Commentary | 22 June 2018

Huawei has ended a national illusion

Originally published in Australian Financial Review

Originally published in Australian Financial Review

If nothing else, the controversy over allowing Huawei to bid on the new 5G network should put paid to the notion that Australia doesn't need to choose between its security and economic interests.

In truth, we are being forced to make costly choices all the time, something the Huawei case illustrates with excruciating clarity.

The attractiveness of Chinese goods used to lie in the fact that they were cheap, with prices low enough to forestall worries over quality.

With Huawei, China's leading telecommunications company, the products on offer are both competitively priced and technically, according to much of the industry, among the best available.

But there is a third factor that Australia is weighing in making its decision which goes beyond cost and technology: the fact that Huawei is Chinese.

The financial cost of excluding Huawei from bidding for the new 5G network, as Australia's intelligence agencies have advised that the government should do, is clear enough.

Any alternative network will be more costly to build and possibly of lower quality as well. Once Beijing digests the rejection, there is also likely to be a political cost, although that is indeterminable at the moment.

On top of that, the federal government has set aside $200 million to fund undersea cables from the Solomon Islands and elsewhere in the Pacific, effectively annulling a contract which Huawei had already won to build them.

Clash-of-civilisations cauldron

In today's world, all manner of once garden-variety government and commercial decisions, like Huawei, are taking place in a kind of clash-of-civilisations cauldron, pitting China against the West.

But is this Canberra's fault, the result of outdated "Cold War thinking", as China's state media says, and many in Australia seem to agree?

Huawei, for example, is perhaps China's most successful private multinational, nurtured initially with state support and protection but which over time developed into an advanced company with global reach.

But Western intelligence agencies can hardly be blamed for thinking that that's not all there is to the Huawei story.

China's own National Intelligence Law, passed last year, dictates that "all organisations and citizens" must co-operate in the country's espionage work.

Huawei, like all state and private companies in China, cannot escape the long hand of the ruling Communist party, be it through the formal committees inside their operations, or any ad hoc orders that might come their way.

"Team China" is very much a living, breathing reality, with the ruling party able to dictate terms to state and private companies when it believes its national security interests are in play.

One might ask – would China allow an American telco to provide key technology for its networks? One Chinese executive I put this question to last week snapped back, without irony: "Of course not!"

Huawei wouldn't operate the network in Australia. Instead, it would provide technology to the local service providers, like Optus, Vodafone, TPG and Telstra.

Huawei wants Australia to do what the UK has done – set up an independent technology centre operated by their (the UK's) intelligence services which can screen and check all equipment that Huawei might want to put into the network.

The UK model seems to have worked there. Thus far, the US, which is the UK's most important security partner, has not interrupted intelligence sharing between the two countries.

Australia is part of the same intelligence network. Why can't we simply do the same?

National security housekeeping

Australian intelligence agencies, however, believe the UK model, given the difficulty of screening an array of complex products, is too risky and should not be replicated locally.

For Huawei, missing out on Australia's 5G would be a material loss but, in commercial terms, not a fatal one. The company's decision to push back publicly against Canberra is really about quarantining the impact of any Australian decision from their valuable global franchises.

As angry as Beijing might profess to be about a Huawei rejection, Chinese officials deep down might concede that decisions which impinge on Australia's sovereignty are Australia's to make.

China fiercely guards its own sovereignty. Should it be surprised that other countries do the same?

For all of Canberra's rhetorical missteps on China, the various decisions taken by the government in recent months – in the Pacific and on foreign interference – really amount to national security housekeeping of the kind that is long overdue.

In the future, Australia's relations with China are likely to unravel not over Huawei and the like, but over issues that Beijing regards as its sovereign territory, such as the south and east China seas, and Taiwan.

In these big geo-political arenas, China is closer and closer to getting its way. By then, controversies like Huawei will seem like small beer.