Huawei and ZTE cry foul at US Congress' accusations, say the report was rigged

Chinese telecoms giants Huawei and ZTE have responded to Congress' claims that neither company could be trusted to sell hardware to the US. Both feel that they've been victimized, with ZTE pointing out that since no Chinese company is "free from state influence," the report should have included every tech business based there. Huawei, on the other hand, took a more resigned (albeit snarky) tone, saying that the committee was "committed to a predetermined outcome," and that the business is no different from any Silicon Valley start-up. With the ball firmly in Congress' court, it remains to be seen what action the government will take, but we suspect this one's got the capacity to run and run.

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ZTE's Equipment is Safe and Poses no Threat to US Telecommunications Infrastructure

The Company's Trusted Delivery Model Improves Equipment Safety and National Security

WASHINGTON, D.C. – October 9, 2012 – ZTE today reiterated its support for its Trusted Delivery Model and renewed its commitment to work with the House Permanent Select Committee on Intelligence (Committee), government agencies, and the private sector to address all cybersecurity concerns.

ZTE has set an unprecedented standard for cooperation by any Chinese company with a US congressional inquiry. ZTE has presented the Committee with ample facts that demonstrate ZTE is China's most transparent, independent, globally focused, publicly traded telecom company. ZTE is listed on the Hong Kong and Shenzhen Stock Exchanges. The company already is recognized as a Trusted Delivery Partner by 140 governments and 500 network carriers.

ZTE's equipment is safe for US telecom infrastructure. In its Fourth Recommendation, the Committee encourages companies to offer "more consistent review by independent third-party evaluators of their cybersecurity processes." The Committee has credited ZTE with advocating a solution, based on a Trusted Delivery Model, in which the telecom vendor transfers hardware, software, firmware, and other structural equipment elements to an independent third-party threat assessment laboratory with US government agency oversight.

The Committee has raised technical questions regarding the effectiveness of Trusted Delivery Systems, but the Committee recommends continuing efforts to identify effective mitigation solutions. David Dai Shu, ZTE's director of global public affairs, said "ZTE appreciates the Committee's recognition that ZTE has offered US carriers a Trusted Delivery Model solution. ZTE will work with the Committee, US government agencies, and ZTE's US customers to identify and deploy the most effective equipment cyber-security measures possible. ZTE is committed to assuring US carriers and US government agencies its equipment is safe."

Dai Shu said, "It is noteworthy that, after a year-long investigation, the Committee rests its conclusions on a finding that ZTE may not be 'free of state influence.' This finding would apply to any company operating in China. The Committee has not challenged ZTE's fitness to serve the US market based on any pattern of unethical or illegal behavior.

According to the Committee, ZTE was included in this investigation simply because it is one of "the top two Chinese telecommunications equipment manufacturers." Virtually all of the telecom infrastructure equipment now sold in the US and throughout the world contains components made, in whole or in part, in China. That includes the equipment manufactured and sold by every Western vendor in the United States, much of which is made by Chinese joint venture partners and suppliers.

Dai Shu said, "Particularly given the severity of the Committee's recommendations, ZTE recommends that the Committee's investigation be extended to include every company making equipment in China, including the Western vendors. That is the only way to truly protect US equipment and US national security. National security experts agree that a Trusted Delivery Model will strengthen national security. In fact, major US carriers are increasingly requiring Trusted Delivery Model in their contracts."

ZTE has presented the Committee with the following facts:

ZTE is China's most transparent, independent, globally focused, publicly traded telecom company. Every business decision and action taken within ZTE serves the Company's 140,000 public shareholders on the Shenzhen and Hong Kong Stock Exchanges, including many of the world's leading institutional investors. As ZTE's Independent Director, an American citizen, has confirmed in a sworn affidavit: ZTE's business decisions and actions are not directed or influenced by China's government.

ZTE has an unbroken history as a commercial telecom technology innovator for three decades. The company is a leader in international equipment standards-setting organizations, and it is recognized as a Trusted Delivery partner by over 500 network carriers in 140 countries. ZTE was the pioneer among Chinese companies entering into technology licensing agreements with US suppliers, with its first licensing agreement with Qualcomm in 1999. In recent years, ZTE has spent over $14 billion on US chip sets and other US equipment, and has created over 20,000 direct and indirect US jobs. ZTE will continue as a major customer of US telecom equipment suppliers for years to come.

To assure US supply chain security, ZTE offers US carriers its Trusted Delivery Model, a fully transparent and comprehensive review and monitoring system conducted by a highly respected independent US threat assessment laboratory. ZTE's Trusted Delivery Model provides for a thorough end-to-end security evaluation of ZTE's software, firmware and hardware throughout the equipment life cycle. The Trusted Delivery Model also makes audits available for US Government agency review to facilitate additional assurance and oversight.

Given ZTE's cooperation and the facts ZTE has presented to the Committee, ZTE is disappointed that the Committee chose to narrowly focus its review on just the two largest Chinese companies and to exclude Western telecom vendors and their Chinese joint venture partners. Given that virtually all US telecom equipment is produced in China, in some measure, the Committee's narrow focus addresses the overall issue of risk to US telecom infrastructure so narrowly that it omits from the Committee's inquiry the suppliers of the vast majority of equipment used in the US market. ZTE is a relatively small US telecom infrastructure equipment supplier in comparison with most of the Western vendors. Sales of ZTE's telecom infrastructure equipment in the US comprised less than $30 million in revenue last year. Two Western vendors, alone, last year provided the US market with $14 billion worth of equipment.

US carriers and the US Government have come to rely upon the Trusted Delivery Model as the best protection for telecom infrastructure equipment. A Trusted Delivery Model is vendor-neutral. US carriers can trust the equipment and that is the best protection of US national security.

"ZTE recognizes and fully respects the Committee's obligation to protect US national security," said Dai Shu. "ZTE believes the Committee focused its examination too narrowly on vendor locations not on equipment security. The Committee omitted the Western vendors and their Chinese manufacturing partners, which provide most of the US equipment now in use. The Committee also overlooked the opportunity to advance universal application of the Trusted Delivery Model which protects critical telecom networks on a vendor-neutral basis."

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Statement regarding HPSCI's report

The United States is a country ruled by law, where all charges and allegations should be based on solid evidence and facts. The report conducted by the House Permanent Select Committee on Intelligence (the Committee), which took 11 months to complete, failed to provide clear information or evidence to substantiate the legitimacy of the Committee's concerns.

We had hoped to ensure that the investigation would be fact-based and objective in its review of our business activities and the global issue of cyber-security. Over the past 11 months, Huawei has cooperated with the Committee in an open and transparent manner, and engaged in good faith interaction: our top management team carried out multiple rounds of face-to-face communication with the Committee members in Washington D.C., Hong Kong, and Shenzhen; we opened our R&D area, training center, and manufacturing center to the Committee and offered a wealth of documentation, including the list of members of the Board of Directors and the Supervisory Board over the past 10 years, and the annual sales data since our establishment in 1987; we also made the list of our shareholding employees, the shares they hold, as well as information about our funding resources and financial operations available to the Committee. We adopted a transparent approach in providing this information to ensure the results are fact-based and unbiased, hoping the Committee's objective review of our business activities and the global cyber security issue can clarify the misperception of Huawei.

However, despite our best effort, the Committee appears to have been committed to a predetermined outcome.

The ranking member of the Committee stated at the hearing that the investigation by the committee "is not political jousting or trade protectionism masquerading as national security". Unfortunately, the Committee's report not only ignored our proven track record of network security in the United States and globally, but also paid no attention to the large amount of facts that we have provided. Even before the investigation began, the Chairman of the committee advocated to media that "I stand by my caution to the American business community about engaging Huawei technology until we can fully determine their motives".

The report released by the Committee today employs many rumors and speculations to prove non-existent accusations. This report does not address the challenges faced by the ICT industry. Almost every ICT firm is conducting R&D, software coding and production activities globally; they share the same supply chain, and the challenges on network security is beyond a company or a country. The Committee's report completely ignored this fact. We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market.

Huawei is a global Fortune 500 company owned by its employees. For the past 25 years, we have held an upstanding record. Our customers and partners are fully aware that this report cannot change the fact that the safety and integrity of Huawei's solutions are well-recognized by the industry. Currently, the integrity of Huawei's operations and the quality and security of our products are world-proven across 140 countries around the world. They are deployed by over 500 operators and our products have served almost 3 billion people worldwide. These customers know and trust Huawei and they know our commitment to their company and to their customers who rely on them for their communications service. Huawei has introduced best practices of Western management to construct standardardized and process-oriented operational management systems, including product development, supply chain management, financial management, human resources, and quality control. Huawei's annual financial reports are audited by KPMG.

The United States has become the world's largest economic entity in a short period of time due in large part to the open policy it has been implementing over the past 200 years. We believe that the United States will continue with this spirit. Huawei is no different from any start-up enterprises in Silicon Valley, and our growth and development relies very much on our entrepreneurial spirit, the commitment and hard work of our employees, as well as our unwavering dedication to innovation. Moving forward, we will continue to do the best we can to provide our customers with safe, convenient, and equal access to information and communications services.

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Huawei and ZTE cry foul at US Congress' accusations, say the report was rigged