Paul French reflects on rising concerns about Chinese technology at the heart of the world’s communications infrastructure

One of the biggest questions about China and, for many corporations, the one they don’t like to be asked, is just how much they should trade with the country. In other words, just because Chinese suppliers offer the best prices and terms, should we buy from them – what are the ethical and political implications of that trade?

This question is being asked on both sides of the Atlantic, and elsewhere. In the US accusations of massive and coordinated cyber-attacks by Chinese hackers, perhaps with tacit government support, are a subject of much hand-wringing and pontificating.

In the UK questions are being asked about state-supported Chinese telecoms company Huawei, the world’s second biggest telecoms kit maker, which has a multibillion-pound deal to supply equipment to telecoms giant BT. The arrangement dates back to 2005.

Now, no lesser body than the Joint Intelligence Committee (JIC) – the UK government’s most senior intelligence watchdog – says: “Such a sensitive decision, with potentially damaging ramifications, should have been put in the hands of ministers.”

The committee describes this lapse as “unacceptable”. British politicians are concerned about just how far Huawei has become embedded in Britain’s critical communications network infrastructure.

Across the Atlantic fears of growing and repeated cyber attacks have also seen Huawei attract politicians’ attention. The US government, without citing any actual evidence, has expressed security concerns about Huawei while US-based mobile carrier Sprint recently stopped using the company’s equipment in its network after pressure from lawmakers.

Australian politicians have gone so far as to ban Huawei from supplying equipment for the country’s national broadband network.

Why all this concern over a Chinese telco? Huawei, founded in 1987 by Ren Zhengfei, a former People’s Liberation Army (PLA) officer, has long been a desirable company to work with because of its good quality but competitively priced telecoms equipment. Concerns about its close relationship to Beijing and China’s armed forces and intelligence services have always dogged the company, however.

Ren first targeted developing nations struggling to establish mobile phone and internet services on tight budgets – Huawei’s mix of low priced kit combined with financial support in the form of soft loans from China’s state banks appealed to these nations. Huawei grew phenomenally on the back of China’s growing telecoms sector and these overseas deals.

Developed world move

But now Huawei is winning contracts in the developed world and concerns have risen. As the UK’s JIC notes, “the alleged links between Huawei and the Chinese state are concerning, as they generate suspicion as to whether Huawei’s intentions are strictly commercial or are more political”.

The problem of course is that Huawei offers good business terms and prices. Politicians on both sides of the Atlantic and elsewhere – Huawei is a supplier to O2 (part of Spain’s Telefonica), EE (owned by France Telecom and Deutsche Telekom) and TalkTalk among many others globally – are concerned about Huawei’s provenance but also are keen not to damage trade relations with China.

While UK ministers fretted over Huawei’s access to Britain’s communications grid, the chancellor of the exchequer, George Osborne, said: “It is a personal priority of mine to increase trade links between the UK and China, and I cannot emphasise enough that the UK is open to Chinese investment.”

Effectively, then, this is a choice between a political rock and a hard place for trade. Huawei, for its part, denies any links with Beijing or the PLA but this is hard to believe for anyone even remotely familiar with China’s telecoms sector. The company’s chief executive, Guo Ping, maintains that he will continue to try to operate in Europe and America.

Now, though, we are seeing a new dimension in the question of ethical issues around China. Concerns over Huawei are not the more familiar terrain of factory conditions or issues around free labour movements and democracy but rather about an economically strong China involving itself in the heart of western communications infrastructures.

At present the messages going between the west and China are confusing for all concerned. The Chinese detect a whiff of economic scaremongering aimed at demonising China. On the other hand politicians and intelligence bodies have what may be real concerns about Chinese state sponsored telcos being at the heart of the western grid.

Lately the arguments have been getting a more heated and the mud-slinging more aggressive. What is for sure is that western companies seeking to source competitively priced equipment from China will have to look not just at quality and price but at the political ramifications of their purchasing decisions.

Paul French has been based in China for more than 20 years and is a partner in the research publisher Access Asia-Mintel.