Huawei And ZTE 'Pose Threat To US Security'
Fears of a technology trade war have escalated after a US congressional report said two Chinese telecoms companies should not be conducting business in America on national security grounds.
The investigation concluded that Huawei and ZTE could not be trusted to be free of influence from Beijing, in a move that thwarted the companies' operational ambitions in the US.
Huawei, the world's second-largest maker of routers and other telecoms gear, and ZTE, the fifth-largest, have struggled to make inroads in the US for years.
The House of Representatives' Intelligence Committee feared that China could use equipment made by the two companies to spy on certain communications and threaten vital systems through computerised links.
The panel urged network providers and others to seek other vendors for their projects and suggested regulators block any future business tie-ups involving Huawei or ZTE and US companies.
The decision is a particular blow for Huawei which already has a US presence with its handset sales.
It had hoped the probe would remove suspicions that had killed its bid for US communications company 3Com and US server technology firm 3Leaf.
Company spokesman William Plummer said the panel's recommendations would set a "monstrous, market-distorting, trade-distorting policy precedent that could be used in other markets against American companies".
The Chinese government reacted by urging Washington to "set aside prejudices".
The report was released at a very sensitive time for US-China relations, ahead of the US presidential and congressional elections and a transition of power to a new leadership in China.
Tensions have recently been edging higher following a series of trade actions against China by President Barack Obama.
He blocked a privately owned Chinese company from building wind turbines close to a US military site and challenged Chinese car and car parts subsidies in a World Trade Organisation case.
Mr Obama's Republican opponent, Mitt Romney, says if elected he will label China a currency manipulator from day one.