West will find 2019 a turning point in its dealings with China

It takes a special kind of genius for the Australian arm of Huawei to appoint Sophie Monk as ambassador for its business. Confronted in the US with charges of industrial espionage and sanctions-busting on Iran, with its chief financial officer on bail in Canada pending extradition to America, and with a flood of countries banning the company’s products, Huawei is facing an existential moment in its global operations from which it may not recover.

Explaining her credentials for the role, Monk told Sydney newspaper The Daily Telegraph last week: “I’m lucky to know who the Prime Minister is, so the politics behind it I don’t really understand.”

Perfect. Hopefully Monk will be able to share with her fans the “independent legal advice” obtained by Huawei Australia’s chairman, John Lord, which apparently finds that Beijing’s national security law requiring Chinese companies to support their intelligence agencies doesn’t apply to Huawei either in Australia or, according to Lord, “even in China”.

Monk will find that Huawei is a generous employer. The US Justice Department revealed last week that the FBI had “obtained emails revealing that in July 2013, Huawei offered bonuses to employees based on the value of information they stole from other companies around the world, and provided to Huawei via an encrypted email address”.

This year is shaping to be a major turning point in the way many developed democratic countries deal with China. What were once seen to be largely positive trade and investment relationships with Beijing are becoming much more difficult to manage.

A driving factor has been the emergence of a more assertive Chinese Communist Party leadership under President Xi Jinping, who has done away with the “peaceful rise” rhetoric of his predecessors in favour of a more assertive military narrative, a diplomacy that often slips into outright bullying of smaller countries and highly aggressive espionage and cyber spying. Awkwardly for Huawei and other Chinese hi-tech companies, these factors are bumping into major decision points that many countries imminently face about the design of their 5G mobile telecommunications networks.

The future 5G networks will rapidly become the most vital part of the critical infrastructure of many nations, because of 5G’s potential to rapidly process vast amounts of data. 5G will enable the core control systems of driverless vehicles, remote medicine, smart grids, so-called smart cities and, indeed, any of the billions of devices linked to the Internet of Things.

The technology that enables 5G networks will be a vital strategic asset controlling the economic and social functions of modern life. Given the Chinese Communist Party’s obsession with controlling its own population, it shouldn’t come as a surprise that the party championed Huawei’s turbo-charged assault on global telecommunications infrastructure in every possible location, from Australia right through to Zimbabwe.

No country is too small to escape Huawei’s interests. The company’s website proudly describes how it has transformed the small island state of Mauritius “into a safer country” with saturation coverage of “intelligent video surveillance” cameras: “Huawei’s Safe City solution can prevent crimes targeted towards the normal citizen, tourists, students, elderly persons etc before they occur.”

The synergy between the company’s technology and the Communist Party’s drive towards an all-encompassing state-surveillance system — one that monitors and measures “the social credit” score of citizens to decide if they are politically reliable — is not coincidental.

Huawei’s global success has been to position itself as the supplier of telecommunications infrastructure at prices that competitors could not match. But with the gear comes the non-­monetary cost of predatory industrial espionage now detailed by the US Justice Department in its indictme­nt last week of Huawei’s alleged theft of trade secrets, wire fraud and obstruction of justice involvi­ng the telecommunications company T-Mobile.

A second indictment details how Huawei is alleged to have engage­d in money laundering, conspiracy to defraud the US, obstructio­n of justice and sanctions violations involving trading with Iran. The Justice Department claims that Huawei’s chief financial officer, Meng Wanzhou, the daughter of the company’s found­er, lied to American banks about Huawei’s relationship with Skycom, a wholly owned subsidiary that was selling material to Iran in violation of American sanctions.

These are not trivial charges. They will play out in America’s transparent legal system in ways that will profoundly shape Washington’s bilateral relations with Beijing, and they will expose a range of Chinese vulturine business practices likely damaging to the operations of Chinese companies in many other countries.

Beyond Huawei’s own industrial interests, a broader Western concern has been the extent to which the company may be a vehicle for Chinese state espionage.

In August last year, the Turnbull government took a decision that effectively excluded Huawei and other Chinese telecommunic­ation companies from the future Australian 5G network. Neither China nor Huawei were identified in the government’s explanation of the decision.

This was the key paragraph in Scott Morrison’s press release: “The government considers that the involvement of vendors who are likely to be subject to extra­judicial directions from a foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference.”

An important part of the govern­ment’s decision-making was that China’s 2017 National Intellig­ence Law says “all organisations and citizens shall, in accordance with the law, support, co-operate with and collaborate in national intelligence work”.

Of course, Huawei vigorously denies that this law applies to its operations, but the denial needs to be offset against the reality that China is engaged in massive industrial-strength cyber spying in Australia and many other countries.

In Australia it became publicly known last year that Chinese intel­ligence operatives had established domain control over the Australian National University’s information technology network. Years earlier, a similar hack of the federal parliament’s computer system led unsuspecting MPs to think they were dealing with the building’s IT help desk when they were, in fact, engaging with the ever-helpful IT gurus of China’s Ministry of State Security.

While the systematic, relentless and massive scale of Chinese cyber and human-enabled espionage has been known for years, what has become clear in the past few months is that the US intellig­ence community has come to the shared view that China, rather than Russia, represents the greatest threat to the interests of advanc­ed democracies.

The US Justice Department’s release of detailed indictments against Huawei revealed the massive effort across many American police and intelligence agencies to gather a publicly action­able case against Chinese intellig­ence gathering. Readers would be right to assume that what has been detailed thus far is only a fraction of the bigger intelligence picture on Chinese state-run espionage.

In the week of the Huawei indictments, America’s senior intelligence leaders appeared before congress to release their annual Worldwide Threat Assessment repor­t. The language on China is astonishingly blunt.

The report says: “China remain­s the most active strategic competitor responsible for cyber espionage against the US government, corporations, and allies.

“Beijing will authorise cyber espionage against key US technol­ogy sectors when doing so addres­s­es a significant national security or economic goal not achievable through other means.

“We are also concerned about the potential for Chinese intellig­ence and security services to use Chinese information technology firms as routine and systemic espionage platforms against the United States and allies.”

It’s distressing that President Donald Trump dismissed this repor­t because it did not agree with his delusional fantasies that North Korea is denuclearising and the Islamic State terror group has been defeated. There has surely never been a US president with a less functional relationship with the intelligence community.

But putting his uninformed and flailing tweets to one side, what’s most important about the threat assessment are its tough judgments about China and the complete unanimity of the US secur­ity establishment (outside the Oval Office) on the risks China presents to the established global order.

The assessment makes it publicly known that: “China has the ability to launch cyber attacks that cause localised, temporary disruptive effects on critical infrastructure — such as disruption of a natural gas pipeline for days to weeks — in the United States.”

That revelation amply justifies Josh Frydenberg’s decision in Nov­ember not to allow Hong Kong’s CKI Group to take over the massive gas pipeline assets of Australian company APA.

The intelligence estimate also makes it even more mystifying that the Foreign Investment Revie­w Board, in the Treasurer’s words, “was unable to reach a unanimous recommendation, expressing its concerns about aggreg­ation and the national-intere­st implications of such a dominant foreign player in the gas and electricity sectors over the longer term”.

Notwithstanding the FIRB’s inability to reach a unanimous recom­mendation, what is clear to many countries is that there are serio­us risks associated with transferring the ownership of critical infra­structure to Chinese firms.

For instance, internet-enabled systems can be hacked and damage­d by depositing malicious code that can shut systems down, surge or suppress power flows or otherwise play havoc with the control­s of vital machinery.

And Chinese state intelligence actors may well have interests in gathering information about the state design of critical infrastructure or these systems’ customers.

People can sometimes be surprised that there is intelligence value to be gained, say, from billing or supply databases. The reality is that not all espionage is focused on accessing nuclear weapons codes. Chinese intelligence methodology places a lot of value on big data.

It became known late last year, for example, that Chinese state-sponsored hackers were most likely responsible for stealing the data of more than 500 million Marriott hotel customers in a hack that began four years ago and exposed the records of Marriott’s Starwood hotels reservation system.

Those records will contain the passport and credit card inform­ation of many people of interest to Chinese intelligence. Moreover, the Ministry of State Security and intelligence arms of the People’s Liberation Army have the power to sift this data and link it to other intellig­ence information.

Bringing this back to Huawei and evolving 5G network­s, the only sensible conclus­ion political decision-makers could reach is that Chinese intelligence services would have every interest in accessi­ng national 5G networks. And when the Ministry of State Security comes knocking, no Chinese individual or business has the option to turn them away.

With Australia having decided to exclude Chinese companies from 5G, and the US taking a simil­ar but unofficial approach, it’s not surprising other countries are considering their position. New Zealand followed suit last December. British Telecom has announced it will remove Huawei equipment from its networks. Canada has a decision pending on Huawei and 5G that will surely be influenced by China’s thuggish hostage-­taking of Canadian citizens after Meng was detained. Japan, India and the EU, as well as many indiv­idual European countries, are all looking hard at the case for excludin­g Huawei from 5G.

Speaking on ABC TV last week, Huawei Australia’s Lord denied the Chinese state had influence over his firm. Although Meng was on the Australian board, he said she played no active role in Australian matters. Huawei, he claimed, followed Chinese law but would never do anything to break the laws of other nations: “If we did not operate by those countries’ rules, our business would be dead. Overnight, one country distrusting us could almos­t cause our business to collaps­e.”

Too late, the horse has bolted. This will be a tough year for Chin­ese telecommunications companies in overseas markets. The 5G networks will split between those using Chinese-sourced equip­ment and those that don’t, and in time it will become much harder to do business across that fundamental political and technological divide.

Peter Jennings is the executive director of the Australian Strategic Policy Institute and a former deputy secretary for strategy in the Defence Department.