China Telecom Firms May Be Subsidized: U.S. Lawmaker

Jun 22, 2012 06:39 AM EDT

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Two of China's top telecommunications companies may be selling subsidized gear in the United States, and legislation could be proposed to deal with any related national-security threat, the head of the U.S. House of Representatives' Intelligence Committee said on Thursday.

The committee is investigating what some U.S. officials suspect are close ties between the Chinese government and each of the firms, Huawei Technologies Co Ltd and ZTE Corp.

The concern is whether any of their equipment or its software is designed to steal information or "establish the ability to do cyber attacks," panel chairman Mike Rogers said.

Many believe that the gear is subsidized "so it can be multiple times cheaper than any local competitor," Rogers told a conference hosted by Bloomberg Government, a subscription web site.

Closely held Huawei is the world's second-largest maker of telecommunications equipment after Sweden's Ericsson. ZTE, a Shenzhen, China-based crosstown rival, is the fifth-ranking provider. Both deny getting Chinese subsidies and deny any suggestion that they are involved in espionage.

Rogers, a Michigan Republican, said he hoped to complete a report by late summer, in both classified and unclassified form, on any threat from the Chinese firms' gear to U.S. national security.

"This is going to be a huge problem that we're going to have to get a handle on it very quickly," he said. "It may mean legislation" or new rules to guard U.S. networks from possibly booby-trapped hardware or software.

RIGHT DECISION

The committee's coming report would help U.S. companies considering buying equipment "to make the right decision and allow us to go forward with appropriate legislation as required," Rogers said.

Williams Plummer, a Huawei spokesman in Washington, said in reply: "Given that Huawei has publicly and repeatedly and in a detailed fashion debunked this type of misinformation with solid facts, it would be truly unfortunate if such unsubstantiated and unclearly motivated statements persist."

ZTE spokesman David Dai Shu said his company "receives no illegal or hidden subsidies, nor does it dump products in any markets where it operates."

The House panel, in letters sent to the companies this month, pressed them to disclose details about their links to the Chinese government and their pricing strategies.

Rogers told reporters after the conference on Thursday that his panel's investigators had been in touch with officials in Australia, Britain, Canada and New Zealand.

Australia earlier this year blocked Huawei from bidding for contracts in its $38 billion high-speed broadband network due to unspecified security concerns.

Face-to-face meetings took place between U.S. House Intelligence Committee members and executives from Huawei and ZTE in Hong Kong last month. The panel began a full-fledged probe in November, and committee staff were briefed at Huawei's Shenzhen office in February and by ZTE in April.

"We must get to the bottom of these issues before the companies have further access to our market," Rogers said in a statement posted on the committee's website this month.

Rogers and the panel's top Democrat, Dutch Ruppersberger of Maryland, asked the companies on June 12 to respond to its questions within three weeks.

The Office of the National CounterIntelligence Executive, a U.S. intelligence arm, said in a report to Congress in October that China and Russia were in the forefront of keyboard-launched theft of U.S. trade and technology secrets to bolster their fortunes at U.S. expense.

Former U.S. Commerce Secretary John Bryson dealt Huawei a blow in March 20 testimony to the House Appropriations Commerce, Justice, Science subcommittee.

"It appears that Huawei has capabilities that we may not fully detect to divert information," said Bryson, who announced on Thursday he was resigning in connection with two car crashes earlier this month. "It's a challenge to our country."