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ZTE drops spy tech subsidiary

Still struggling with Iran links

Internet Security Threat Report 2014

Chinese telecoms kit maker ZTE has sold its majority stake in ZTE Special Equipment (ZTEsec) – a company that sells surveillance systems.

The under-fire Shenzhen-based firm said in a little-publicised filing with the Hong Kong Stock Exchange at the end of September that it would “dispose of its 68 per cent equity interests” in ZTEsec.

Doing so, it said, will “allow the company to focus its resources on its principal businesses in line with the requirements of its strategic development."

The sale to ten investors, most of them local venture capital firms, is expected to generate between 360m and 440m yuan, a handy sum given ZTE has had a poor year financially.

Preliminary results for the first three quarters of 2012 predict a 260 per cent, or 1.75bn yuan (£174m), drop in profits from 2011.

The ZTEsec English language web site says it produces “data network security surveillance and other intelligence support systems” including the Deep Insight deep packed inspection tool.

A Reuters report back in March accused ZTE of selling similar surveillance tech to the state-run Telecommunication Co. of Iran (TCI) in 2010 as part of a €98.6m (£82.4m) deal for networking equipment.

It went on to say that ZTE also sold the telco US-made products on a 900-page ‘packing list’, breaking strict American sanctions on Iran.

The Chinese tech giant said it “always respects and complies with international and local laws wherever it operates” and that it would wind its Iran business down, but is still under investigation by the US authorities over these claims.

It’s unclear whether the decision to jettison the ZTEsec subsidiary was taken in response to these on-going investigations or in an attempt to smooth relations with the US before the release of a high profile report into whether it and Huawei posed a national security risk.

That report from the House of Representatives Intelligence Committee, as we know now, ended pretty badly for both Shenzhen companies.

ZTE couldn't immediately be reached for comment on the news. ®

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