* China's top 2 telecom gear makers said to pose potential
risk to US
* House Intelligence Committee seeks to block any mergers,
acquisitions
WASHINGTON, Oct 7 (Reuters) - China's top telecommunications
gear makers should be kept from the U.S. market because they
cannot be trusted to dodge Chinese state influence and thus pose
a security threat, the U.S. House of Representatives'
Intelligence Committee leaders said in a draft of a report to be
released Monday.
U.S. intelligence must stay focused on efforts by Huawei
Technologies Co Ltd and ZTE Corp to expand
in the United States and tell the private sector as much as
possible about the purported espionage threat, the panel leaders
said based on their 11-month investigation of the pair.
Employee-owned Huawei is the world's second-biggest maker of
routers, switches and other telecommunications equipment after
Sweden's Ericsson. ZTE ranks fifth.
The panel's draft report faulted both companies for failing
to provide enough information to allay its concerns, including
detailed information about formal relationships or regulatory
interaction with Chinese authorities.
The panel said that it had received allegations from unnamed
industry experts and current and former Huawei employees
suggesting that Huawei, in particular, may be guilty of bribery
and corruption, discriminatory behavior and copyright
infringement.
The committee plans to refer such allegations to the Justice
Department, Homeland Security and other U.S. government arms,
said the draft made available to Reuters.
"U.S. network providers and system developers are strongly
encouraged to seek other vendors for their projects," it said.
The document cited what it called long-term security risks
associated with the companies' equipment and services but it did
not provide detailed evidence, at least not in an unclassified
version.
A classified annex provides "significantly more information
adding to the committee's concerns," the draft said.
Based on classified and unclassified information, Huawei and
ZTE, which are both based in Shenzhen, China, "cannot be trusted
to be free of foreign state influence and thus pose a security
threat to the United States and to our systems," it said.
The companies had no immediate comment on the draft. Top
executives of both told a committee hearing on Sept. 13 that
their companies would never bow to any effort by anyone to seed
their products for spying, equating this with corporate
suicide.
"Huawei has not and will not jeopardize our global
commercial success nor the integrity of our customers' networks
for any third party, government or otherwise," senior vice
president Charles Ding testified at the time.
The draft showed that the committee is calling on an
interagency government group that reviews national security
implications of foreign investments to block acquisitions,
takeovers or mergers involving Huawei and ZTE.
In addition, legislation seeking to expand the role of the
interagency group, known as the Committee on Foreign Investments
in the United States, to include purchasing agreements should be
given thorough consideration by Congress, the document said.
U.S. intelligence officials have publicly denounced China as
the world's most active perpetrator of economic espionage
against the United States.
The report comes as Huawei mulls a possible initial public
offering as part of a possible effort to overcome suspicions
that have all but blocked its efforts in the United States.
Huawei has marketed its network equipment in the United
States since last year. It has sold to a range of small- to
medium-sized carriers nationwide, particularly in rural
areas. It has marketed mobile phones through a broader range of
U.S. carriers, for the last four years.
