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Congress: Chinese telecom companies pose threat

Staff and visitors walk pass the lobby at the Huawei office in Wuhan, central China's Hubei province on October 8, 2012.

A warning’s being issued by the House Permanent Select Committee on Intelligence today. It says there’s a danger of economic espionage and cyber-sabotage from two top Chinese telecommunications companies that are trying to move into the U.S. market.

The bi-partisan report -- some of which is classified -- says Huawei Technologies and ZTE Corporation are too close to the Chinese government and could be used to spy on U.S. citizens, businesses and government.

Committee chairman Mike Rogers (R-MI) told the CBS News program “60 Minutes” on Sunday, “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.”

Technically, no business deal, equipment purchase or asset sale between a U.S. telecommunications company and Huawei or ZTE is being banned at this point. That sort of regulatory action would be up to an interagency group (chaired by the Treasury Department) called the Committee on Foreign Investment in the U.S. This report functions more like a general warning to U.S. companies -- especially those involved in crucial network infrastructure -- not to do business with, or buy sensitive products from, these two companies.

Huawei and ZTE make everything from network routers and switchers, to cellphone handsets. They are major global players, but do not yet have much U.S. business. Their goal is to increase U.S. market share as their products become more technologically sophisticated and competitive with major Western companies like Ericcson and Cisco Systems.

The danger, according to the Congressional report, is that the companies could steal intellectual property, spy on U.S. companies and citizens, and be leveraged for cyber-attacks on critical U.S. systems or the military. This is the latest in a string of similar cases. Last month, President Obama banned a Chinese energy company from buying a wind farm in Oregon next to a naval base that tests top secret drones. He cited national security concerns.

But, just because Chinese companies have ties to the Chinese government -- as many do, even those that are privately owned and traded on Chinese stock exchanges -- doesn’t mean they’ll do the bidding of cyber-spooks in the Chinese military.

Martin Jacques is visiting senior fellow at the London School of Economics and author of ‘When China Rules the World: The End of the Western World and the Birth of a New Global Order.’ “You can throw the security blanket so wide that everything becomes security,” says Jacques. “I think the danger with this kind of thing is as a cover for anti-competitive mentality. And China will say, ‘tit for tat, if you do that we’ll do it to you.’ The fact is, China has been enormously open to inward investment from the West—especially the U.S.”

Jacques points out, China may have the biggest economy in the world in five years, and the U.S. risks being cut off from investing in and exporting to China if relations continue to deteriorate. He says that U.S. car- and airplane-makers, insurance and software companies, can’t afford that.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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