A congressional investigation concluded that Chinese companies Huawei and ZTE pose a security threat to the US.
The multinational telecom companies have little presence in the US and have been trying to expand here. The report (PDF) of the House intelligence committee will not help them to do that. It strongly suggests that private-sector entities in the US "consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services," according to Business Week. The report urges the US government to block mergers or acquisitions by Huawei and ZTE. It encourages government agencies and contractors to avoid equipment from the companies, and prompts US intelligence agencies to "remain vigilant and focused on this threat."
The two firms sell back-office equipment for cellular networks, in addition to other communications gear such as handsets and routers. If it is not obvious how serious the threat of backdoors in telecom equipment is, this nearly 30-year-old paper (PDF) is required reading.
The investigation began a year ago, prompted by persistent reports (PDF) of widespread industrial, military, and government espionage carried out via computer networks, and originating in China. Here are two examples that predate the intelligence agency report linked above: The New York Times profiled one among many of the Chinese-linked campaigns, dubbed Ghostnet, early in 2011. And later that year Symantec unraveled a years-long industrial espionage campaign directed against the chemical industry, with command-and-control operations in China.
The House committee claims that Huawei and ZTE were evasive and did not provide requested materials, so the committee was unable to rule out the possibility that Chinese government or military elements may be involved in directing the companies' activities. In fact, both companies are required by Chinese law to host a Communist Party Committee at their headquarters. Huawei was founded by an ex-officer in the Chinese People's Army who has never given a public interview. ZTE refused to turn over information about operational or financial ties to the military and government, claiming that "such information was a 'state secret' and could not be provided without approval of the Chinese government," according to Ars Technica.
The committee said that its findings were based both on the evidence it released and on a larger collection of unreleased materials. Some of the latter will be turned over to the Justice Department, to investigate allegations of fraud, bribery, and violations of immigration law by Huawei. ZTE, for its part, is the target of an FBI investigation into a plot to supply embargoed communications gear to Iran, and an alleged coverup of that plot. The committee did not release any evidence related to actual working back doors that some users have reported finding on ZTE Android handsets.
Both companies and the Chinese government deny any wrongdoing, as you would expect. Here is a blog post by Stan Abrams, an American IP/IT lawyer living and working in China. He is accustomed to pointing out instances of xenophobic bias and China-bashing where he sees them; but here he concludes that this action by the House committee cannot be ascribed to either one of those motives.