LONDON (REUTERS) - Senior British security officials say they can give only limited assurances that Chinese firm Huawei's UK operations pose no threat to national security, downgrading their previous position, two people with knowledge of the matter told Reuters.
The assessment, in a soon to be published annual report signed off by Britain's GCHQ spy agency, will intensify the espionage debate around Huawei Technologies.
The firm has come under increasing fire in the United States and Australia over concerns it could facilitate Chinese government spying.
Huawei, the world's biggest producer of telecoms equipment, said on Thursday that it welcomed the thrust of the report by the Huawei Cyber Security Evaluation Centre (HCSEC) oversight board, which it said showed supervision by British authorities was working well.
"The report concludes that HCSEC's operational independence is both robust and effective. The Oversight Board has identified some areas for improvement in our engineering processes," a Huawei spokesman said.
"We are grateful for this feedback and are committed to addressing these issues. Cyber security remains Huawei's top priority, and we will continue to actively improve our engineering processes and risk management systems," he said.
Huawei says no inspection has ever found any backdoor vulnerabilities in its equipment. It says it is a private company not under Chinese government control and not subject to Chinese security laws overseas.
The firm is a major supplier of broadband gear and mobile networks in Britain, meaning its products are used in critical national infrastructure which could be targeted by foreign adversaries.
Britain's National Cyber Security Centre, which is part of Government Communications Headquarters (GCHQ) that provides the signals intelligence, had no immediate comment.
HCSEC was set up by Huawei in 2010 in response to British government concerns about possible security threats to national infrastructure. British security officials, including from GCHQ, sit on its oversight board.
London says it effectively addresses security issues by having all Huawei products reviewed by staff at a special company laboratory overseen by British government and intelligence officials.
But for the first time, the upcoming report by the HCSEC oversight board has reduced the level of security assurance provided by HCSEC.
"Whereas in previous reports there was a conclusion that HCSEC could give assurance that risks have been mitigated, this time... they will say limited assurance," said one source.
"This is a big change, though understated," the person said. All sources contacted for this report declined to be named because the government documents have not yet been published.
All three previous oversight board reports concluded that HCSEC provided "assurance that any risks to UK national security from Huawei's involvement in the UK's critical networks have been sufficiently mitigated."
Reuters was not able to establish why that conclusion had changed, what recommendations the oversight board had made, or what any consequences of the report would be.
Both sources said the change of assessment was related to routine issues with product engineering and that nothing"sinister" has been found.
Technical issues are commonly found in all technology products and fixed by manufacturers but can be exploited by hackers if ignored.
Huawei has been deepening ties in Britain over the last decade and now supplies broadband equipment to the country's largest telecoms provider, BT Group, and mobile networks for wireless giant Vodafone Group.
It is also a major supplier to other European telecom carriers including Deutsche Telekom and Telefonica .
The company employs 1,500 people in Britain and in February pledged to spend a further £3 billion (S$5.3 billion) in Britain following a high-profile meeting between chairwoman Sun Yafang and British Prime Minister Theresa May.
That is in stark contrast to the United States, where lawmakers have stepped up efforts to bar Huawei equipment from the country's networks.
Huawei has also been thwarted in its efforts to establish its US mobile handset business. The largest US consumer electronics retailer, Best Buy, has stopped stocking Huawei products, and a potential breakthrough deal with US carrier AT&T collapsed in January.
Australia is also preparing to ban Huawei from supplying equipment for its planned 5G broadband network, two sources told Reuters last week, after its intelligence agencies raised concerns that Beijing could force the company to hand over sensitive data.