Huawei clamp has consequences

Increasing US pressure on Chinese telecommunications giant Huawei is creating serious problems for Australia.

Increasing US pressure on Chinese telecommunications giant Huawei is creating serious problems for Australia, which is being caught up in a technological cold war between the world’s two superpowers.

It’s a battle that will shape the future of the Australian telecoms industry as its moves to 5G, pushing up consumer costs of the next generation of mobile phone services, and increase tensions with Australia’s largest trading partner, which could harm business ties with China. It also overshadows the prospects of an end to the trade war between the US and China, with the latest high-level talks due to start in Washington this week.

The federal government’s ban on using Huawei equipment for Australia’s 5G network, announced on the last day of the Turnbull government in August, saw low-cost carrier TPG yesterday pull the plug on its mobile phone network.

TPG, which had announced plans in 2017 to build a $600 million mobile network, was planning to use Huawei’s cutting-edge, lower-cost equipment for its 5G network. It said yesterday it was scrapping the network plans as it no longer made commercial sense for it to invest in 5G.

The company is looking to merge with Vodafone Hutchison Australia, which was also planning to use Huawei technology for its 5G network, and already uses it for its 4G network, along with the Singaporean-owned Optus.

Australia’s ban on the use of Huawei equipment has been followed by moves to restrict Huawei’s business in other countries including the US, New Zealand, Britain, Japan and Europe. The move has already angered China, which sees Australia as part of the Five Eyes intelligence sharing group that includes the US, Canada, New Zealand and Britain. Those countries have all raised issues about the potential use of Chinese technology for spying and are now seen in Beijing as part of a bloc aimed at constraining China’s global activities.

The latest comment came late last week from China’s Foreign Minister Wang Yi, who hit out at countries that have banned Huawei equipment as “unfair and immoral” during a visit to Europe.

“Every country is entitled to protect their right to maintain information security, but they cannot use security as an excuse to damage, or even strangle, legitimate business operations,” he said.

Note to Australia: this means you.

Read those words carefully and think about what implications they could have for “legitimate business operations” in Australia trying to do business with China.

The situation escalated dramatically yesterday, with the US announcing a raft of major charges against Huawei and its chief financial officer Meng Wanzhou, now out on bail following her arrest on December 1 as she transited through Vancouver airport.

Meng and Huawei are being charged on two fronts — allegations that they violated US sanctions again Iran, and that they have worked together to steal trade secrets from US operator T-Mobile.

The charges announced yesterday against Meng and her company will ensure the dispute drags on through the courts in the US for years, becoming a running sore in relations between China, the US and its allies.

The charges span money laundering, bank fraud, wire fraud and conspiracy in relation to violating sanctions against doing business with Iran as well as stealing trade secrets from T-Mobile using its US arm Skycom.

“Huawei has misrepresented itself for years,” said acting US Attorney-General Matthew Whitaker, announcing the charges.

“Criminals and bad actors can be certain that they are not going to get away.”

FBI director Christopher Wray said: “Huawei has repeatedly refused to respect US law. The immense influence the Chinese government holds towards Chinese companies is a tremendous threat to the US.

“As a country, we have to carefully consider the risks a company like Huawei will impose on our national security.”

Yesterday’s charges announced in the US follow action taken last year against another major Chinese telco, ZTE, also for violating US sanctions on doing business with Iran.

In a narrow sense, the comments and the charges may affect Huawei’s potential to do business in Five Eyes countries such as Australia, which are under heavy pressure to follow the US lead on constraining the growth of Chinese telecoms companies.

In a broader sense, Australia has just begun to be drawn into the political repercussions of the case in terms of its ties with China.

Meng’s arrest, which has infuriated China, was followed up by the arrest of two Canadians in China on December 10, the temporary detention of at least 11 other Canadians in China and the handing out of a death sentence for drug smuggling against another Canadian, Robert Lloyd Schellenberg, who had just been sentenced to 15 years jail.

Australia has called for the release of the two Canadians still in jail and criticised the death penalty given to Schellenberg.

This was followed by the arrest of Chinese-Australian writer Yang Hengjun, who is now under residential detention in Beijing facing potentially serious charges of endangering Chinese national security.

China has also been angry that Australia has backed Canada as it battles for the release of the two men and against the death penalty handed out to Schellenberg.

Just as it seemed that Australia’s ties with China were improving, the issues around Huawei have created new tensions on the diplomatic front and could well see more strains on the business to business front between Australia and China.

No one quite knows where the issue will go.

The situation is moving into uncharted waters, at a time when China’s President Xi Jinping is reacting to internal and external pressures by cracking down on criticism and dissent.