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Two Chinese tech firms called security risks

WASHINGTON — 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 is warning in a report to be issued Monday.

The panel says US regulators should block mergers and acquisitions in this country by Huawei Technologies Ltd. and ZTE Corp, among the world’s leading suppliers of telecommunications gear and mobile phones.

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Reflecting US concern about 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 yearlong probe, including a congressional hearing last month in which senior Chinese executives of both companies testified, denying that they pose 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 the theft of intellectual property.

The committee made the draft available to reporters in advance of its public release Monday, but only under the condition that they not publish stories until the broadcast Sunday of a CBS ‘‘60 Minutes’’ ­report on Huawei. In the CBS report, the committee’s chairman, Representative Mike Rogers, a Michigan Republican, urges American companies not to do business with Huawei.

The panel’s recommendations will probably hamper Huawei and ZTE’s ambitions to expand in the United States. 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.

The report says the committee received information from industry experts and current and former Huawei employees suggesting that Huawei, in particular, may be violating US laws. It says that the committee will refer the allegations to the US government for further review and possible investigation. The report mentions allegations of immigration violations, bribery, and corruption, and of Huawei’s ‘‘pattern and practice’’ of using pirated software in its US facilities.

Huawei, a private company founded by a former Chinese military engineer, has grown rapidly to become the world’s second-largest supplier of telecommunications network gear, operating in more than 140 countries.

ZTE Corp. is the world’s fourth-largest mobile phone manufacturer, with 90,000 employees worldwide. While their business in selling mobile devices has grown in the United States, espionage fears have limited the companies from moving into network infrastructure.

The report says the companies failed to provide responsive answers about their relationships with and support by the Chinese government, and detailed information about their operations in the United States. It says Huawei failed to provide thorough information, including on its corporate structure, history, financial arrangements, and management.

Plummer said Friday that Huawei cooperated in good faith with the investigation, which he said was not objective and amounted to a ‘‘political distraction’’ from cyber-security problems facing the entire ­industry.

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