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Panel suggests Chinese OEMs like ZTE and Huawei could face pressure to steal U.S. financial secrets

Could your router or smartphone be used to spy on you and betray your nation?  That's the allegation the U.S. House of Representatives' Intelligence Committee made in a draft report [PDF] released Monday.

I. Chinese Phonemakers Could be Spying on You For the PLA

In the wake of an attack on the White House by Chinese hackers, potentially working for the Chinese government, cybersecurity tensions are high between the U.S. and China.  Unsurprisingly, the new report focuses on the Chinese cybersecurity threat to American customers and businesses.

The report singles out two top Chinese equipment manufacturers -- ZTE Corp. (SHE:000063) and Huawei Technologies Comp. (SHE:002502) -- suggesting that U.S. lawmakers take the unusual step of banning the Chinese companies' products from the market.
 
Congress Buillding wide
Congress accuses Chinese phonemakers of blocking its probe into their potential cyberespionage ties, and suggest a ban. [Image Source: U.S. Congress]

Globally, ZTE is the fourth largest maker of mobile phones, while Huawei is sixth.  In the routers, switches, and telecommunications market, Huawei is the world's second largest company in revenue, while ZTE ranks fifth.  Both companies are looking to expand their sales base in the U.S.

But according to Congress, the companies could face pressure from the Chinese government to include subtle hardware or software constructs to spy on U.S. communications.  That could allow the theft of valuable information that could hurt U.S. companies financially or leak sensitive defense secrets.

II. ZTE, Huawei Blast "Baseless" "Political Distractions"

Both companies firmly denied the cyber-spying allegations.

William Plummer, a Washington- based spokesman for the Huawei, told Reuters, "Baseless suggestions otherwise or purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignore technical and commercial realities, recklessly threaten American jobs and innovation, do nothing to protect national security, and should be exposed as dangerous political distractions from legitimate public-private initiatives to address what are global and industry-wide cyber challenge."

China cell phone
Chinese cell phone makers promise they're not spying on U.S. citizens.
[Image Source: Chinadangvu]

ZTE released a statement highlighting that it was not owned by China's ruling Communist Party.  It writes, "ZTE is committed to provide maximum cybersecurity through transparent, comprehensive, and continuous standards-based assessments of ZTE software, firmware, and hardware."

Chinese government officials were also quick to deny they were applying pressure on their domestic electronics firms to spy on the U.S.  Commented Foreign Ministry spokesman Hong Lei, "Chinese telecommunications companies have conducted their international operations based on market-economy principles.  Their investments in the U.S. reflect the mutual benefits brought about by U.S.-China trade relations."

III. Huawei, Founded by ex-PLA Officer, is Client of PLA's Cyberwar Unit

But there is some compelling evidence that Huawei may have a close relationship with cyberwar units inside China's "Peoples Liberation Army" (PLA).  A source gave a document tying Huawei to an "elite cyber-warfare unit" in the PLA, which the company was contracted to provide "special network services" to.  Huawei's founder and chief executive Ren Zhengfei is a former PLA officer.

Ren Zhengfei
Ren Zhengfei, founder and CEO of Huawei, is a former PLA officer. [Image Source: CFP]

Previously, U.S. regulators had blocked Huawei/ZTE acquisitions of domestic communications equipment manufacturers on similar grounds.  Huawei attempted to acquire 3Com Corp. in 2008 for $2.2B USD, but the deal was blocked on security concerns.  Instead, Hewlett-Packard Comp. (HPQ) ended up scooping up the company for $2.7B USD.  Likewise the 2011 sale of sale of patents from 3Leaf Systems Inc. was unwound on similar security concerns. 

But until now there had been no suggestion to directly ban ZTE or Huawei from the commercial communications market or the consumer electronics market.  But that is precisely the unprecedented recommendation the panel -- led by Rep. Mike Rogers (R-MI) -- is making.

While the companies strongly deny its claims, the panel complains that both companies failed to cooperate fully with the investigation and tried to dishonestly disguise their relationships with the Chinese government.

Sources: U.S. House Intelligence Committee, Reuters [Yahoo! News]



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Absolutely an issue
By FITCamaro on 10/8/2012 12:38:34 PM , Rating: 2
The reason the DoD banned thumb drives from machines is because they found that Chinese built drives were programmed to steal information from the PC they were plugged into and send it back to China.

No that is not a tinfoil hat statement.




RE: Absolutely an issue
By ArcsinZ on 10/8/2012 12:55:10 PM , Rating: 1
Can you provide some sources for that? I hadn't heard of it and I would like to read about it.


RE: Absolutely an issue
By The Raven on 10/8/2012 1:05:43 PM , Rating: 2
Send it back to China via what?!


RE: Absolutely an issue
By The Raven on 10/8/2012 1:08:27 PM , Rating: 5
They also stopped using chinese finger traps as detainment equipment for the same reason.


RE: Absolutely an issue
By SilthDraeth on 10/8/2012 1:10:51 PM , Rating: 1
Give this guy a 6!


RE: Absolutely an issue
By BifurcatedBoat on 10/8/2012 1:10:57 PM , Rating: 2
I would presume if this is correct that the idea is that it would be a way of extracting information from machines that are not connected to the internet.

Pull some data off of a non-internet connected machine that it was plugged into, store it in a location that is hidden to the user, and then when the thumb drive is connected to a computer that does have internet, upload it.

Some systems are intentionally kept off the internet for security reasons. It seems like the odds of successfully getting the information you want are low, but I guess maybe they'd figure it's worth a shot.


RE: Absolutely an issue
By The Raven on 10/8/2012 1:36:22 PM , Rating: 5
I guess I will be sticking with my Japanese-made Taiyo Yudens then. Who knows if there is a hidden partition on there, but at least if the Japanese get a hold of my sex tapes they will legally have to censor them.


RE: Absolutely an issue
By Granseth on 10/8/2012 1:25:57 PM , Rating: 3
The Chinese computer nerds are so proficient that they manage to tap your phone while leaving no evidence behind.

I can't understand why you don't get that :P

Or maybe they have specialized hardware thats made especially to spy on US citizens.

If it is true it would be great to have someone link to a source that shows this to be true.


RE: Absolutely an issue
By othercents on 10/8/2012 2:33:10 PM , Rating: 2
Some facts from previous new articles.

http://www.nytimes.com/2012/02/11/technology/elect...


RE: Absolutely an issue
By Granseth on 10/10/2012 8:20:14 PM , Rating: 2
The article mentions a lot of evidence of the hack, and no evidence that the hardware made in China is to blame.

I can imagine the phone companies is a good place to put malicious software into though. But that will be found out.


RE: Absolutely an issue
By Schadenfroh on 10/8/2012 1:45:00 PM , Rating: 4
To be fair, those were mainly just entrepreneurs shipping flash drives (and even digital photo frames) with autorun.inf files tied to trojans on them.

Most of them would have just harvested your credit card number or hijacked your World of Warcraft account instead of trying to pave the way for a Red Army invasion.


RE: Absolutely an issue
By Reclaimer77 on 10/8/2012 2:05:14 PM , Rating: 4
Is that supposed to be some sort of silver lining? lol... Think about it man.


RE: Absolutely an issue
By Samus on 10/8/12, Rating: -1
RE: Absolutely an issue
By Reclaimer77 on 10/8/2012 2:35:35 PM , Rating: 3
huh? What have I "come up" with? I didn't even come out and say I was agreeing with Fit.

But it's simply a matter of record that China has been sponsoring cyber attacks and has attempted other crap with OEM's. That's not even debatable.

What's the controversy here again? Sorry but I can't hear it over how not-awesome this debate is. Wake me up when there's something here to get upset about.


RE: Absolutely an issue
By Samus on 10/8/12, Rating: -1
RE: Absolutely an issue
By FITCamaro on 10/9/2012 7:47:19 AM , Rating: 1
Members of the armed forces who deal with cyber security issues.


RE: Absolutely an issue
By Samus on 10/9/2012 2:13:31 PM , Rating: 1
Fine, let's just ban importing electronics from China. Let's just stop global trading all together! Tea Party 2012, er, 1812, FTW?

You guys are ridiculous. Banning imports of any product is suicidal to foreign affairs, let alone our economy. Look what the ITC/Customs hold-up did to HTC 6 months ago. They are PISSED OFF at us because it was clearly a anti-competitive, politically motivated move by Apple.

We don't need to ban products, we simply need a system that inspects and verifies them for function inside the United States. The FTC tests radio interference. Why doesn't ITC thoroughly/randomly inspect products from every crate of electronics that comes shore? It'd help create some legitimate jobs at least.


RE: Absolutely an issue
By nocturne_81 on 10/8/2012 7:03:09 PM , Rating: 3
Any sources..? Very interesting subject, so I tried a few web searches to no avail..

As I recall from back in '09 or so, the Dep't of Homeland Security released a new addition to it's standard security policy urging governmental agencies to wean themselves off of thumb-drive usage. Though I'm sure that the bargain-bin thumbdrives pre-loaded with trojans (nothing to do with the Chinese gov't as far as I ever heard) that were common at the time were indeed an issue, I'm sure this had much more to do with the rash of massive losses of data involving the use of thumb-drives by contracted entities hired by various gov't agencies. One instance happened here in my own home state of OH; where it was common practice for a contracted private company working for the office of the Secretary of State to store all their data daily on a thumbdrive and send it home with a random employee each night. An intern assigned the task ended up having the thumb-drive stolen from their car while parked in a BB parking lot resulting in 30k OH public employees having their personal info along with 110k citizens who hadn't cashed their tax return stolen, prompting them to place this holy grail of a thumb-drive in a fire-proof safe instead.. *roll eyes*

So.. I really doubt that had anything to do with China.. just common sense as far as security goes.


RE: Absolutely an issue
By Integral9 on 10/9/2012 11:54:48 AM , Rating: 2
Umm... I highly doubt Chinese made USB drives come pre-programmed with virii et al. You are probably thinking of the counterfeit Cisco routers from China from back in 2008 that in addition to being shoddy and catching fire, would leave back doors open. http://www.businessweek.com/stories/2008-10-01/the...

The issue with USB drives is that people take their USB drives home, work, Target, Walmart, and wherever and plug them into anything with a USB slot. Essentially whoring them out to every computer they run across, and since they are writable by every computer they get put into, it opens them up to infection from god knows what. Then people unknowingly take their USB drives back to work and plug them into their work computers infecting them and the networks they are on.


Nah, you think?
By bug77 on 10/8/2012 12:04:13 PM , Rating: 2
These guys (the chinese) sold counterfeit parts for Airforce One. You think they'd do something sneaky as preinstalling trojans?




RE: Nah, you think?
By SigmundEXactos on 10/8/2012 12:14:55 PM , Rating: 2
Grey market (substandard) parts, not spy bits. On the other hand, the 747 Boeing gave the Chinese for their Airforce One equivalent had over 400 bugs on it that the Chinese found.


RE: Nah, you think?
By Master Kenobi (blog) on 10/8/2012 3:33:53 PM , Rating: 2
The Russians did the same when they gifted America a new "embasy" a few decades back. This shit is really par for the course. I suspect the US Gov does the same when it does something like sell F-14's to Iran. In the game of spying it's only bad if you get caught doing it.
http://articles.latimes.com/1997/sep/26/news/mn-36...


RE: Nah, you think?
By tamalero on 10/8/2012 12:36:45 PM , Rating: 2
computers and ipods (ios devices) were delivered with viruses and Trojans before.


Welcome to the China club!
By The Raven on 10/8/2012 1:04:19 PM , Rating: 2
https://www.youtube.com/watch?v=IUm_rITZJuQ

So what else do we need to do?

Let's ban all 'Chinese' and Chinese-Americans (and Chinese-French immigrants, etc.) from ever working at the companies that make phones bought by US customers. They are so sneaky and can't be trusted! Don't be fooled by signs such as this. https://en.wikipedia.org/wiki/File:JapaneseAmerica...

And Lenovo, Asus and others made by such people don't make phones but how can we trust them in our bedrooms on lappy/desktop?!

Matter of fact, let's just round them all up and put them in camps. That would be easier.

</satire>




RE: Welcome to the China club!
By SilthDraeth on 10/8/2012 1:16:21 PM , Rating: 2
Asus makes phones.


RE: Welcome to the China club!
By The Raven on 10/8/2012 1:25:29 PM , Rating: 2
And sells them in the US? I didn't know that. Oh great... you inadvertently facilitated the invasion of the US by publicizing their phones!!


RE: Welcome to the China club!
By NicodemusMM on 10/8/2012 9:47:06 PM , Rating: 2
Routers as well. Currently running on a RT-N16 and it's never given a problem.... but that makes sense. They wouldn't make a router that would crap out in the middle of transmitting a sensitive document. :)


So...
By swizeus on 10/8/2012 10:10:34 PM , Rating: 2
Let's do Free Market and democracy they said, it will be for everyone they said




RE: So...
By martin5000 on 10/9/2012 8:23:35 AM , Rating: 2
Generally I would agree, but in this case China is hardly a free market itself, so I find it difficult feeling sorry for them.


RE: So...
By Helbore on 10/9/2012 8:40:17 AM , Rating: 2
Well that's not exactly true. The US free market is only within American territory. Just like how American democracy only extends to American citizens.

Chinese foreign nationals don't have the right to vote in American elections. They also don't have the right to import goods into America. They are privileges that may be given to them by the government.


RE: So...
By martin5000 on 10/9/2012 8:52:32 AM , Rating: 2
USA and China are both are members of the WTO.


Hoy Fong
By BurnItDwn on 10/8/2012 2:12:59 PM , Rating: 2
They can start banning electronics, but they can NEVER take my Huy Fong Sambal Oelek!!!!! NEVER NEVER NEVER!!!!!! For it is the ultimate frosting for all things delicious. It is the icing on the cake. It is that which gives blandness excitement. It is the food giver of life.




RE: Hoy Fong
By iamkyle on 10/8/2012 3:21:00 PM , Rating: 2
Seriously.

Leave my Sambal Oelek and Sriracha out of this.


RE: Hoy Fong
By Ammohunt on 10/8/2012 5:43:00 PM , Rating: 2
The Sriracha i get is made in California....Get a rope...


Oh well
By Noonecares on 10/8/2012 11:31:21 PM , Rating: 2
Last I heard China owns the US through debt. They also pretty much own the most profitable company in the world. They can't really steal IP when we send our stuff there to be made in the first place. Its like stealing the blueprints to a safe when you work at the factory building the safe.




TAA reborn?
By Integral9 on 10/9/2012 11:57:39 AM , Rating: 2
Just wondering since TAA computer purchasing hit a resounding thud just as it left dock once the budget folks saw the price differences in the computers.




umm, bye bye iPhone?
By Integral9 on 10/9/2012 12:08:24 PM , Rating: 2
Since Foxconn is an OEM and the sole manufacturer and based in China wouldn't that include the iPhone in the ban?




Spying on average Americans... why?
By tayb on 10/8/12, Rating: -1
RE: Spying on average Americans... why?
By Motoman on 10/8/2012 12:16:55 PM , Rating: 2
For 99% of the population, sure, the information is probably useless.

But then they find that one guy...


By AMDftw on 10/8/2012 12:32:34 PM , Rating: 2
I chuckled at this, because it so true.


RE: Spying on average Americans... why?
By tayb on 10/8/2012 1:00:22 PM , Rating: 2
So institute this policy on government employees. A total ban on this stuff is ridiculous and it will surely result in retaliation against American companies.


By The Raven on 10/8/2012 1:41:45 PM , Rating: 2
Yeah, have any of you ever heard of finding a needle in a haystack? But just in case, go ahead and start throwing in words like "classified launch sequence" and "DOD password database" in your daily communications to throw them off.

Also you can put things in there like "we will fire nukes at China if we ever find them spying on us with our phones" just to mess with their heads.

Have you guys ever heard of codewords? lol


RE: Spying on average Americans... why?
By Reclaimer77 on 10/8/2012 2:16:42 PM , Rating: 3
Tayb I'm willing to bet you never even heard of these Chinese OEM's before today, admit it.

But by all means, act like it's the end of the world if us "fat American's" look out for own interests and embargo goods from these shady OEM's.

And retaliation? You must be joking. We're not blocking ALL Chinese goods, hello.


RE: Spying on average Americans... why?
By Ringold on 10/8/2012 10:25:55 PM , Rating: 1
quote:
And retaliation? You must be joking. We're not blocking ALL Chinese goods, hello.


Typical spineless lefty. ZTE builds itself on the basis of stolen Cisco IP, and we should be the ones worried about retaliation?

China should be the ones worried that America finally grows a spine again. Companies are screwed no matter what in China. To enter many markets, they're forced to enter partnerships with local firms, which proceed to let the American's do the heavy lifting while they copy and steal and adapt all our expertise. In cases where US companies aren't forced in to bed with a local, they have to be constantly vigilant about hackers, spies, etc.

I wouldn't want to see an outright trade war, but there's definitely huge grievances to be resolved. China either seems to be getting worse about IP theft, or companies just quicker to report it to the media, but either way it's not fair or just.

All of which is slightly different than the security issue, but still.


RE: Spying on average Americans... why?
By aliasfox on 10/9/2012 10:58:56 AM , Rating: 2
I've heard many things on DailyTech, from Apple bashing to Android bashing, from Flying Spaghetti Monsters to Creationism.

But this is the first time I've ever heard anyone call Reclaimer77 a lefty. Ever. He's probably insulted.


By Etsp on 10/9/2012 12:28:02 PM , Rating: 2
As far as he's concerned, to be called left of center is an insult. Of that, I have no doubt in my mind.

As far as calling Reclaimer a lefty, that makes it clear in my mind that for Ringold, "If you don't agree with me, you must be a liberal. If you agree with me, you must be a conservative." Basically, there is no middle ground.


By Reclaimer77 on 10/9/2012 5:15:29 PM , Rating: 1
Ringold was clearly talking about the person I was responding to, pretty sure he wasn't calling me a "lefty", seeing as his entire post was agreeing with me. Did you guys even read it? :)


RE: Spying on average Americans... why?
By Saldrin on 10/8/2012 2:37:47 PM , Rating: 4
We as Americans don't really "make" much anymore besides movies and cheeseburgers. I have a co-worker that actually though the iphone was American made. I doubt there would be much repercussions, if at all. And what abstract things we do produce, China has already copied them and are in full production.

I don't foresee any negative consequences except maybe China getting mad and maybe adding tariffs, extreme consequence is kicking American companies out of their homeland which is a win win for us. I'd love to bring manufacturing back to the US. Anything to stop us from importing goods from China would be a gift!


RE: Spying on average Americans... why?
By Gondor on 10/8/2012 4:05:53 PM , Rating: 2
The manufacturers would simply move on to the next most cost-efficient country (Taiwan, Malaysia, Indonesia, etc.).

Heck, there's an entire continent full of yet-to-be-exploited people just waiting to be tapped (it just so happens that arms manufacturers are making a killing there at the time being so there's really no hurry to stop the weapon sales and usher those people into mass production age just yet).


By Ringold on 10/8/2012 10:15:03 PM , Rating: 3
Exactly.

That, and high labor costs just, if nothing else, mean mass lay-offs over the long run as factories cut costs by adopting automation, robotics.

Common misconception that US manufacturing has shrunk. It's almost as huge as it ever was, it just does vastly more with vastly fewer employees.

http://research.stlouisfed.org/fred2/series/IPMAN?...

Warning: The above link will cause severe cognitive dissonance in a brainwashed liberal brain.


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