The statement from Datang Technology, one of China's largest makers of communications equipment, came five days after three Chinese scientists were arrested by FBI agents for allegedly stealing source code and software for a Lucent Internet server.

The technology was allegedly transferred to a venture in which Datang had invested.

"Datang Telecom Technology expresses shock and regret over erroneous reports that have harmed the reputation of the company," said the statement from the company.

The arrests highlighted industrial espionage as a growing concern in the post-Cold War world and came at an extremely sensitive time in US-China relations with bilateral ties burdened by issues ranging from American spy plane to US arms sales to Taiwan.

The three accused-Chinese nationals Hai Lin, 30, and Kai Xu, 33, both Lucent employees, and Yong-qing Cheng, 37, vice president of a New Jersey networking vendor-were to face a bail hearing later Tuesday.

The three had founded ComTriad Technologies in January 2000 to negotiate a joint venture with Datang, according to the US attorney's office.

The joint venture, known as DTNET, was provided with sensitive Lucent technology by transfer from a website created by ComTriad, said a complaint filed in a US District Court.

Datang in its Tuesday statement denied it had illicitly obtained Lucent source code and argued that DTNET, still only in the planning stage, had also not gained any intelligence.

"Neither our company, nor its planned joint venture, has, in any way, obtained the source code that the media have been talking about," the statement said.

"As of today, the legal procedures (for the establishment of DTNET) have not yet been completed, and the capital pledged by the two parties, including technological capital, has not yet been paid in," it said.

Datang said it had had "fruitful, equal and mutually beneficial cooperation" with a range of well-known international companies, including Lucent, and strictly abided by laws designed to protect intellectual property rights.

"Our company was built out of the China Academy of Telecommunications Technology, so we deeply understand the importance of intellectual property rights protection," Meng Youwei, a Datang spokesman, told the China Daily.

The paper said Datang had not been accused of complicity in the case.

Lucent Technologies (China) told local media that while it valued its intellectual property, it would not like to see the espionage case have a negative fall-out in China.

"Lucent hopes this will not affect its business in China and especially its relations with Datang," Lucent spokesman H.T. Kung said according to the Beijing Youth Daily.

The technology allegedly stolen from Lucent includes source code and software for PathStar, an Internet access server facilitating low-cost voice and data systems online that generated some 100 million dollars for Lucent in fiscal year 2000.

DTNET had planned to produce a PathStar replica, promoted under the name CLX 1000, according to the complaint filed in the US District Court.

DTNET used the replica product to portray itself as having the potential to become "the Cisco of China," a reference to telecoms equipment maker Cisco Systems, the complaint said.

PathStar was discontinued by Lucent in January and the technology put into other Lucent products.

(21dnn 05/09/2001)