By Star Chang, posted Oct 8, 2012 at 3:14 PM, 477 views,

Huawei and ZTE May be Conduct Spying for China (Video)

According to a U.S. congressional report, Huawei and ZTE, China’s two largest phone-equipment makers, are providing opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying. The report says the two companies failed to cooperate with a yearlong investigation and to adequately explain their U.S. business interests and relationship with the Chinese government. The House investigation found “credible” reports of illegal behavior by Huawei, including immigration violations, bribery and corruption, based on statements from current and former employees. Internal Huawei documents supplied by a former employee showed the company provides “special network services” to an entity the former employee believes is an “elite cyber-warfare unit” within the Chinese army …

The report added that private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services. The U.S. Committee on Foreign Investment should block acquisitions involving Huawei and ZTE because of security threats. Executives for Huawei and ZTE denied they are controlled by China’s government. The companies said they favor independent audits of technology vendors’ hardware and software as a way to ensure that devices and networks are secure. Chinese authorities have also expressed their views, the U.S. Congress should end its prejudice against Chinese companies and do more to promote trade. However, the report has already created more U.S. roadblocks for the Chinese companies in the U.S. market.

Huawei and ZTE are the number 2 and number 5 telecom equipment makers in the world respectively. While they are most visible in the US market as wireless handset makers, they are also large manufacturers of carrier class telecommunications switching equipment and enterprise switchgear. These two Chinese giants both based in Shenzhen, China, were founded in the 1980s and have risen rapidly to being global leaders through government subsidies common in China, where a significant number of their largest companies are government owned. ZTE was started by state-owned entities affiliated with the Ministry of Aerospace Industry. Its cross-town rival, Huawei was founded by an engineer in the People’s Liberation Army. ZTE has been publicly listed in Shenzhen since 1997 while Huawei is still “privately” held.

SOURCE: Bloomberg, phoneArena.com