By Jim Wolf
WASHINGTON (Reuters) - China's top telecommunications gear makers should be kept from the U.S. market because they cannot be trusted to dodge Chinese state influence and thus pose a security threat, the U.S. House of Representatives' Intelligence Committee leaders said in a draft of a report to be released Monday.
U.S. intelligence must stay focused on efforts by Huawei Technologies Co Ltd and ZTE Corp to expand in the United States and tell the private sector as much as possible about the purported espionage threat, the panel leaders said based on their 11-month investigation of the pair.
Employee-owned Huawei is the world's second-biggest maker of routers, switches and other telecommunications equipment after Sweden's Ericsson. ZTE ranks fifth.
The panel's draft report faulted both companies for failing to provide enough information to allay its concerns, including detailed information about formal relationships or regulatory interaction with Chinese authorities.
The panel said that it had received allegations from unnamed industry experts and current and former Huawei employees suggesting that Huawei, in particular, may be guilty of bribery and corruption, discriminatory behavior and copyright infringement.
The committee plans to refer such allegations to the Justice Department, Homeland Security and other U.S. government arms, said the draft made available to Reuters.
"U.S. network providers and system developers are strongly encouraged to seek other vendors for their projects," it said.
The document cited what it called long-term security risks associated with the companies' equipment and services but it did not provide detailed evidence, at least not in an unclassified version.
A classified annex provides "significantly more information adding to the committee's concerns," the draft said.
Based on classified and unclassified information, Huawei and ZTE, which are both based in Shenzhen, China, "cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems," it said.
The companies had no immediate comment on the draft. Top executives of both told a committee hearing on September 13 that their companies would never bow to any effort by anyone to seed their products for spying, equating this with corporate suicide.
"Huawei has not and will not jeopardize our global commercial success nor the integrity of our customers' networks for any third party, government or otherwise," senior vice president Charles Ding testified at the time.
The draft showed that the committee is calling on an interagency government group that reviews national security implications of foreign investments to block acquisitions, takeovers or mergers involving Huawei and ZTE.
In addition, legislation seeking to expand the role of the interagency group, known as the Committee on Foreign Investments in the United States, to include purchasing agreements should be given thorough consideration by Congress, the document said.
U.S. intelligence officials have publicly denounced China as the world's most active perpetrator of economic espionage against the United States.
The report comes as Huawei mulls a possible initial public offering as part of a possible effort to overcome suspicions that have all but blocked its efforts in the United States.
Huawei has marketed its network equipment in the United States since last year. It has sold to a range of small- to medium-sized carriers nationwide, particularly in rural areas. It has marketed mobile phones through a broader range of U.S. carriers, for the last four years.
(Reporting By Jim Wolf; Editing by Bernard Orr)
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