Chinese telecom giants Huawei, ZTE may be a security threat for Canada, U.S.: reports

It sounds like a James Bond movie: a large international corporation insinuates itself into the basic economic structure of the West on the guise of providing essential technology while pursuing a nefarious hidden agenda aimed at world domination.

But it's not the plot of the newest Bond flick, Skyfall.

Canadian and U.S. authorities are casting suspicious eyes on two major Chinese telecommunications companies whose expansion some consider a threat to national security.

The Intelligence Committee of the U.S. House of Representatives on Monday warned U.S. telecoms not to do business with Huawei Technologies Co. Ltd. and ZTE Corp. because their potential to be influenced by the Chinese government poses a national security threat, Reuters reports.

Canadian officials have raised similar concerns about Huawei, which is second only to Swedish-based Ericsson as a telecom equipment manufacturer. It already supplies major Canadian suppliers in Canada such as Bell, Telus, SaskTel and Wind Mobile, the Globe and Mail reported last month.

[ Related: Firm's Canadian contracts raise security fears ]

The two Chinese telecoms have steadily expanded their international footprint but the Intelligence Committee report, following an 11-month investigation, is seen as a major impediment to their growth in the U.S. market, Reuters says.

The warning apparently applies to network equipment the companies sell, such as routers and switches, but not to their mobile phones and other handheld devices.

Committee chairman Mike Rogers said the companies failed to fully satisfy requests for documents on such questions as their formal relationships or interactions with Chinese authorities, Reuters reports.

The controversy is part of the ongoing suspicion that China is using its expanding global business interests as a direct instrument of government policy. It underlies the debate over whether the federal government should approve the $15-billion takeover of Calgary-based energy company Nexen Inc. by state-owned China National Offshore Oil Corp.

[ Related: Is Ottawa courting trouble on foreign takeovers rules? ]

Rogers was interviewed Sunday about the committee's concerns on a segment of the CBS public affairs show 60 Minutes. Committee members are concerned that a company like Huawei could give the Chinese government a way of monitoring communications on U.S. networks, gathering intelligence and even waging cyber war in the event of a confrontation.

"If I were an American company today ... and you are looking at Huawei, I would 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," Rogers said.

At a press conference, Rogers said that companies had reported "numerous allegations" of unexpected behavior of Huawei equipment, such as routers allegedly sending data to China.

Canada's Communications Security Establishment also included Huawei in a report about potential threats to Ottawa's communications and computer networks, show the documents obtained by the Globe under access-to-information legislation. A briefing note says that while Canada can't block foreign technology, it should include computer security requirements in any government procurement contracts.

The Globe noted Australia recently banned Huawei's subsidiary there from bidding on a $38-billion broadband network project, citing the need to protect national interests.

Huawei Canada spokesman Scott Bradley told the Globe the government's concerns aren't unexpected.

"We're a globally successful, employee-owned, Chinese-based, telecommunications company," he said. "It is reasonable to assume the government will be taking a look at us."

Huawei, founded by a former People's Liberation Army soldier, is an employee-owned firm based in Shenzhen, where ZTE is also headquartered.

Earlier this year, the National Post reported allegations that criminals working on behalf of Huawei had hacked into to the famously porous computer systems of fallen Canadian tech giant Nortel Networks.

[ Related: Nortel collapse linked to Chinese hackers ]

In a statement emailed to Reuters, Huawei rejected the U.S. congressional committee's allegations.

"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 industry-wide cyber challenges," spokesman William Plummer said.

ZTE, which has an office in Toronto, also denied allegations of ulterior motives to its business activities.