US vs Huawei/ZTE: The Verdict

5:00 AM -- The U.S. House Permanent Select Committee on Intelligence has decided that Chinese telecom equipment vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) pose a security risk and that U.S. companies should not engage in business with them. (See More Chinese Whispers and Huawei, ZTE Probed by Intelligence Agency.)

That, reports Bloomberg, is the general conclusion of the Intelligence Committee following a probe that saw members of the investigating team visit China and representatives of both Huawei and ZTE give evidence to the Committee (testimony that included some ill-advised claims). (See Huawei, ZTE Get Grilled in US.)

The Committee's main concern, it would seem, is that it's not possible for Huawei and ZTE to operate without influence from the Chinese government, a claim that both vendors have always rejected and which ZTE has once again denied, reports Reuters.

The verdict should come as no surprise to anyone. The tone of the Committee's statements always suggested that the only thing in doubt was just how damning of the Chinese vendors the final conclusions would be.

That's not to say that the Committee's findings have no validity and, for sure, both Huawei and ZTE have been guilty over the years of having indulged in less than creditable business practices, including industrial espionage and bribery. To what extent those two companies engage in those practices any more than their counterparts is another issue altogether -- international business in any industry is far from squeaky clean.

Once the full report is released it'll be interesting to see the full details of the Committee's decision. What's immediately clear, though, is that this provides a greater opportunity for the Chinese vendors' rivals to win business in the critical U.S. market and that any engagement with Huawei and ZTE by U.S. companies hereon in is likely to be public relations suicide.

Of course, the fallout from the Committee's verdict could be far more wide-ranging. China's foreign ministry has already issued a statement about the verdict, urging the U.S. to set aside any prejudices when dealing with Huawei and ZTE, reports Reuters. It's hard to imagine that the Chinese government's reaction will begin and end with a statement.

— Ray Le Maistre, International Managing Editor, Light Reading