Chinese telecoms equipment makers Huawei and ZTE could be targeted by the European Union after an internal European Commission report called for action against the two companies, claiming they could represent a security threat to the continent.
"The growing presence of the Chinese in the telecoms market is increasingly viewed by all EU participants in this sector, including industry experts, as a major security risk," the report said, according to Reuters.
The report, prepared in May by the European Commission, highlighted the possibility of spyware being built into telecoms equipment used in member countries' networks, Reuters said on Wednesday.
The report echoes similar concerns over security expressed by other governments.
The US House of Representatives Intelligence Committee recently encouraged US firms to stop doing business with Huawei and ZTE, claiming the pair could present a security risk due to possible state influence over the companies, while Australia recently blocked Huawei from tendering a bid to supply its national broadband network on what are thought to have been security grounds.
The UK parliament's intelligence and security committee has also said it is investigating Huawei's relationship with BT, which is using Huawei kit in its broadband network, and whether that should be grounds for concern. In 2010, Huawei opened a cybersecurity testing centre in conjunction with the UK government body CESG, partly in an effort to allay security concerns.
The European Commission's report also flags up the effects of Huawei and ZTE's growing dominance over the continent's own kit manufacturers. Their combined market share now stands at 25 percent, compared to 2.5 percent in 2006, according to Reuters.
The pair's prices are 18-percent lower than European companies', the report said: "The situation has already led to serious job losses for one of the major EU producers [Nokia Siemens Networks] and the other two are expected to follow suit shortly."
"The growing presence of the Chinese in the telecoms market is increasingly viewed by all EU participants in this sector" — Report
The report suggests that EU manufacturers might have to close. "This would significantly increase the degree of EU dependency on Chinese-produced equipment with a corresponding increase in security risk," it added.
While the report suggests the EU should start an investigation into possible trade subsidies, no anti-subsidy case has been brought against the two companies, and the report is still under discussion by the European Commission and member countries, according to Reuters' sources.
The European Commission, and Huawei did not respond to request for comment.
On Monday, Huawei said it planned to double its workforce in Europe, and last week announced a new €70m research and development centre in Finland.
ZTE said it does not receive subsidies or preferential financial treatment from the Chinese government or Chinese banks.
"We are aware of the recent media reports suggesting that the EU is preparing to start a trade case against ZTE and Huawei, however we have not been contacted by any authority about this," ZTE said in a statement."As a public company listed on both the Hong Kong and Shenzhen stock exchanges, ZTE is committed to transparent operations and being in full conformity with the trading regulations of the WTO and local markets. ZTE does not receive illegal or hidden subsidies, nor does it dump products in any markets where it operates."