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May 29, 2017

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China options limited as US panel slams telecoms

BEIJING/HONG KONG--China's leading telecom equipment makers accused in a U.S. congressional report of being a potential security risk may face fresh scrutiny in other markets, while American firms operating in China could be vulnerable to retaliation.

The U.S. House of Representatives' Intelligence Committee on Monday warned that China could use equipment made by Huawei Technologies Co. Ltd. and ZTE Corp. — the world's second- and fifth-largest makers of routers and telecoms gear — for cyber-espionage through software embedded in Chinese-made network equipment.

In its 52-page report, the committee noted that "China's military and intelligence services, recognizing the technological superiority of the U.S. military, are actively searching for asymmetrical advantages that could be exploited in any future conflict with the United States. ... Malicious implants in the components of critical infrastructure, such as power grids or financial networks, would also be a tremendous weapon in China's arsenal," it stated.

China's official People's Daily newspaper accused the committee on Tuesday of acting on a "presumption of guilt" against Huawei and ZTE. "This foolhardy political step ... will impede the healthy development of Sino-American trade cooperation," said a commentary in the newspaper, which generally reflects government thinking.

It added that the committee had produced "not an iota" of evidence to back its accusation that Huawei and ZTE products were used for espionage in the United States. "This report, which spurns the facts and is suffused with prejudice, is a vicious expansion of trade protectionism," it said.

'Cold War' Mentality

The blow-up — as a Xinhua English-language commentary described the emergence of a "a Cold War mentality" in the United States — comes at a sensitive time for U.S.-China relations, ahead of U.S. presidential and congressional elections and a leadership transition in China.

Tensions have ratcheted higher with a series of trade actions against China by President Barack Obama, including his blocking of a privately owned Chinese firm from building wind turbines close to a U.S. military site, and his challenge of Chinese auto and auto-parts subsidies in a World Trade Organization (WTO) case.

His Republican opponent, Mitt Romney, says if elected he will label China a currency manipulator from day one.

Ed Snyder, an analyst at Charter Equity Research in San Francisco, said the committee's report could lead to retaliation against U.S. companies that sell products in China in the telecommunications industry and beyond. He mentioned Cisco Systems Inc., Google Inc., Qualcomm Inc., Apple Inc. as examples, but said non-tech U.S. companies could also be hit.

"By calling them out like this, they're almost certain to get retribution," Snyder said. "There's a lot of ripe targets."

Balanced Response

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