U.S. Weighs Curbs on Chinese Telecom Firms Over National-Security Concerns

Huawei, ZTE caught in growing tech feud between Washington and Beijing

By John D. McKinnon

The U.S. worry about Chinese telecommunications companies is driven largely by longstanding concerns that the Chinese government uses the companies’ network equipment to spy on or disrupt U.S. networks. 

WASHINGTON—The Trump administration is considering executive action that would restrict some Chinese companies’ ability to sell telecommunications equipment in the U.S., based on national-security concerns, said several people familiar with the matter.
The move, if it happens, would represent a significant escalation of a growing feud between the U.S. and China over tech and telecommunications. 

The affected firms likely would include Huawei Technologies Co. and ZTE Corp.

They have found themselves increasingly in an international crossfire.
Pentagon officials said this week that they are moving to halt the sale of phones made by the two companies on U.S. military bases around the world. 

U.S. officials are concerned that Beijing could order manufacturers to hack into products they make to spy or disable communications. 

The latest action could come in the form of a White House executive order, possibly in the next few weeks, people familiar with the matter said. 

One possibility under consideration has been curbing the ability of companies doing business with the U.S. government from using network equipment made by companies that could pose a national-security risk.
Significant complexities remain, however, including the exact scope of the possible order, and no final decisions have been made. 

A spokesman for the White House National Security Council said officials “have no comment on the matter at this time.”
ZTE didn’t immediately respond to request for comment. 

Huawei declined to comment specifically on the potential executive order but said that security and privacy were key priorities for the company.
The effort is being driven largely by longstanding concerns that the Chinese government could use the companies’ network equipment to spy on or disrupt U.S. networks. 

The U.S. and several of its allies recently have stepped up scrutiny of how the Chinese firms’ equipment is used in networks.
The issue has played into broader friction over trade between the two countries. 

Longer-term, U.S. officials also are concerned about whether China or Western democracies will win the race to develop next-generation networks.
Already this year, the Commerce Department has banned American companies from selling products to ZTE, over its violation of previous sanctions involving North Korea and Iran. 

Huawei is under investigation by the Justice Department over similar concerns.
The Federal Communications Commission also recently launched a rule-making process that is expected eventually to lead to curbs—mainly affecting smaller and rural telecommunications firms—on providers’ ability to use federal universal-service funds to buy Huawei and ZTE equipment.
The administration also is beginning to look more closely at finding ways to restrict more kinds of technology transfers from U.S. firms to China.
Chinese officials have warned that they will take steps to retaliate if the U.S. intensifies its efforts against firms such as Huawei.
San Diego-based Qualcomm Inc. has already been caught in the dispute, suffering a delay in its effort to acquire Dutch automotive chip maker NXP Semiconductors NV, a purchase the U.S. company needs to diversify its product line as the smartphone market plateaus. 

China, which has a say in the deal as one of several countries where the companies have substantial sales or assets, initiated the delay.
Some U.S. lawmakers of both parties are concerned about the possibilities for sophisticated electronic espionage.
Sen. Mark Warner (D., Va.), the vice chairman of the Senate Intelligence Committee, “does think we have to take seriously the risks potentially posed by Chinese telecom in our systems,” a spokeswoman said.
The U.S. and China also are locked in a duel over next-generation networks, with the U.S. aiming to block China’s ambition of developing the technology to build and run them around the world.
Still, the potential U.S. move also raises thorny questions, such as whether it should be limited to core network equipment, or extend to handsets, some industry officials said.
“Addressing global supply chain security concerns has long been a priority for the tech industry,” said Pamela Walker, a vice president at the Information Technology Industry Council, an advocacy group. 

“Moving forward, we urge policy makers to share information with suppliers and contractors so we can increase the level of security and assurance within the supply chain.”
Officials have considered whether security tests could be used to screen some suspect equipment—a move that could simplify the effort at one level, but also create new complications.
Huawei is the world’s biggest supplier of wireless equipment and No. 3 vendor of smartphones. 

The Shenzhen-based company has been all but shut out of the U.S. telecom market since a 2012 congressional report said its equipment could be used for spying.
ZTE recently has been the fourth-largest seller of smartphones in the U.S.