In a twist, U.S. officials, which have long branded China's Huawei a security threat, have been spying on the company via so-called "back doors" into the company's servers in Shenzhen, China, according to reports from The New York Times and Germany's Der Spiegel.
The server intrusion and surveillance activities were reportedly handled by the U.S. National Security Agency, according to NSA documents provided by former NSA contractor Edward Snowden.
After news of the operation broke over this past weekend, China demanded an explanation from the the U.S. government. Hong Lei, a Chinese government spokesman who was quoted by Reuters, said the nation is "extremely concerned" about the spying allegations.
"We demand that the United States makes a clear explanation and stop such acts," he added.
Via the operation called "Shotgiant," which began in 2007 and made major inroads into Huawei's servers during 2010, the NSA gleaned sensitive information about Huawei's technology and even monitored communications of the company's top executives, including its founder. In addition, Der Spiegel said China's political leaders, including former President Hu Jintao, were targeted by the espionage, as were the nation's trade and foreign ministries.
According to documents, the NSA also intended to use the information it gained about Huawei's technology, which included product source codes, to exploit Huawei equipment wherever it was deployed--whether in nations considered allies or others that avoided U.S. products--by conducting espionage and even offensive cyber-operations if ordered by the president.
"Many of our targets communicate over Huawei-produced products. We want to make sure that we know how to exploit these products" and gain access to "networks of interest," said an NSA document quoted by the Times.
This revelation is sure to unnerve telcos and governments in markets such as Europe, where Huawei communications infrastructure equipment has made significant inroads. Already touchy about NSA surveillance, the leaders of France and Germany have reportedly discussed building a European communications network that would not require data be transmitted through U.S. servers.
One of the reported aims of the Huawei surveillance program was to determine the relationship, if any, between the company and People's Liberation Army. The documents provided by Snowden failed to answer that question. Rumors about a relationship persist, driven by the fact that Ren Zhengfei, who founded Huawei in 1987, was a P.L.A. engineer during the 1970s.
William Plummer, Huawei's vice president of external affairs, told the Times that the Chinese vendor did not know it was an NSA target. But he said that such espionage, if it has been conducted, should have shown "that the company is independent and has no unusual ties to any government, and that knowledge should be relayed publicly to put an end to an era of mis- and disinformation."
Similarly, John Suffolk, Huawei's global cyber security officer, told Reuters, "If the actions in the report are true, Huawei condemns such activities that invaded and infiltrated into our internal corporate network and monitored our communications." He also defended Huawei's independence and security record, noting the company has been successful in 145 countries.
In October 2012, a U.S. House of Representatives' Intelligence Committee report determined that Huawei and fellow Chinese telecom vendor ZTE pose a security risk to the United States because their equipment could be used for espionage. The House report recommended the U.S. block acquisitions and mergers involving the two firms and also recommends that the U.S. government and U.S. companies avoid using equipment from the two Chinese companies.
Neither Huawei nor ZTE has won a major network equipment contract in the U.S. market, ceding it to Alcatel-Lucent (NYSE:ALU), Ericsson (NASDAQ:ERIC), Nokia (NYSE:NOK) Solutions and Networks and Samsung. However, both Huawei and ZTE have relatively strong handset businesses in the U.S.
While U.S. officials acknowledge spying on individual companies as part of foreign policy activities, they say they do not do so to help American companies gain a competitive advantage.
"We do not give intelligence we collect to U.S. companies to enhance their international competitiveness or increase their bottom line. Many countries cannot say the same," a White House spokeswoman told the Times.
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Article updated March 24, 2014, to include additional information.