Do Chinese Tech Firms Pose U.S. Security Threat?

By Jim Zarroli

Over the past decade, Chinese companies have become major players in the global telecommunications market. This week the House Intelligence Committee issued a report that could interrupt that growth. The committee warned American companies not to do business with two of China’s main telecom manufacturers, saying they posed a security threat.

Huawei Technologies is the miracle story of the Chinese high-tech industry, says telecommunications consultant Roger Entner. “It has come out of nowhere and has become one of the dominant providers for not only telecom equipment but also for handsets in the world,” Entner says.

The company sold $32 billion worth of telecommunications equipment last year, and it has taken an enormous chunk of the telecommunications market. It has done this, Entner says, by underpricing larger companies like Nortel and Nokia, and taking away some of their customers.

“They have underbid their competitors by 20, 30, sometimes 50 percent,” Entner says. But Huawei’s edge isn’t just price. It has poured money into research and development, and has thousands of patents.

Huawei has been slow to penetrate the large American market, and the U.S. House report this week could delay it even further.

The report suggested that Huawei, which was founded by a former officer in the People’s Liberation Army, had ties to the Chinese government. It also cited another Chinese company, ZTE. And it said neither company would answer basic questions about their corporate structure and financing.

“The feeling within the intelligence community is that those so-called private companies will work at the behest of the PRC and the Chinese state interests, whether it be military or security intelligence,” says Ray Boisvert, a former Canadian intelligence official.

The report warned that allowing Huawei to manufacture and service telecom equipment gave China a window into U.S. networks and posed a major security threat.

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