China has reacted angrily to a congressional report that called two of its largest telecom firms threats to U.S. national security, heightening tension at a politically sensitive time for both countries.
The report warned that Huawei and ZTE could use their positions as major suppliers of telecommunications equipment to help the Chinese government expand its overseas spying operations, echoing a long-standing concern among U.S. intelligence officials.
Chinese authorities dismissed the charge as "groundless" and suggested it could undermine future cooperation between the world's two largest economies, which are both deeply entwined and increasingly competitive across a range of businesses.
"It is based on subjective speculation and false foundations," Shen Danyang, a spokesman for China's Commerce Department, said in a written statement. The state-run Xinhua News Agency said the report, released by the House's Permanent Select Committee on Intelligence on Monday, reflected a "Cold War mentality as well as protectionism."
Hong Lei, a spokesman for China's foreign ministry, said, "We hope the U.S. Congress will put aside its prejudice, respect the facts and do more to promote China-U.S. trade relations, not the opposite."
Congressional concerns about the two companies stem from what the report characterizes as close relationships with China's Communist Party and its military, the People's Liberation Army.
U.S. intelligence officials and privacy security analysts have long worried about the potential of the companies to build what are called "back doors" into their systems, allowing secret access for spies. Back doors could be built into the hardware of chips, installed in software or slipped in later, through online updates, experts said.
"When you do the updates, when you do the patches, that's when you can do the interesting stuff," said James A. Lewis, a cybersecurity expert at the Center for Strategic and International Studies, a think tank based in Washington. "If the People's Liberation Army asked Huawei to do them a favor, would Huawei be able to say, 'No'?"
The companies have vehemently rejected such allegations, saying that building back doors into their systems could destroy their multibillion-dollar businesses by undermining customer trust. At a hearing before the House Intelligence Committee last month, Huawei Senior Vice President Charles Ding said that such a move would be "corporate suicide."
Monday's report, coming amid a sensitive leadership transition in China and a month before elections in the United States, highlighted the complex relations between the two countries. Both President Barack Obama and Republican challenger Mitt Romney have sought to portray themselves as tough on China. One Obama ad - released shortly after the congressional report - attempted to tie Romney to Huawei through his former investment firm, Bain Capital.
Tension is especially high over telecommunications, a major industry for both economies and one whose smooth functioning is essential to nearly every facet of modern society - including military and intelligence systems.
"This really is a strategic core technology and sector," said Benjamin A. Powell, a former general counsel to the director of national intelligence. "This is what runs us these days, these communications networks."
The report, which called on the U.S. government to block ZTE or Huawei from merging with U.S. firms, was sharply worded, but some information was classified and not released with the rest of the report.
The lack of such detail has left some experts wary of the government's complaints about Chinese companies. Doug Guthrie, dean of George Washington University's School of Business, said years of conversations with both U.S. officials and representatives for Huawei have convinced him that the American allegations are overblown.
"It's much easier to say that China is the source of all of our problems," Guthrie said. "In some ways, this is economic fear, pure and simple."
Security analysts, however, often point to China as the leading threat to U.S. cybersecurity, saying billions of dollars in intellectual property already has been stolen.
A team of security analysts studying Android phones several months back found a back door in a device made by ZTE. If the analysts typed in "ZTEX1609523," they gained complete control over the phone, allowing them to monitor text messages, listen to calls or install malicious programs.
"It certainly was something that was put in there intentionally," said Dmitri Alperovitch of CrowdStrike, one of the security analysts who discovered the back door, which he called "very unusual." "You could remain stealth on that device and do whatever you want."
The company quickly issued a fix after the discovery became public, but Alperovitch said he advises his clients not to buy either ZTE or Huawei products.
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