The U.S. ambitions of two Chinese telecom equipment makers were stopped in their tracks on Monday as a congressional report urged American companies to stop doing business with the firms, raising fears of retaliation from China.
Huawei, the world's second-largest maker of routers and other telecom gear, and ZTE, the fifth-largest, for years have been stymied in their efforts to make big inroads into the United States due to national security concerns. Monday's report escalated the dispute.
The U.S. House of Representatives' Intelligence Committee warned industry that Beijing could use equipment made by the two companies to spy on certain communications and threaten vital systems through computerized links.
The panel urged network providers and others to seek other vendors for their projects.
"It's absolutely devastating," said Roger Entner, a telecoms analyst at Recon Analytics. "While Huawei had its hands tied already, it's one thing having restrictions that aren't voiced publicly, but it's another thing entirely when the government comes out publicly and says not to use Huawei."
The report also advised the Committee on Foreign Investments in the United States, an inter-agency government panel that vets foreign deals for security concerns, to block any future business tie-ups involving Huawei or ZTE and U.S. companies.
The demands come at a sensitive time for U.S.-China relations, ahead of the U.S. presidential and congressional elections and a transition of power to a new leadership in China.
Ed Snyder, an analyst at Charter Equity Research, 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, Google, Qualcomm, and Apple as examples but said non-tech U.S. companies could also be hit.
