American firms are being advised not to do business with China’s two leading telecom companies because they pose a significant national security risk, warned a US congressional panel.

The House Intelligence Committee recommends that the two firms – Huawei and ZTE – should be barred from any acquisitions and mergers in the US, due to concerns over their close association with China’s military.

Huawei and ZTE are among the world’s largest telecom networking equipment manufacturers.

The committee highlighted the danger posed by the two firms in its report:

 “China has the means, opportunity and motive to use telecommunications companies for malicious purposes. Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.”

However, China’s Foreign Ministry quickly hit back at the claims, asking the US to cast aside any prejudice they might have regarding Huawei and ZTE:

“Chinese telecoms companies have been developing their international business based on market economy principles. Their investment in the United States embodies the mutually beneficial nature of Sino-American economic and trade relations.”

US fears stem from the fact that Huawei is believed to be closely associated with China’s military elite. The company was first founded in 1987 by Ren Zhengfei, a former high-ranking officer in the People’s Liberation Army, and as it has grown to become one of world’s largest players in the telecom arena, questions have been raised about its links with the military.

It’s previously been alleged that the company has helped China’s security services to obtain information on foreign companies and states. Alongside ZTE, Huawei was also accused of installing codes in some of its equipment, which were then used to relay sensitive information back to China. In both cases, Huawei and ZTE vigorously denied the allegations. However, those denials where not enough to prevent the US government from blocking Huawei’s proposed takeover of US computer firm 3Leaf Systems last year.

Political Smokescreen?

China has been a hot topic for the two US presidential candidates lately, with incumbent Barack Obama and challenger Mitt Romney promising to step up pressure on the country. Just last month, President Obama moved to block a deal that would have seen the Chinese firm Ralls Corp buy four wind farms in the US – the first time in 22 years that any kind of foreign investment has been blocked.

William Plummer, vice president of Huawei, says that there is a political motivation behind the latest accusations against his firm:

“The integrity and independence of Huawei’s organization and business practices are trusted and respected across almost 150 markets. Purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignores technical and commercial realities, recklessly threatens American jobs and innovation, does nothing to protect national security, and should be exposed as dangerous political distractions.”