency and will cooperate in addressing any questions regarding our business,” Mitchell Peterson, a U.S.-based spokesman, said in an e-mail yesterday.

“Our company is publicly traded with operations in more than 140 countries and we are confident a fair review will further demonstrate ZTE is a trustworthy and law-abiding partner for all U.S. carriers and their customers,” Peterson said.

Huawei was founded in 1988 by Ren Zhengfei, who retired from the Chinese military in 1984. At the time of his retirement, Ren was deputy director of the Science Research Institute of the Engineering Army Corps, according to a biography supplied by the company. Ren hasn’t maintained any ties with the military since then, according to the company.

Wang Baodong, a Chinese embassy spokesman in Washington, didn’t respond to an e-mail requesting comment.

To contact the reporter on this story: Eric Engleman in Washington at eengleman1@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.