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China crisis as US frets over Hutchison

The US authorities are putting Hutchison Whampoa, the group behind the UK's new mobile phone service "3", under pressure because of its alleged links with the Chinese government.

Hutchison has struck a deal worth $755m (£470m) to buy a controlling stake in Global Crossing, the bankrupt long-distance phone group. However, last month IDT, a New Jersey telecoms group, made a rival bid, and lobbied the US authorities, saying that Hutchison and its founder, Li Ka-shing, had overly close links with Beijing.

Last week the influential Committee on Foreign Investment in the US, which is part of the Justice Department, met to consider the Global Crossing situation. Well-placed Washington sources say the committee may recommend that Hutchison's bid is blocked.

And it goes further. The Independent on Sunday has learnt that US officials have told the Foreign Office they are concerned about the effect of a Hutchison takeover on contracts the UK Government has with Global Crossing.

The most prominent of these is Global's £300m deal to provide telecommunications for nearly 300 embassies and consulates around the world. Global also runs messaging systems for the Royal Air Force and is believed to have contracts with GCHQ in Cheltenham.

US security officials are understood to have told their British counterparts that they may not consider communications carried on the Global network to be secure if it is bought by Hutchison.

Hutchison is angry about the situation. "Hutchison is truly an international conglomerate and has close strategic and commercial relationships with many overseas firms, including American companies such as Procter & Gamble, Lockheed Martin, Priceline, Motorola and Oracle, to name a few," said a spokeswoman. "The Chinese government doesn't have any officials on our board, and therefore has no influence at all over our business decisions. In terms of shareholding, we are not aware of any Chinese government shareholders in our company." She pointed out that Hutchison's business dealings in China are similar to those of US companies such as General Electric or Microsoft.

The rumours surrounding Hutchison's relationship with the Beijing government have swirled around the company for decades. Mr Li was born in mainland China but moved to Hong Kong when he was a teenager. He is now one of the most successful businessmen in Asia, having built fortunes in manufacturing, property, shipping and telecoms. Hutchison foundedOrange, which it sold at the peak of the market.

Mr Li's son, Richard, was behind an abortive attempt to buy Cable & Wireless, whose business is similar to Global Crossing, earlier this year.