By Brenda Goh and Sijia Jiang

SHANGHAI/HONG KONG (Reuters) - The U.S. government has moved to block China Mobile <0941.HK> from offering services to the U.S. telecommunications market, recommending its application be rejected because the firm posed national security risks.

The Federal Communications Commission (FCC) should deny the state-owned China Mobile's 2011 application to offer telecommunication services between the United States and other countries, the National Telecommunications and Information Administration (NTIA) said in a statement posted on its website.

"After significant engagement with China Mobile, concerns about increased risks to U.S. law enforcement and national security interests were unable to be resolved," said the statement, which quoted David Redl, assistant secretary for communications and information at the U.S. Department of Commerce, which NTIA is part of.

 

China Mobile, the world's largest telecom carrier with 899 million subscribers, did not immediately respond to Reuters' request for comment on Tuesday.

However, Chinese foreign ministry spokesman Lu Kang, in response to a question about China Mobile at a daily briefing, said: "We urge the relevant side in the United States to abandon Cold War thinking and zero sum games."

China always encourages its companies to operate in accordance with market rules and to respect the laws of the countries it operates in, he said, adding that the United States should stop putting "unreasonable pressure" on Chinese firms.

The move by U.S. President Donald Trump's administration to block China Mobile comes amid growing trade frictions between the two countries. The United States is set to impose tariffs on $34 billion worth of goods from China on July 6, which Beijing is expected to respond to with tariffs of its own.

Another Chinese company that has been caught in the crosshairs of the trade spat is ZTE Corp <000063.SZ><0763.HK>.

The No. 2 telecommunications equipment maker in China was forced to cease major operations in April after the U.S. slapped it with a supplier ban saying it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.

ZTE is in the process of getting the ban lifted and announced a new board last week, but its settlement deal with the United States is facing opposition from some lawmakers in Washington.

RULING IMPACT "VERY TINY"

China Mobile Communications Corp, a state-controlled firm, owned almost 73 percent of China Mobile as of December, according to Thomson Reuters data.

China Mobile's shares closed down 2 percent on Tuesday, their lowest close in more than four years.

But Ramakrishna Maruvada, a Singapore-based analyst with Daiwa Securities, said the impact of the ruling on China Mobile's business is "very tiny" since it derives most of its income from the domestic market.

"This doesn't move the needle," Maruvada said, adding the timing of the decision was to be viewed in the context of the U.S.-China trade frictions.

In its recommendation, the NTIA said its assessment rested "in large part on China's record of intelligence activities and economic espionage targeting the U.S., along with China Mobile's size and technical and financial resources."

It said the company was "subject to exploitation, influence and control by the Chinese government" and that its application posed "substantial and unacceptable national security and law enforcement risks in the current national security environment".

U.S. senators and spy chiefs warned in February that China was trying, via means such as telecommunications firms, to gain access to sensitive U.S. technologies and intellectual properties.

Such concerns, however, are not deterring China's Xiaomi Corp <1810.HK> which is set to press ahead with plans to enter the United States next year, saying its U.S. connections should help it skirt political resistance.

(Reporting by Brenda Goh in SHANGHAI, Sijia Jiang in HONG KONG and Beijing Monitoring Desk; Additional Reporting by Ben Blanchard in BEIJING; Editing by Muralikumar Anantharaman and Himani Sarkar)

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