The United States House of Representatives Intelligence Committee reported that Huawei Technology Co Ltd (SHE:002502) and ZTE Corp. (SHE:000063) pose security threats to the country. The Congressional Intelligence Committee recommended for the United States government to avoid doing business with the two major Chinese telecommunication companies, and prohibit the use of computer system components produced by Huawei and ZTE.

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China’s Foreign Ministry spokesperson, Hong Lei, rejected the allegations of the Congressional Intelligence Committee, and pointed out that the Chinese companies are not security threats to the United States. He also emphasized that the telecom companies in China developed their international businesses based on market economy principles. He said China hopes that the U.S. Congress would respect facts and put prejudices aside.

According to the Congressional Intelligence Committee, the Chinese government has influence over Huawei Technology Co Ltd (SHE:002502) and ZTE Corporation (SHE:000063). The committee also received credible allegations that both companies violated copyright infringement and committed bribery, corruption, and discriminatory behavior.

The Congressional Intelligence Committee also suggested the possibility that Chinese authorities could use the technologies of the  Huawei Technology Co Ltd (SHE:002502) and ZTE Corporation (SHE:000063) to gather intelligence, intercept high-level communications, and shut down network systems during national emergencies.

The report also cited that there are many issues about the companies remained unclear because Huawei and ZTE did not provide documents and detailed information regarding its finances, corporate structure, and relationships with the Chinese government.

According to the report, Huawei Technology Co Ltd (SHE:002502) and ZTE Corporation (SHE:000063) “cannot be trusted to be free of a foreign state influence and thus pose a security threat to the United States and to our systems” based on classified and unclassified information. In addition, the report also noted that both companies are increasingly becoming “dominant global players” in the telecommunications industry, which is intertwined with computerized controls for electric power grids; banking and finance systems; gas, oil, and water systems, and rail and shipping.

A report from Reuters cited the statement of Mike Rogers, Chairman of the House Intelligence Committee on CBS news program “60 Minutes.”  According to him, U.S. companies should “find another vendor if you care about your intellectual property; if you care about your consumers’ privacy and you care about the national security of the United States of America.”

In a statement e-mailed to Reuters, Huawei Technology Co Ltd (SHE:002502) spokesperson William Plummer denied the allegations of House Intelligence Committee. According to him, the report is baseless and reckless. He said, “Baseless suggestions otherwise or purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignore technical and commercial realities, recklessly threaten American jobs and innovation, do nothing to protect national security, and should be exposed as dangerous political distractions from legitimate public-private initiatives to address what are global and industrywide cyber challenges.”

On the other hand, ZTE Corporation (SHE:000063) expressed that it “profoundly disagrees” with the claims of House Intelligence Committee that the company is directed or controlled by the Chinese government. The company said, “ZTE should not be a focus of this investigation to the exclusion of the much larger Western vendors.”

The report of the Congressional Intelligence Committee might affect the relationship of China and the United States.