Chinese company ensnared in kickback scandal in Philippines

MANILA — After a tense showdown over a disputed shoal in the South China Sea, the closest U.S. ally in Southeast Asia and a rising China now face a new source of potential friction over the alleged corrupt practices of a well-connected Chinese corporation.

At the center of a case before the Philippine anti-graft tribunal is Zhongxing Telecommunications Equipment, or ZTE, a state-linked manufacturing giant that sells communications gear in more than 140 countries. The company is not on trial, but its alleged payment of tens of millions of dollars in kickbacks in connection with a 2007 contract has led to graft charges against former president Gloria Magacapal-Arroyo, her husband and two other former senior officials. All deny any wrongdoing.

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The criminal prosecution, which follows a lengthy investigation into ZTE’s business practices by the Philippine Senate, puts a spotlight on the role played by Chinese companies in extending China’s economic reach around the world but also in straining Beijing’s doctrine of noninterference in the affairs of other states. While insisting that it does not meddle in foreign lands, China keeps getting dragged deep into the affairs of other countries by the pursuit of profit by corporations controlled by or closely tied to the state.

ZTE is also under scrutiny in Washington, where the House intelligence committee is investigating whether it and another large Chinese company, Huawei Technologies, pose a threat to national security through their equipment sales in the United States. In a letter sent this month to the company’s American subsidiary, ZTE USA, the intelligence committee’s chairman, Republican Rep. Mike Rogers (Mich.), and ranking Democrat, C.A. Dutch Ruppersberger (Md.), asked about ZTE’s “interactions” with China’s ruling Communist Party and various government bodies and posed a blunt question about its contract in the Philippines: “Did ZTE provide any kickbacks?”

Mitchell Peterson, a spokesman for ZTE in the United States, said the company will be “transparent, candid and cooperative” with the intelligence committee’s inquiry.

The inquiries into the giant Chinese telecommunications company are only the latest to find China and its state-linked firms in the center of foreign business disputes that have created headaches for Chinese diplomacy.

In the North African state of Algeria, a recent corruption case involving ZTE has dented China’s reputation in a country that had been one of its keenest supporters on the continent. ZTE has also come under criticism for equipment sales to Iran that opponents of the Islamic regime say allow authorities in Tehran to monitor the phone and Internet communications of dissidents.

The Nigerian government, meanwhile, is investigating a $470 million contract awarded to ZTE, complicating China’s efforts to woo Africa’s biggest oil producer.

And in another resource-rich area of Africa, the oil interests of the state-owned China National Petroleum Corp., or CNPC, and the company’s close ties to Sudanese President Omar Hassan al-Bashir, an indicted war crimes suspect, have pushed Beijing into the middle of a venomous and often violent feud between Sudan and the newly established Republic of South Sudan, which seceded last summer.