Air of mistrust engulfs Chinese firms in US after report on Huawei and ZTE

Beijing expected to 'make life more difficult' for American companies after security report

PUBLISHED : Wednesday, 10 October, 2012, 12:00am
UPDATED : Wednesday, 10 October, 2012, 4:23am

More Chinese companies could encounter a new climate of mistrust in the United States after a congressional investigation found that telecommunications equipment makers Huawei Technologies and ZTE pose security threats.

That prospect was reinforced in the key recommendations made by the House of Representatives Intelligence Committee in the 52-page report about its probe of Huawei and ZTE.

"The United States should view with suspicion the continued penetration of the US telecommunications market by Chinese telecommunications companies," the committee said. This included barring the two firms from making acquisitions in the country and participating in sensitive telecommunications infrastructure projects.

The panel also wanted Chinese firms to "quickly become more open and transparent".

China yesterday rejected as "groundless" US accusations. "This report by the relevant committee of the US Congress, based on subjective suspicions, no solid foundation and on the grounds of national security, has made groundless accusations against China," Shen Danyang, a spokesman for the Ministry of Commerce, said in a statement.

The report violated the rules of the free market, Shen said, adding that it was not conducive to co-operation between China and the US.

The difficulty for Chinese firms to gain the US government's trust by holding up to such a level of scrutiny is magnified by the failure to do so by Huawei and ZTE, two of the world's five largest telecommunications equipment suppliers.

ZTE spokesman David Dai Shu pointed out that the congressional panel based its unfavourable conclusion on a finding that ZTE, like Huawei, might not be "free of state influence", which referred to ties with the Chinese government. "This finding would apply to any company operating in China," Dai said.

The panel's report hammered home a growing strain in Sino-US relations. President Barack Obama last month blocked privately owned Ralls, a Delaware-based company run by two executives of Chinese machinery maker Sany Group, from building wind farms near a US navy facility in Oregon.

Also last month, China filed a case in the World Trade Organisation that challenged US anti-dumping measures on kitchen appliances, paper and other goods. That was lodged shortly before the US filed its own WTO case that accused China of improperly subsidising exports of cars and car parts.

Enzio von Pfeil, an independent economist in Hong Kong, told Reuters that China was likely to "make life a little more difficult" for US firms operating there. "It could be a sort of whisper campaign [to discourage Chinese from buying some US products]," he said.

Security expert Wendell Minnick, the Asia bureau chief of Washington-based weekly publication Defense News, said China, if pushed, could retaliate in areas beyond telecommunications or consumer goods. Minnick said China was a big US creditor that owned more than US$1 trillion worth of US Treasury bonds.