Chinese phone manufacturers Huawei and ZTE could pose security threat to United States

Huawei Logo Photographer: Chris Ratcliffe/BloombergWhile the Huawei P1 S and the ZTE Grand X won’t be challenging the iPhone 5 or Galaxy S3 for the honor of being the top-selling smartphone in the U.S. anytime soon, the two Chinese companies have been accused of being a threat of a different nature by a congressional committee.

A report penned by the House of Representatives intelligence panel, set to be released later today, voices concerns regarding Huawei and ZTE’s ties with the Chinese government and military. It states that “China has the means, opportunity and motive to use telecommunications companies for malicious purposes,” and continues with “based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.”

CBS News included a lengthy segment about the report on October 7’s 60 Minutes program, bringing Huawei’s name into households where it would have previously never have been known, and highlighting the government’s concerns.

The concern doesn’t seem to be related to either company’s smartphone or tablet lines, but about its network infrastructure products, of which Huawei is the world’s second largest producer. According to CBS, the committee is worried that the Chinese government could use any Huawei infrastructure installed in the US “to intercept high level communications, gather intelligence, wage cyber war, and shut down or disrupt critical services in times of national emergency.”

Firms warned to “look elsewhere”

Member of Congress Mike Rogers, who heads up the committee, warns that U.S. firms considering working with Huawei should look elsewhere “if you care about your consumers privacy, and you care about the national security of the USA.”

Naturally, both Huawei and ZTE have denied these charges, with Huawei’s VP of External Relations in the US saying “Huawei is Huawei, Huawei is not China,” and that there has been “10 years of misinformation and innuendo” surrounding the company. ZTE responded to claims that suspicious “back doors” and “beaconing” had been discovered in its network hardware, calling them “software bugs” and communications to enable self-repair in the event of a malfunction.

None of this is particularly new, and Huawei has encountered similar problems in the past. It was blocked from bidding on 3com in 2008 and from purchasing server manufacturer 3Leaf last year, and both Sprint and AT&T have been asked not to use Huawei’s equipment. Outside the USA, Australia banned Huawei from bidding on a lucrative broadband project earlier this year too.

The use of Huawei’s network equipment in the UK is often cited as proof that the U.S. is merely paranoid about the Chinese company. However, on the advice of British Intelligence, a joint “Cyber Security Evaluation Centre” was setup to test all Huawei’s equipment and software before its installation, which has reportedly gone on to be used by other countries interested in Huawei’s hardware, including New Zealand.

Business is booming, regardless of controversy

So what has Huawei, and to a lesser extent ZTE, done to deserve all this negative attention? In Huawei’s case, notoriously media-shy founder and former member of the People’s Liberation Army, Ren Zhengfei, certainly doesn’t help, and neither do ties to state-run Chinese banks, failure to supply requested documentation, and accusations of IP theft from the likes of Motorola and Cisco.

Leaving aside the political aspects of this story, will banning Huawei and ZTE’s equipment help keep sensitive U.S. communications private? Ross Anderson, a professor of security engineering at Cambridge University told The Economist that it would likely only provide a false sense of security, after all, almost all other similar companies use equipment produced in China anyway. It’s a fair point, but unfortunately, it’s not difficult to imagine governments — Chinese or otherwise — using communication networks to spy on citizens or other governments, so the paranoia — justified or otherwise — will remain.

Despite all this, business is on the up. Globally, Huawei reported $32.4 billion in revenue last year, with $1.3 billion coming solely from the US, which was up from $765 million the year before. A total of 70-percent of its business comes from international markets, and the company has recently announced £1.3 billion of investment in the UK’s mobile infrastructure, along with a plan to almost double its 800-strong workforce to 1,500 by 2017.