The long sting in Abbott's Huawei snub

Tony Abbott’s Huawei rejection was based on many layers of misguided thinking. Without an urgent fix it will wreck his relationship with Beijing.

The government's bungling of the Huawei issue has put Australia’s free trade agreement in jeopardy and needlessly caused a loss of face for the Chinese government. The government would have been better off leaving the issue to rest than raising the hopes of the Chinese.

After Andrew Robb and Malcolm Turnbull flagged the possibility of an easing to the ban, the opposition saw their opportunity to attack the Coalition on one of their policy strengths – national security. Spooked by the prospect of Labor making political hay out of the issue, Treasurer Joe Hockey and then Prime Minister Abbott kiboshed the plan.

Now, just seven weeks into the new government’s term, Australia’s message to China is already hopelessly incoherent. No sooner had the government declared Australia is “open for business” and heavily hinted at an easing of the ban than they completely took it off the table. 

The Chinese government would probably have let the issue slide if not for the Coalition raising it. After all, when it comes to their own communications infrastructure, the Chinese are particularly paranoid.  Many of the world’s major telecommunications companies such as Alcatel, Ericcson, Fujitsu and NEC profited handsomely from helping to build it up but they were never allowed to own or control any part of the network.

And Telstra may be about to make a motza out of its float of its Chinese car sales website but the other part of its Asia strategy – launching an Internet Service Provider – has no chance of getting off the ground.  If the topic came up when Telstra chief David Thodey met with Vice-Minister of the Ministry of Industry and Information Technology Shang Bing a couple of weeks ago it would have been met with a polite nod and a smile. Foreign companies owning telecommunications infrastructure is a non-starter in authoritarian China where control of communications is paramount to maintaining control.

On the Australian side, Huawei’s detractors make much of its supposed links to the Chinese government and the People’s Liberation Army. Its chief executive, Ren Zhengfei, was a relatively low-ranking officer in the army for a brief time, five years before setting up the company with a group of engineers and private investors. Is it to cast aspersions on the man simply because he was once briefly in the army? 

Even some carrying briefs for Huawei have a patchy understanding of the company's history. When I asked former Victorian Premier John Brumby last year if he knew that in 1996 then Vice-Premier Zhu Rongji had ordered the heads of China’s state banks to support the company, he said he didn’t know. The fact that former foreign minister Alexander Downer called the company a "tribute to capitalism's creativity" in a Spectator Australia article suggests he may not have been aware either.

Even though it has received the occasional government handout, Huawei for the most part has had to make its own way by focussing on research and development and sales. Companies that received the lion’s share of funds from the government – like telco Great Dragon – have scarcely been heard of outside of China. But even if Huawei was receiving soft loans from its government, what does that matter? We stump up cash for our car industry; what’s the difference?

Having started as an agent for foreign companies selling into the Chinese market, Huawei has become increasingly dependent on offshore markets as it chases profit and growth. Two-thirds of its $35 billion in annual revenue last year came from outside China. If it was allowing its government to build backdoors into its equipment, it would be business suicide.

Much is also made of the fact that Huawei has a communist party cell operating within it. When Huawei executives including John Lord readily admitted to the fact at the parliamentary inquiry, the assembled parliamentarians were aghast. But for anyone who has worked in China this is hardly a surprise or cause for over-reaction. As the opposition’s chief Huawei detractor Michael Danby has noted, in China, every enterprise with more than 50 employees must have a Communist Party cell. So does that mean we should stop doing business with China all together? We need more engagement, not less.

The chief executive of one multinational corporation remarked recently that Australian senior business leaders and politicians are "clueless about China". You can start to see why.

Meanwhile, the implication that the Chinese government is using Huawei to spy on Australians must be made particularly galling for China's leaders by news of Canberra eavesdropping on them.

The fact is that Huawei’s global competitors like Cisco, Alcatel-Lucent and Nokia-Siemens Networks all have their gear made in the Middle Kingdom. If the Chinese wanted to build into their equipment eavesdropping capabilities they already could.

It's understandable that policy missteps are made when it comes to telecommunications security and China. Both areas are complex and opaque. But Prime Minister Abbott, a self-described non-tech head would sooner jettison the possibility of Huawei's involvement in the NBN than delve into the details.

Malcolm Turnbull’s instinct to frame the Huawei question through a technical lens is an approach that could have taken the heat out of the issue.  

"Even if you accept the premise that Huawei would be an accessory to espionage – I'm not saying they will be, I'm just saying that's the premise – if you accept that, then you then have to ask yourself, does the equipment that they would propose to sell have that capacity?" Turnbull told Fairfax Media.

Cyber security experts agree. Jeffrey Carr, an IT security analyst and the author of Inside Cyber Warfare: Mapping the Cyber Underworld thinks a technical answer could be the way through the impasse.

"If I were advising the Australian government, I’d recommend hiring a penetration testing firm to see what the actual risk is for an adversary to move from a compromised router on the outer access layer over to the control system side of the network,” he told Business Spectator.

“If the risk is low to none and the savings for buying from Huawei are considerable, then they should go for it."

Huawei has suggested building a cyber-security centre that would test each piece of equipment used in critical communications infrastructure. In Britain, Huawei built one at its own expense in 2010. We should have Huawei do the same in Australia – only here we should have our agencies operate it out in the open.

While we may say that we’re open for business, Lou Jiwei, China’s Minister for Finance, is the one calling the UK one of the most open economies in the world.

Huawei represents the first sector of the Chinese economy to go out and challenge the global giants. Slapping it down a second time was an unnecessary affront to China. Now the damage has been done, we should go out of our way to fix it. 

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles