Huawei, ZTE Provide Opening for China Spying

[asianobserve]

By Eric Engleman - Oct 8, 2012
Bloomberg


Huawei Technologies Co. and ZTE Corp. (000063), China's two largest phone-equipment makers, provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying, according to a congressional report to be released today.

The House intelligence committee report says the two companies failed to cooperate with a yearlong investigation and to adequately explain their U.S. business interests and relationship with the Chinese government, according to a draft provided by the panel.

"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," says the report, from the committee's chairman, Michigan Republican Mike Rogers, and its top Democrat, Maryland Representative C.A. "Dutch" Ruppersberger.

The House investigation found "credible" reports of illegal behavior by Huawei, including immigration violations, bribery and corruption, based on statements from current and former employees, according to the report. Allegations will be referred to federal agencies including the Homeland Security and the Justice departments, according to the report, which didn't provide full details or identify the accusers.

'Political Distractions'

Suggestions that Huawei "is somehow uniquely vulnerable to cyber mischief" are "baseless" and "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," William Plummer, a Washington-based spokesman for Huawei, said in an e- mail.

Rogers and Ruppersberger announced the probe of the Chinese companies last November, citing concerns about Chinese hacking into U.S. systems and theft of intellectual property. U.S. counterintelligence officials called China the world's biggest perpetrator of economic espionage in a report last year, saying the theft of sensitive data is accelerating and jeopardizing an estimated $398 billion in U.S. research spending.

"Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services," the report says.

Military Ties

Internal Huawei documents supplied by a former company employee showed that Huawei provides "special network services" to an entity the former employee believes is an "elite cyber-warfare unit" within the Chinese army, according to the report. The documents "appear authentic" and suggest Huawei officials weren't forthcoming about research and development on the military's behalf, the report says.

The report describes a series of meetings between the panel's members and representatives of the two companies.

Ruppersberger and Minnesota Republican Representative Michele Bachmann were among those who met in Hong Kong last May with Ren Zhengfei, Huawei's founder and chief executive officer. Ren founded Huawei in 1987 after leaving the Chinese army, and his military ties have been a focus of attention by U.S. lawmakers.

Executives for Huawei and ZTE, both based in Shenzhen, China, denied links to Chinese espionage at an intelligence committee hearing last month, telling lawmakers they aren't controlled by the Chinese government. The companies said they favor independent audits of technology vendors' hardware and software as a way to ensure that devices and networks are secure.

Market Roadblocks

The report's conclusions may create more U.S. roadblocks for the Chinese companies in the U.S. market.

Huawei has backed away from business deals after U.S. objections, dropping a bid with Bain Capital Partners LLC to buy computer-equipment maker 3Com Corp. in 2008, and unwinding the purchase of patents from a computer-services company, 3Leaf Systems Inc., last year. The U.S. Commerce Department last year barred Huawei from participating in a nationwide emergency network, citing security concerns.

The U.S. Committee on Foreign Investment in the U.S., an interagency panel that reviews acquisitions of domestic companies by non-U.S. entities, should block acquisitions involving Huawei and ZTE because of security threats, the intelligence committee report says.

Huawei had about $1.3 billion in U.S. revenue last year, up from $760 million in 2010, Plummer said in an interview last month. About $1.2 billion of U.S. revenue came in sales of gear such as smartphones and tablet computers, he said. ZTE doesn't break out U.S. sales.

With the political scrutiny intensifying, Huawei has stepped up its presence in Washington. The company has hired six lobbying firms and spent $820,000 on lobbying in the first six months of this year, compared with $200,000 during the same period in 2011, according to U.S. Senate records.



Huawei, ZTE Provide Opening for China Spying, Report Says - Bloomberg

 

[Ray]

Such activities are possible.

I wonder if any activities done by Chinese people or companies can be beyond the control of the Chinese Govt.

Given that assumption, the Chinese Govt will tap any sources or resource to stay ahead in the game.

 

[asianobserve]

I hope that Huwaei and ZTE are damaged enough from this revelations. This is a Chinese trojan horse, and bets for them they earn in the process!

 

[ice berg]

Jealous much?

Chinese multinationals: Who's afraid of Huawei? | The Economist
Who's afraid of Huawei?
The rise of a Chinese world-beater is stoking fears of cyber-espionage. Techno-nationalism is not the answer

CHINESE companies have started to win first place in global markets. Huawei has just overtaken Sweden's Ericsson to become the world's largest telecoms-equipment-maker. Even though many foreigners still cannot pronounce its name (some call it "Hawaii", and the firm has even produced a video teaching people to say hwah-way), Huawei is becoming an increasingly powerful global player, capable of going head-to-head with the best in intensely competitive markets. It follows Haier, which is already the leading white-goods-maker; now Lenovo is challenging Hewlett-Packard as the world's biggest PC-maker. Plenty more will follow (see article).

Huawei, a private firm, is a standard-bearer in China's long march into Western markets. Its founder, Ren Zhengfei, who served as an engineer in the People's Liberation Army (PLA), at first struggled to win customers even in China. But his company followed Mao's strategy of using the countryside to encircle and capture the cities, and it has moved on to win foreign markets too: in Europe it is involved in over half of the superfast 4G telecoms networks that have been announced, and it has become a strong competitor in mobile phones (see article). The company is now a $32-billion business empire with 140,000 employees, and customers in 140 countries. It commands respect by delivering high-quality telecoms equipment at low prices.But Huawei inspires fear too—and not just among its competitors. The company is said to be too close for comfort to the PLA. Westerners fret that the networks the firm is building are used by Chinese spooks to eavesdrop during peacetime and could be shut down suddenly during wartime. They see the firm as a potent weapon in China's burgeoning cyber-arsenal.

It is a view that some governments are taking seriously. Earlier this year Australia blocked Huawei's participation in a scheme to build a national broadband network in the country. The company has also faced opposition to its commercial expansion in India. And in America, where Huawei's attempts to grow have often been stymied, a congressional committee that focuses on intelligence matters is putting the firm under a microscope; suspicions have been aggravated by a recent spate of cyber-attacks attributed to Chinese hackers.

Western governments are also suspicious of the subsidies, low-interest loans and generous export credits lavished on favoured champions, including Huawei. The European Commission is considering opening an investigation. Some people suppose that the Chinese government is helping Huawei win overseas contracts so that spies can exploit its networks to snoop on ever more of the world's electronic traffic.

Arguments against imports always need to be viewed with caution, since they will be used by protectionists to keep emerging rivals out. Still, it is reasonable to worry about security in telecoms: recent reports have pointed to the efforts of Chinese state-sponsored hackers to vacuum up valuable Western commercial secrets on a massive scale. Western intelligence agencies are also alert to the risks of eavesdropping and cyber-attacks because they themselves are practitioners (a prime example being the Stuxnet virus, aimed at Iran's nuclear programme). As for Huawei, a firm that controls a network's creation and management is ideally placed to sneak in malware and sneak out sensitive data. Even though it is a private company with an awful lot to lose if it were caught spying, the power of the state in China's version of capitalism means the West is right to be vigilant.

But banning Huawei from bidding for commercial contracts is wrongheaded, for two reasons. One is that the economic benefit of competition from China in general and Huawei in particular is huge. It boosts growth and thus wellbeing. Huawei's cheap but effective equipment helped make Africa's mobile-telecoms revolution possible.
Distrust and verify

The other reason for not banning Huawei is the dirty little secret that its foreign rivals strangely neglect to mention: just about everybody makes telecoms equipment in China these days. Chinese manufacturers and designers have become an integral part of the global telecoms supply chain. Blocking Huawei (or its rival Chinese telecoms giant, ZTE) while allowing gear from, say, Alcatel-Lucent or Ericsson on a network may make politicians feel good. But it is no guarantee of security. Huawei's competitors have a vested interest in hyping concerns about it, while disguising their own reliance on Chinese subcontractors and on subsidies.
The answer is to insist on greater scrutiny all round, not just of Chinese firms. Governments should be crystal-clear about what conditions telecoms firms need to meet to win business—something America's secretive security-review process does not do today. They should also do more to ensure that equipment is secure, no matter who makes it. That means demanding to know where hardware components and software come from, and requiring intrusive random inspections of code and equipment. America has no effective system of supply-chain checks. In Britain, by contrast, where BT is a big customer, Huawei has established a unit (run in close co-operation with GCHQ, Britain's signals-intelligence agency) with security-cleared personnel, including former employees of GCHQ, who vet gear from China before it is installed. Such scrutiny will drive up costs, but these pale in comparison with those imposed by bans on Chinese firms, which diminish competition and push up prices.

Huawei can also help allay foreigners' fears. The company's opaque ownership structure and secretive culture have damaged its reputation. It needs to be far more open. One way to achieve this would be for the closely held firm to seek a listing on a global stockmarket—if not in America, then at least in Hong Kong. Greater openness would also help clarify the real threat that Chinese firms such as Huawei pose to America and other countries: that they are starting to out-innovate the home-grown competition.


There is always a different side of story.

 

[Daredevil]

Finally, people are realising the dirty games of CCP. I posted another report where the Chinese manufacturers ship botnet installed computers to people.

 

[drkrn]

even USA uses google/gmail for its spying.they always happen

 

[asianobserve]

Canada may bar China from telecoms project | Defense Technology News at DefenceTalk

Canada said Tuesday it had invoked a "national security exception" that could exclude China's Huawei Technologies from a role in helping build its new super secure government network.

 

[nimo_cn]

Considering the unfair treatment Huawei and ZTE alike Chinese companies are getting in the western countries, and the privileges western companies are enjoying in China, i have to say China is still a weak country and the CPC government is a weak government.

Sent from my T8830 using Tapatalk 2

 

[lcatejas]

Great and Smart move from Canada:thumb: India should follow the same... Exclude RIL and other companies who import these kathcra from China

 

[blank_quest]

I saw this news yesterday on youtube~! Chinese companies have installed backdoor bots with password. Quite neatly done but alas got caught !! so sad..

 

[GromHellscream]

Trade protectionism can works for a moment, but it can't works all along. The more the US trys to use this weapon, the weaker the industry of itself is implied to be.

 

[desicanuk]

Dream on my friend!We have eunuchs for leaders.They are still engaged in smoking peace pipes with Pakistan and PRC.Besides they are too busy lining their pockets to worry about such mundane thing as national security.

Great and Smart move from Canada:thumb: India should follow the same... Exclude RIL and other companies who import these kathcra from China

 

[Known_Unknown]

Do we seriously think that China is the only country in the world that sells compromised equipment to other countries? Do we think all US equipment, software etc is does not have backdoors that the US government can exploit?

Every technology savvy country does this. There's nothing special about Huawei, it's just that they are not as sophisticated and discreet about it as others.

Why America Is Really Worried About Huawei - Arik Hesseldahl - News - AllThingsD

Remember that it was intelligence agencies of the U.S., in partnership with Israel, that turned deep knowledge of the numerous variants of Microsoft's Windows operating system combined with specialized knowledge of industrial control systems to create the Stuxnet worm that damaged the Iranian nuclear research program. Later discoveries included other U.S.-Israeli cyber weapons called Flame and Gauss. Taken together, they amount to evidence that the countries had mounted a less-than-covert military campaign against Iran that could in time have significant unintended consequences.

Prior efforts include a largely forgotten 1982 campaign of electronic sabotage against the natural gas pipeline being built by the Soviet Union that caused so large an explosion that U.S. military forces briefly thought it was an early sign of a nuclear attack. The episode was documented in the book "At the Abyss: An Insider's History of the Cold War" by Thomas Reed, the late former secretary of the Air Force under President Reagan.

Another incident, this one not as well documented but the subject of a great deal of informed speculation, concerns a 2007 Israeli air strike against what was at the time a suspected nuclear weapons research facility in Syria. A report by the IEEE Spectrum the following year traced reports that a French chip company that supplied the manufacturer of Syrian radar defense gear included a "kill switch" that allowed Israeli bombers to carry out their attack undetected.

 

[huaxia rox]

Considering the unfair treatment Huawei and ZTE alike Chinese companies are getting in the western countries, and the privileges western companies are enjoying in China, i have to say China is still a weak country and the CPC government is a weak government.

Sent from my T8830 using Tapatalk 2

very well said....when the us trying to do harm to our national safety in an obvious way the pathetic cpc gov just did nothing at all....besides....u know these losers would rather buy some useless and expensive boeing jets and they would never think of developing our homemade flight jets for 1 second.........

China finds spy bugs in Jiang's Boeing jet - Telegraph
China downplays Jiang's jet bugging - CNN