Vendors Huawei and ZTE should be blocked from M&A activity in the US according to the US House Permanent Select Committee on Intelligence, which concluded its 11-month investigation into the companies today.
“The Committee on Foreign Investments in…
Vendors Huawei and ZTE should be blocked from M&A activity in the US according to the US House Permanent Select Committee on Intelligence, which concluded its 11-month investigation into the companies today.
“The Committee on Foreign Investments in the United States (CFIUS) must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to US national security interests,” the House panel recommended.
The Republican chair of the panel, Mike Rogers, said: “We have to be certain that Chinese telecommunication companies working in the United States can be trusted with access to our critical infrastructure.”
“Any bug, beacon, or backdoor put into our critical systems could allow for a catastrophic and devastating domino effect of failures throughout our networks.”
The committee said that Huawei and ZTE had failed to alleviate its concerns about links to the “communist government of China”, which it alleged of cyber espionage.
It recommended that American businesses should avoid doing business with the Chinese enterprises.
The report listed further concerns about the companies, saying that attention should be paid to the financial backing they received from Beijing. It also urged them to be more open and transparent.
Recent reports have suggested that Huawei is mulling an IPO in a bid to present itself as more open.
The committee called on Congress to consider legislation that better addresses the risk posed by telecommunications companies with nation-state ties or companies not trusted to build critical infrastructure.
Huawei denied the findings in a wide-ranging response issued today, claiming the report “failed to provide clear information or evidence to substantiate the legitimacy of the Committee’s concerns.”
“Despite our best effort, the Committee appears to have been committed to a predetermined outcome,” Huawei said.
ZTE also disputed the committee’s findings, saying it “profoundly disagrees with any suggestion that the company is directed or controlled by China’s government.”
On the eve of the release of the report on Sunday, the Republican chair of the panel, Mike Rogers, spoke to US current affairs show 60 Minutes.
He urged US companies considering doing business with the Chinese vendors to seek alternatives: “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.”
His Democrat colleague Dutch Ruppersberger agreed, saying in relation to the companies: “In the telecommunications world, once you get the camel’s nose in the tent, you can go anywhere.”
Huawei was blocked by CFIUS from acquiring American server company 3Leaf Systems last year. In 2008 it was forced to drop an offer to acquire US equipment maker 3Com alongside PE firm Bain Capital.
President Obama’s decision to block the Chinese company Ralls Corp from acquiring Wind farms in Oregon last week is another instance that highlights the politic climate in the US towards Chinese businesses.
Meanwhile ZTE has reportedly lost a customer today in the shape of Cisco Systems. Reuters reported that the network technology business ended its partnership with the vendor following an internal investigation into accusations that ZTE sold products to Iran.
