China slams U.S. for discriminating against nation's tech vendors

A U.S. funding law calls for increased scrutiny on IT purchases for select federal agencies

China has slammed a new U.S. funding law that will tighten scrutiny of information technology purchases from the country, and said it could severely damage the mutual trust between the two nations.

"The contents of the U.S. congressional act sends a very wrong signal, and could directly affect normal trade between Chinese enterprises and U.S. business partners," the country's Ministry of Commerce said in a statement on Friday.

The funding law, signed by U.S. President Barack Obama last week, includes a provision that U.S. authorities will vet all IT system purchases made by select federal agencies, including the Commerce and Justice Departments, NASA, and the National Science Foundation.

As part of the vetting process, the U.S. will consider "cyber-espionage or sabotage" risks to the IT system purchases, as well as if the system was "produced, manufactured, or assembled" by companies with links to the Chinese government.

The funding law only extends to Sept. 30. The nation's Ministry of Commerce, however, said it opposes the provision, and accused the U.S. of discriminating against Chinese companies.

"This abuse of 'national security' measures unfairly treats Chinese enterprises," it said. The provision also presumes all Chinese companies are guilty of security risks, and this violates fair trade principles, the ministry added.

The complaints were made as the two nations are facing growing friction over alleged cyberthreats coming from China. In February, U.S. security firm Mandiant alleged a military unit of China's People's Liberation Army may have in fact spearheaded hacking attacks against 141 international companies.

U.S. lawmakers have acted by scrutinizing Chinese technology firms with alleged links to the nation's government. Both Huawei Technologies and ZTE came under fire last year, when a U.S. congressional committee claimed the two companies could be influenced by the Chinese government to undermine national security. The committee recommended U.S. firms buy their networking gear from other vendors.

Both Huawei and ZTE declined to comment on the U.S. funding law. But analysts expect the security concerns will hurt prospects for Chinese tech firms wanting to do business in the U.S. Last week, Sprint Nextel and Softbank pledged to keep Huawei products out of the Sprint network, according to a U.S. lawmaker.

"This security problem for the Chinese vendors will get worse before it gets better -- it's almost inevitable," said Matt Walker, an analyst with research firm Ovum. "There are some legitimate concerns from the point of view of U.S. policy makers. I'm not sure the tech companies themselves can do much to address them, unfortunately."

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