In the ongoing US-China global “tech war”, Washington scored another win when Malaysia recently snubbed China’s Huawei in favor of Sweden’s Ericsson to develop its 5G network infrastructure.
The US-favored Swedish telecom firm will be responsible for developing an end-to-end network across Malaysia in conjunction with the state-owned Digital Nasional Berhad (DNB).
In the US$2.65 billion megadeal, Ericsson will provide core technology and operational systems as well as support for local vendor development and expansion in the Southeast Asian nation known for balancing its US and China relations.
“Ericsson has undertaken to arrange financing for the supply, delivery and management of the entire 5G network,” DNB said in a statement on the deal. Kuala Lumpur and Putrajaya are both set to launch fully their 5G networks before the end of this year.
The decision came as a surprise to many political and industrial observers who earlier saw China’s Huawei as the frontrunner to win the prized infrastructure project.
Huawei, which had already signed a 5G deal with Malaysia’s second-largest mobile network Maxis, was even favored by former Malaysian prime minister Mahathir Mohamad, who openly accused China of “new colonialism” through ‘debt trap’ diplomacy.
“I am quite sure for a long time, the [US] CIA have been reporting on everything that is done in Malaysia and China. We did not carry out a boycott of America because of that,” said Mahathir during a visit to Japan at which he addressed concerns over potential spying over China’s 5G technology.
Mahathir praised China for having “the best [telecom] technology in the world”, and wryly joked “[they] can spy as much as they like because we have no secrets.”
China is pushing hard to build neighboring Southeast Asia’s 5G network infrastructure. Indonesia and the Philippines, the region’s two most populated nations, are relying on Chinese telecom companies to help develop their 5G networks.
Huawei is also bidding to build Thailand’s 5G infrastructure. The Chinese telecom giant, which maintains thousands of staff in the kingdom, invested 475 million baht last year to establish a “5G ecosystem” innovation center in partnership with the Digital Economy and Society Ministry.
A recent change at the DES ministry’s top and local Gulf Energy Development’s tender offer to buy the nation’s top mobile provider AIS from Singapore’s Singtel, however, has raised new questions about the direction of the nation’s 5G rollout. Ericsson is also bidding to help build the kingdom’s 5G networks.
Security issues, including US accusations Huawei 5G equipment includes “back doors” that could allow for Chinese snooping and spying, are clearly in play in Southeast Asia, where the US has various intelligence-sharing and strategic tie-ups.
Malaysia’s decision came just weeks after the country’s defense officials accused Chinese warplanes of violating its airspace amid rising tensions in the South China Sea.
Vietnam, which similar to Malaysia also has territorial disputes with China, has also shunned Chinese 5G telecom investments in favor of indigenous counterparts.
At the same time, China’s rapid development of relatively affordable new-generation technologies has been largely welcomed by developing countries that seek to diversify their pool of suppliers and investor options.
Chinese telecom giants such as Huawei and ZTE have already played a critical role in enhancing digital connectivity not only in Southeast Asia but also Africa and Latin America.
But China’s 5G network technology dominance has simultaneously raised new concerns for three key reasons.
First, 5G networks represent a technological leap that could give China growing control over the flow of data, including sensitive communications that could have national security implications.
Huawei, for its part, has denied its equipment includes “back doors” and that it has or ever would spy for Beijing. But those concerns are nonetheless rising as the ruling Chinese Communist Party (CCP) tightens its regulatory grip on major tech companies.
“Chinese operators see their job as implementing government policy, whereas most global telecom companies try to balance competitive factors and will naturally invest at a slower pace,” Chris Lane, a telecom investments expert, recently told the MIT technological review.
Last year, China passed a new “provisional” regulation, which gives the ruling Communist Party ultimate control over major decisions by state-backed companies.
“All major business and management decisions must be discussed by the Communist Party organ before being presented to the board of directors or management for decision,” according to the new regulation.
Beijing’s tightening grip has now also extended to nominally private Chinese corporate giants. While investors have hailed the rise of Chinese initial public offerings (IPO), which made up a third of the world’s in the past year, the Communist Party has repeatedly reined in its unicorns in a show of regulatory force.
Another major concern about Chinese critical infrastructure investments is Beijing’s controversial national intelligence law, which was hastily passed in 2017 with limited public scrutiny and legislative discussion. Article 7 stipulates “any organization or citizen shall support, assist, and cooperate with state intelligence work according to law.”
Article 14, in turn, makes it clear that “state intelligence work organs, when legally carrying forth intelligence work, may demand that concerned organs, organizations, or citizens provide needed support, assistance, and cooperation.”
Under Article 17, relevant Chinese intelligence and security agencies can commandeer communications equipment and property of specific individuals or organizations, as deemed fit.
In theory, if not practice, this means that the Chinese Communist Party can legally pressure major companies, including privately-owned giants like Huawei, to assist in any broader strategic and national security objective.
In response to growing concern over Beijing’s grip on its overseas ventures, countries such as the United Kingdom, Australia and, most recently, even Brazil have tightened restrictions on Chinese telecommunications investments.
The former Donald Trump administration openly warned allies, including the Philippines, against adopting Chinese 5G network technology lest intelligence-sharing and overall security cooperation could suffer.
The Joe Biden administration, however, has adopted a more constructive approach by, inter alia, relying on technological cooperation with so-called “like-minded” countries as well as enhancing domestic technological capacities.
The US is now working with countries such as Japan and South Korea, which are now heavily banking on the development of next-generation technology, including 6G network telecom, to counter China’s rising influence.
In the meantime, however, China has rapidly expanded its footprint in key Southeast Asian states. In the Philippines, the country’s two leading telecom players, PLDT and Globe Telecom, are partly relying on Chinese 5G network technology.
Neighboring Indonesia, the region’s largest economy, has also doubled down on its reliance on Huawei in the past year, including a memorandum of understanding (MOU) for technology-related cooperation and vocational programs between the Chinese telecom giant and the Indonesian Presidential Staff.
However, top Indonesian cybersecurity advocate Ardi Sutedja has more recently warned of undue reliance on Chinese companies.
“Indonesia’s telecommunications infrastructure, from upstream to downstream, is largely propped up by Huawei and ZTE, so if [telecoms providers] say ‘no’ now, they have to practically tear down their entire infrastructure and deal with the financial obligations related to their purchase of equipment,” Sutedja said.
“We should not be worried about Huawei’s growing presence and competitiveness in Indonesia and Southeast Asia. However, we should be concerned that Indonesia will become heavily reliant on Huawei as the only technology vendor,” Indonesia expert Melinda Martinus said echoing similar concerns.