Australia, China spar on new trade war front

China has warned Australia that its recent decision to ban Huawei and ZTE Corp from supplying equipment to 5G telecommunication networks on national security grounds will have a negative impact on Australian business.

State-run media groups went even further, with the Global Times accusing Canberra of “stabbing China in the back” and the China Daily describing the decision as “disappointing and poisonous to bilateral cooperation.”

“The ill-advised move again casts a shadow over bilateral ties which had been showing some signs of improvement recently,” China Daily added.

Scott Morrison, who is now the prime minister, issued a directive late last week excluding suppliers that were subject to “extrajudicial directions from a foreign government.” He briefly served as home affairs minister following the breakup of Malcolm Turnbull’s cabinet on Thursday.

Huawei and ZTE, both based in China, were not directly named in the directive, but Huawei later confirmed that it had been informed of the ban by the government.

The company said the ruling was an “extremely disappointing result for consumers” and noted that it had been delivering wireless technology to Australia telecommunications firms for 15 years.

“The Australian government’s decision to block Huawei from Australia’s 5G market is politically motivated, not the result of a fact-based, transparent, or equitable decision-making process,” Huawei said.

Two other potential suppliers, Nokia of Finland and Ericsson of Sweden, also have links to the Communist Party through their Chinese operations, but is unclear whether they will face bans.

Nokia Shanghai Bell chairman Yuan Xin is secretary of the company’s party cell, while Ericsson’s Chinese joint venture partner Nanjing Panda Electronics supplies China’s military.

Australian officials said Huawei and ZTE were banned due to concern that Beijing may order Chinese firms to participate in intelligence-gathering activities following the enactment of a National Intelligence Law in 2017.

Richard Yu, the head of Huawei’s consumer business, retorted: “We’re independent from any country, any government. We’re not involved in politics.” He blamed competitors for getting the company banned.

“They can’t compete with us on the technology and innovation so they compete with us on the politics,” Yu claimed.

The firm’s Australian chairman, John Lord, admitted at a press briefing in June that larger Chinese firms were required to have a Communist Party cell, and that they had to co-operate and share any intelligence gathered.

But he insisted Huawei “just won’t do it” because it would be “corporate suicide” to comply. “There is no reason to pass lots of information back to China,” he said. “We stand by the quality of everything we do.”

However, it is not the first time the Chinese firms have failed security tests for providing backbone infrastructure. In 2012, Huawei and ZTE were both told not to bid for contracts for the National Broadband Network, and in February this year all defense forces stopped using Huawei handsets.

Morrison said that the new 5G system “provides a way to circumvent traditional security controls by exploiting equipment in the edge of the network.” He said there was a long history of cyber-attacks in Australia, and noted controls on current networks would be “ineffective” in 5G.

Lord said in a letter to legislators that the decision would cost 750 jobs domestically, as “to completely exclude Huawei from 5G in Australia means excluding Huawei from the entire Australian market.” He also said costs would rise for consumers, which does appear likely to happen.

Prices for sourcing equipment from Chinese suppliers would have been about 30% lower than for European and North American manufacturers. Huawei has links with most major infrastructure installers, while ZTE Corp provides mobile devices through operators Telstra, Optus and Vodafone.

In Beijing, the Commerce Ministry hinted at a deeper cost for businesses, but did not elaborate: “The Australian government has made the wrong decision and it will have a negative impact to the business interests of China and Australia companies.

“Australia should follow the path of bilateral business and trade cooperation and should not use the excuse of national security to intervene and restrict the normal business operations of Chinese enterprises,” the ministry added.