American companies should avoid doing business with China's two leading technology firms because they pose a national security threat to the United States, the House Intelligence Committee has warned.
The panel says US regulators should block mergers and acquisitions by Huawei Technologies Ltd and ZTE Corp, which are among the world's leading suppliers of telecommunications equipment and mobile phones.
Reflecting US concern over cyber-attacks traced to China, the report also recommends that US government computer systems not include any components from the two firms because that could pose an espionage risk.
"China has the means, opportunity, and motive to use telecommunications companies for malicious purposes," the report says.
The recommendations are the result of a year-long probe, including a congressional hearing last month in which senior Chinese executives of both companies testified, and denied posing a security threat.
A US executive from one of the companies said the firm cooperated with investigators, and defended its business record. Huawei is a "globally trusted and respected company," said William Plummer, vice president for external affairs.
The bipartisan report is likely to become fodder for a presidential campaign in which the candidates have been competing in their readiness to clamp down on Chinese trade violations. Republican Mitt Romney, in particular, has made it a key point to get tougher on China by designating it a currency manipulator and fighting abuses such as intellectual property theft.
The committee made the draft available to reporters in advance of public release later on Monday, but only under the condition that they not publish stories until the broadcast of a CBS' 60 Minutes report on Huawei. In the CBS report, the committee's chairman, Republican Representative Mike Rogers, urges American companies not to do business with Huawei.
The panel's recommendations are likely to hamper Huawei and ZTE's ambitions to expand their business in America. Their products are used in scores of countries, including in the West. Both deny being influenced by China's communist government.
"The investigation concludes that the risks associated with Huawei's and ZTE's provision of equipment to US critical infrastructure could undermine core US national-security interests," the report says.