AS THE US-CHINA trade war rages on, two Chinese tech companies are facing a new headache: Australia’s government has joined the US in effectively banning its wireless carriers from buying gear for 5G networks from Huawei and ZTE.
The decision is more than spillover from the US-China dispute. It’s part of a bigger controversy over the role of China in Australia, which is in the midst of political turmoil. On Friday, Prime Minister Malcolm Turnbull stepped down after lawmakers from his conservative Liberal Party voted to replace him with Scott Morrison, who had been treasurer and acting minister for home affairs.
News of the ban on Chinese 5G equipment came via a tweet from Huawei on Wednesday. A statement from Morrison, before he became prime minister, and Australian Senator Mitch Fifield confirmed that carriers may be restricted from buying equipment from companies operating in certain countries under new telecommunications regulations set to take effect in September, but the announcement doesn’t mention Huawei, ZTE, or China by name. Instead it refers to “vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law.”
The news follows ongoing efforts to keep the two companies out of the US, purportedly over security concerns. ZTE briefly shut most of its operations in May after the US banned companies from selling it components. Talks this week between US and Chinese officials over the larger trade disputes failed to reach any agreement.
The US likely influenced Australia’s decision, says Bates Gill, an expert on China and Asia-Pacific security issues at Macquarie University in Sydney. Australia is part of the “Five Eyes” intelligence alliance along with Canada, New Zealand, the UK, and the US, and it’s a close trade partner with the US. “There is an inclination to follow the US on sensitive intelligence issues,” says Gill.
But that’s not the whole story. China and Australia have their own tense, complicated relationship. Nearly 30 percent of Australian exports last year were to China, according to a government report, and China and Hong Kong are among the largest foreign investors in Australia, according to another report.
In June, the Australian government passed two bills aimed at curbing foreign political influence by toughening espionage laws, banning covert activities on behalf of foreign governments, and requiring foreign lobbyists to register with the government. The bills didn’t specifically name China, but earlier this year the Australian Broadcasting Company reported that the legislation was driven by a top secret government report that concluded that China had attempted to infiltrate multiple layers of the Australian government. Shortly after the bills were introduced last December, Australian Senator Sam Dastyari resigned over reports that he warned one of his Chinese-Australian donors that his phone might be tapped by the government.
Gill says this atmosphere of concern about Chinese influence, combined with the mood in the US, likely led to the decision to ban ZTE and Huawei from Australia’s 5G networks. But he says it’s a relatively small part of the current political drama unfolding in the country, and he doesn’t expect much fallout in either country.
Huawei is the largest maker of telecom equipment worldwide, and in Australia. But its Australian sales are a relatively small part of the larger economic relationship between the two countries, and China has historically been unwilling to open much of its own telecom markets to foreign companies. Gill says the decision marks another way that the relationship between the countries continues to “spiral downward.”
Huawei called the Australian government’s concerns “ill-informed and not based on facts” in an open letter to members of Parliament. The letter points out that Huawei has been operating in Australia for more than 15 years—raising the question of why the government is trying to push it out now, and whether these efforts are too late.
In its statement, the Australian government said 5G networks, which are still in preliminary stages, pose new security issues. Ryan Kalember, senior vice president of cybersecurity strategy at security company Proofpoint, says a big difference between 5G networks and traditional 3G and 4G networks is that 5G network gear will be more dependent on powerful, flexible software, making security audits far more difficult. “That’s a risk the Australian government thinks it can’t mitigate,” Kalember says.
Other US allies are trying to mitigate the risks. The UK still permits Huawei to sell gear to its carriers, and Huawei allows the government to inspect its code. But earlier this year, a report from UK security and intelligence experts downgraded the level of assurance they could provide the government that Huawei’s products were safe to use, according to Reuters. A part of the report’s concern stemmed from Huawei’s dependence on components from other companies.
Similar concerns could have influenced Australia’s decision. “It’s hard to avoid the conclusion that the global supply chain is too complex to unwind at this point,” Kalember says. “So you have to rely on these broad strokes, bans of products from entire countries.”
We could see more of this soon. Last year President Donald Trump signed a defense spending bill that banned products from Russian security company Kaspersky in government. “These supply chain concerns could extend well beyond telco and antivirus to a whole host of other things as certain nations take more aggressive postures,” Kalember says.