House Panel Wants to Ban Chinese OEMs from U.S. Smartphone and Router Markets
October 8, 2012 11:31 AM
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'
made in a
[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. (
) and Huawei Technologies Comp. (
) -- suggesting that U.S. lawmakers take the unusual step of banning the Chinese companies' products from the market.
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,
, "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."
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, 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.
U.S. House Intelligence Committee
Reuters [Yahoo! News]
"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch
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