Amid ongoing scrutiny from US legislators and regulators, Chinese telecommunications equipment maker ZTE divested itself of a subsidiary that sells surveillance systems. In September of this year, ZTE completed the sale of ZTE Special Equipment Co, also known as ZTEsec, while congressional investigators looked into the cyber security implications of US companies doing business with ZTE. The company, the second largest telecommunications manufacturer in China and the fifth largest smartphone manufacturer in the world, is believed by some to be too closely tied to the Chinese government.
ZTE revealed its sale of its 68 percent share in ZTEsec in a filing with the Hong Kong Stock Exchange in September. ZTE sold its share to a number of Chinese investment companies. ZTE, which said the sale would allow it to “focus its resources on its principal businesses in line with the requirements of its strategic development,” received between $57 and $70 million on the sale.
ZTEsec describes its clientele as “law enforcement and agencies” pursuing criminal groups and terrorists that “communicate and share information that endangers national security and safety of people’s life.” It lists the Chinese military, police, and some telecom carriers among its customers. The about page for the company still lists ZTEsec as a subsidiary of ZTe.
The Chinese manufacturer has seen a good deal of conflict with western governments. It is currently under scrutiny by the Federal Bureau of Investigation for potentially illegal technology sales in violation of an embargo on Iran. A House Intelligence Committee report ruled that US companies should be wary of doing business with ZTE following the revelation of multiple security concerns. Regulators in the European Union are also at odds with ZTE, alleging that unfair subsidies from the Chinese government allow that company and Huawei to dump their technologies on foreign markets below cost.
ZTE blames the negative attention for at least part of its recent financial struggles. The company posted a $279 million loss for the first three quarters of 2012, claiming that some of that was due to the Iranian market and the FBI’s ongoing investigation.
