ZTE steps up lobbying after spy fears block US contracts

Telecoms firm quadruples outlay on Washington insiders to sway Congress to lift de facto ban

PUBLISHED : Saturday, 31 August, 2013, 12:00am
UPDATED : Saturday, 31 August, 2013, 3:54am

ZTE more than quadrupled its spending on lobbying after a United States House of Representatives report warned that the telecommunications company's products may help the Chinese government spy on the US.

China's second-largest phone-equipment maker reported spending US$330,000 to lobby Congress in the first six months of this year - the most since it began lobbying in 2009, Senate records show. That compared with US$80,000 spent in the same period last year, according to company filings.

The increase followed a House Intelligence Committee report that effectively blacklisted ZTE's products, warning that the Shenzhen-based company's growth in the US might allow China to disrupt power grids or financial networks.

ZTE is following a well-worn path in bringing in advocates to blunt bad news in Washington, as was the case in the 1990s when Microsoft increased its lobbying while facing a Department of Justice antitrust suit.

"When a company is under attack, the classic thing is to hire the old Washington hands to plead their case," said Bill Allison, the editorial director of the Sunlight Foundation, a watchdog group in Washington.

ZTE declined to comment on why it increased its lobbying.

The company is looking for a larger share of US networking equipment sales. The market is about US$51 billion, according to consultancy ACG Research.

ZTE's competitors include Cisco Systems, Nokia Alcatel-Lucent and Ericsson.

ZTE's newest lobbyists include former House representative Mike Castle and fundraiser Tony Podesta, who owns the No3 US lobbying firm in terms of revenue, Senate filings show.

Castle is a partner in the lobbying firm DLA Piper, which began providing legal services to ZTE once the House committee announced its investigation in November 2011. In November last year, a month after the panel released its report, DLA Piper registered to lobby for ZTE. Castle was first listed as a ZTE lobbyist in the firm's second-quarter filings.

The former congressman and other DLA Piper representatives visit Capitol Hill to make the case that ZTE's equipment can be tested by independent laboratories to ensure it is secure.

Other telecommunications companies that manufactured products in China installed equipment that had not been tested, said John Merrigan, a co-chairman of DLA Piper's federal law and policy group. "ZTE is the only company that can certify that its equipment can be tested and found reliable," he said.

ZTE hired Podesta's firm on April 4, Senate records show. Podesta and seven former congressional aides, including David Adams, a former assistant secretary of state, are registered to lobby for ZTE. Podesta was unavailable for comment.

The House committee's report in October last year advised US agencies and government contractors to steer clear of both ZTE and Huawei Technologies. The report said the companies had not adequately explained their relationships with the Chinese government.

The report warned that companies such as Huawei and ZTE "provide a wealth of opportunities for Chinese intelligence agencies to insert malicious hardware or software implants into critical telecommunications components and systems." That might allow the government in Beijing to affect US power grids or financial networks, the report said.

"It appears that under Chinese law, ZTE and Huawei would be obligated to co-operate with any request by the Chinese government to use their systems or access them for malicious purposes under the guise of state security," the report said.

ZTE and Huawei have denied links to espionage and have said they are not controlled by Beijing.

Huawei's lobbying expenses fell to US$280,000 in the first six months of this year from US$820,000 in the same period last year, Senate records show.