Huawei, ZTE Targeted as Security Ban Advances at U.S. FCC

(Bloomberg) -- U.S. regulators moved to extend a crackdown on China equipment makers as security risks, backing a ban on federal subsidies to buy networking gear from manufacturers such as Huawei Technologies Co. and ZTE Corp.

The Federal Communications Commission voted 5-0 on Tuesday in favor of banning federal funds from being spent with companies determined to be a risk to U.S. national security. The ban won’t be final until a second vote by the FCC, which in a draft order noted congressional scrutiny of Huawei and ZTE as possible security threats.

“For years, U.S. government officials have expressed concern about the national security threats posed by certain foreign communications equipment providers in the communications supply chain," FCC Chairman Ajit Pai said. "Hidden ‘backdoors’ to our networks in routers, switches, and other network equipment can allow hostile foreign powers to inject viruses and other malware, steal Americans’ private data, spy on U.S. businesses, and more.”

The steps come as trade tensions grow between the U.S. and China. President Donald Trump has threatened tariffs on $150 billion in Chinese imports in retaliation for alleged violations of intellectual property rights, while Beijing has vowed to retaliate on everything from American soybeans to planes. On Monday, the Commerce Department blocked ZTE from exporting sensitive technology from America, alleging the company made false statements to U.S. officials.

Many smaller carriers that serve remote areas rely on companies like Huawei and ZTE, and could suffer “significant economic hardship” from the FCC’s proposal, Steve Berry, president of CCA, a trade group for smaller wireless providers, said in an emailed statement.

Congress has barred the Pentagon from buying gear from Huawei, ZTE -- both based in Shenzhen, China -- and the Russian firm Kaspersky Lab. FCC officials could use that list as a model.

Huawei, China’s largest maker of telecommunications equipment, was founded in 1988 by former Chinese army officer Ren Zhengfei. Speaking at an industry event in January, Richard Yu, Huawei’s consumer-products chief, defended his company’s record, saying it has proven its privacy and security protections.

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