Thursday , May 23 2019
Home / Business / How the Huawei princess at the heart of the US-China trade war affects Australia

How the Huawei princess at the heart of the US-China trade war affects Australia

Now facing extradition to America, the stakes could not be higher for the tech princess or for global economies as the 2018 trade war between the US president Donald Trump and China’s Xi Jinping threatens to continue into 2019.

Australia has a long history with Huawei, but the first signs of difficulty began with the early stages of the government-funded roll out of the National Broadband Network in 2012.

Huawei chief financial officer Meng Wanzhou arrives at a parole office with a security guard in Vancouver.

Huawei chief financial officer Meng Wanzhou arrives at a parole office with a security guard in Vancouver.Credit:Darryl Dyck, The Canadian Press

The telco kit provider had just set up its first ever local board outside of China in Australia in a bid to win billion-dollar tenders from the government to supply equipment for the NBN.

Huawei’s executives had been on the charm offensive, with members of its new board visiting local ministers to soothe fears the company was a security threat with connections to Communist military force People’s Liberation Army.

The push to swing favour towards Huawei failed. Julia Gillard, Prime Minister at the time, banned Huawei’s involvement from the “critical infrastructure” of the NBN on the basis of security advice from Australia’s intelligence organisations.

Malcolm Turnbull – in his role as communications minister for Tony Abbott’s government – told the media in October 2013 that the Chinese giant was a “credible” business and that Gillard’s ban should be reviewed.

“Even if you accept the premise that Huawei would be an accessory to espionage – I’m not saying they will be, I’m just saying that’s the premise – if you accept that, then you then have to ask yourself, does the equipment that they would propose to sell have that capacity?” Turnbull told the Sydney Morning Herald at the time in his telecommunications and technology-focused ministerial job.

Days after Turnbull gave the interview, Abbott confirmed the ban on Huawei would stay in place under his leadership. Outside of supplying modems and consumer equipment for the NBN, Huawei has not been able to participate in the $51 billion roll out to this day.

When Turnbull became Prime Minister in 2015, a role with a substantial focus on security, he maintained the federal government’s hard security line on Huawei.

The Australian government and Huawei are now so at odds that one of the global giant’s local executives and Home Affairs Minister Peter Dutton entirely disagree on what was said during a meeting in July, a month before the government decided to ban Chinese suppliers from supplying equipment to Australia’s next generation 5G mobile network on August 23.

Malcolm Turnbull.

Malcolm Turnbull.Credit:AAP

Huawei head of corporate affairs Jeremy Mitchell this week claimed he and chairman John Lord were told by Dutton during the meeting the Americans had “dropped the ball” and allowed China to become a global leader in telecommunications equipment.

A spokeswoman for Dutton has said this is “not correct”.

Spying and security fears

Loading

Undoubtedly, Shenzhen-based Huawei is the world’s biggest telecommunications equipment manufacturer, a global leader in 5G technology and a leader in China’s burgeoning tech industry.

But it wasn’t a hard decision for the nation’s security agencies to recommend to the Turnbull government that the global giant and other Chinese providers be banned from involvement in the next stage of high-speed mobile infrastructure, called 5G.

One of the reasons for this is undoubtedly Australia’s relationship with a high-powered group of spy chiefs from the “five eyes” intelligence-sharing countries – Australia, the United States, Britain, Canada and New Zealand.

The agencies didn’t so much have a problem with anything that Huawei itself had done. Rather, as a Chinese company it is ultimately prone to being directed by the Chinese government with these fears stoked by the introduction of China’s new National Intelligence Law in June 2017 requiring organisations to support, assist and cooperate with national intelligence efforts.

That might be tolerable for less important technologies but 5G will be such a leap forward in how it powers the local economy that the government could not afford to take the chance.

No government or agency says it publicly, but China is the country they are most worried about when it comes to cyber threat and the espionage danger.

The 5G networks are expected to be about 20 times faster than current 4G LTE networks in Australia. It is planned for a roll out to critical electricity grids and water connections, as well as supporting mobile telecommunications and connected homes.

No government or agency says it publicly, but China is the country they are most worried about when it comes to cyber threat and the espionage danger. As critical infrastructure becomes reliant on mobile networks these concerns about security intensify.

This is underlined by the public assessment from the head of the Australian Signals Directorate, Mike Burgess, that the stakes with 5G “could not be higher” as it “will underpin the communications that Australians rely on every day.”

Hackers in China, many of them state-backed, routinely try to penetrate major Australian computer networks, including government and big business systems.

Hackers thought to be connected to the Chinese military and intelligence agencies have launched attacks on the Bureau of Meteorology, the Lowy Institute think tank and the Australian National University. These attacks may be side entrances to even more sensitive systems, allowing the Chinese hackers to target, say, government officials interacting with those outfits.

That, along with other attacks on commercial systems, happen despite China’s having signed an agreement with Australia calling a truce on intellectual property theft.

Given this kind of behaviour, the hawk camp argues that Australia was hardly going to leave itself vulnerable to a major act of sabotage or coercion by having a China-based firm in its 5G network.

Notably, the Five Eyes met in Canada in July. Several of them, including Australian Signals Directorate head Mike Burgess, subsequently made public remarks about 5G and the danger of using “high-risk vendors” – clear references to Huawei and ZTE. Evidently the spy chiefs were all on the same page.

By August, Australia had banned Huawei’s involvement from every part of the upcoming 5G roll out. Three months later, New Zealand did the same. The US has had an unofficial block on the company for a while, with Canada and the UK expected to be considering their own bans.

The government’s decision to ban Huawei for Australia’s 5G roll out sent shockwaves through the local telco industry.

Huawei and the majority of telcos expected the government would implement new security measures, and possibly ban Chinese providers from sensitive parts of the network.

While no executive will admit to it on the record, several have said in private a total ban was considered unlikely.

Telcos were so keen to keep Huawei and ZTE involved because of the cost of a network roll out and their expertise. It’s no secret in the industry that Chinese providers are usually a much cheaper option.

Telstra, Singtel Optus, Vodafone Hutchison Australia and TPG Telecom have publicly stated their plans to be part of the next mobile generation and the profits they expect to generate from the new business applications of 5G in the long-term.

However, the short-term is a very different story. Australian telcos have spent the last 18 months staring down the barrel at falling margins due to the roll out of the NBN and intensifying competition in mobile leaving them reducing prices and giving away more data.

Telstra has been so disrupted by these changes it has committed to cutting a third of its workforce to reduce costs, while Vodafone and TPG are planning to merge together to ensure they can compete.

To participate in 5G, the telcos will need to spend eye-watering sums. While none of the major providers have revealed exactly how much they intend to spend on rolling out 5G, the figure will be substantial. Telstra has already spent $8 billion in the last five years on networks.

Even for providers who might not have intended to use Huawei in the end, the ban meant losing a substantial bargaining chip when negotiating with other suppliers to keep costs down.

Vodafone and Optus currently use Huawei to supply some of their “edge” technology like antennas on 3G and 4G networks, though not the “core” that handles sensitive information.

Huawei, some telco executives and members of the 3GPP panel (which determine the standards that define each mobile generation) have repeatedly argued there is no major change to these two parts of the network.

The government disagrees, with the ban announcement explicitly saying the “distinction between the core and the edge will disappear over time … [introducing] new challenges for carriers trying to maintain their customers’ security, as sensitive functions move outside of the highly protected core environment”.

Telstra CEO Andy Penn also believes there’s less separation in a 5G landscape, saying: “The point is that as we move more to a software-defined world there is definitely a blurring between core and [edge]”.

Telstra has signed a deal with Swedish provider Ericsson for its 5G rollout.

Where this leaves Australia

Australian telcos have started looking towards other providers, with speculation from sources close to the telcos that this could include a US-supplier who hasn’t yet been involved in Australian networks.

The situation facing local telcos and Huawei’s challenges with 5G are one example of a much larger problem – how relations between the US and China will affect the rest of the world. Australia, in particular, has a lot at stake.

China is Australia’s main trading partner and a huge buyer of local exports, heavily linked to Australia’s economy through education, resources, consumer goods tourism and migration. The US is a major ally and another major trading partner.

Uncertainty has already led to some rocky stretches on global share markets in the past year, which has been dominated by Trump’s announcement of numerous tariffs on China and retaliation from the Chinese government.

For now, Huawei CFO Meng seems likely to become a bargaining chip between the US and China. Trump said last week he would intervene in her case with the US Justice Department if it helped national security or bolstered a trade deal.

Meng was granted $10 million bail on Wednesday and in the months ahead it won’t just be the Five Eyes – it will be everyone in Australia – watching what happens.

Huawei in Australia

26 March 2012 – Gillard government bans Huawei from participating in NBN roll out.

28 August 2012 – Malcolm Turnbull says ban should be reviewed.

29 October 2013 – Japan’s National Security Bureau recommends a ban on government agencies using Huawei products.

31 October 2013 – Abbott government rules out changes to Huawei NBN ban.

7 July 2017 – Huawei announces it has won a contract with the Solomon Islands to build the first submarine cable in the Solomon Islands, connected to Sydney.

12 June 2018 – Solomon Islands Prime Minister Rick Houenipwela says Australian government has raised concerns about Huawei’s involvement and Australia will help fund the cable instead.

13 August 2018 – Donald Trump signs bill banning government and government contractors from using Huawei technology.

21 August 2018 – Malcolm Turnbull calls Donald Trump to tell him Australia will ban Huawei for 5G roll out

23 August 2018 – Huawei and ZTE banned in Australia.

28 November 2018 – Huawei banned in New Zealand.

1 December 2018 – Huawei CFO Sabrina Meng Wanzhou arrested in Canada.

4 December 2018 – UK telco BT Telecom said it will remove Huawei equipment from core 4G network.

11 December 2018 – Japan extends ban on Huawei for government contracts.

12 December 2018 – Ms Wanzhou granted bail.

2019 – Australian telcos expect to launch 5G mobile networks

Jennifer Duke writes about media and telecommunications.

David Wroe is the defence and national security correspondent for the Sydney Morning Herald and The Age, based at Parliament House

Most Viewed in Business

Loading

About admin

Check Also

Domino’s prepares for legal action over store purge

Mr Knight told an investor webcast that it was “not unexpected” that some franchisees with …