Why Is Australia Afraid of Huawei? Need for More Corporate and Government Transparency

China-based Huawei Technologies, the world’s second-leading producer of telecommunications equipment, received yet another blow to its image last week when the Australian Financial Review reported that Australian officials told company executives in late 2011 that Huawei would not be allowed to invest in the country’s $38 billion National Broadband Network (NBN). The NBN, which aims to connect 93 percent of Australian homes to high-speed internet, is Australia’s largest infrastructure project and has welcomed bidding from both domestic and international companies—except, apparently, Huawei.

Why the resistance to allowing Huawei, already a large investor in the commercial telecom industry in Australia, into the NBN? Prime Minister Julia Gillard evasively explained that the decision was made to “[stand] up for Australia’s national interests.” What Gillard’s vagueness reveals above all is the difficulty Huawei has convincing the world it is trustworthy, and the equal difficulty foreign governments have explaining why it is not.

This is not the first run-in between Huawei and a foreign government attempting to protect what it sees as national interests. The United States has been in the forefront of efforts to check Huawei’s penetration into national telecom networks. The U.S. Committee on Foreign Investment prevented the company from acquiring U.S. telecom companies 3Com and 3Leaf in 2009 and 2011, respectively, and the U.S. commerce secretary reportedly intervened in 2010 to block Huawei’s involvement in a contract to supply equipment to Sprint. Late last year, U.S.-based Symantec broke off a profitable four-year partnership with Huawei, allegedly over fears that it could lose corporate customers fearful of Chinese hacking and cyber espionage.

The nail in the coffin for the NBN deal seems to have come from Huawei’s recent troubles in the United Kingdom. The Australian government cited recent revelations that the British intelligence services felt compelled to put in place an expensive and resource-intensive auditing structure in order to ensure that Huawei did not steal state secrets after it was allowed to provide equipment for a large broadband project. This came in spite of BT, the UK’s largest telecom provider and lead in the project, insisting that it was allowed to check all of Huawei’s contributions for security threats and that the relationship was “managed strictly in accordance with UK laws and security best practice.”

The contradiction between BT’s statements and the British government’s actions are a common theme for Huawei. The company is, ostensibly, employee-owned, and no evidence has ever been put forth publicly linking it to cybercrimes, espionage, or direct control by the Chinese government. Yet suspicions persist. Huawei’s founder, Ren Zhengfei, was a deputy director in the Chinese People’s Liberation Army’s engineering corps before establishing the company. Its meteoric expansion was largely underwritten by enormous government-backed loans, and the transparency of its funding and management operations has consistently fallen short of international best practice.

Australian National University’s Desmond Ball insists there is “no doubt” Huawei is involved in cyber espionage, and New-Zealand based security analyst Paul Buchanan says the notion that Huawei is truly independent of the Chinese government is “ludicrous.” Yet the company has succeeded in gaining entry to government-backed projects throughout the world, including in New Zealand’s ultra-fast broadband (UFB) project in Christchurch and central North Island. Dismissing cyber security fears, New Zealand’s prime minister John Key has said all aspects of Huawei’s involvement in the UFB were carefully considered and his government is “comfortable with the current arrangements’’ with the company.

Huawei spokesman Jeremy Mitchell responded to the Australian government’s decision with disappointment, saying the company “will continue to be open and transparent and work to find ways of providing assurance around the security of our technology.” But if one thing is clear from Huawei’s recent run-ins, it is that more transparency is precisely what the company needs most. State-owned enterprises and “national champions” play an inordinate role in China’s economy. This means that, if Huawei really is a private entity free of government control, then the onus to prove it rests with the company. It is not enough to say that Huawei’s subsidiary operations in Canberra or Auckland are open and transparent; the same must be true of its business in Shenzhen and Beijing.

At the same time, Australian, U.S., and European governments must be more forthcoming with the reasons for their distrust. As New Zealand analyst Buchanan admits, there is absolutely no damning evidence against Huawei in the public domain, only rumor and accusation. This leaves Huawei with ample reason to complain that it is being unfairly targeted. It also leaves governments and companies in the position Sprint found itself in last year: desperate to engage in profitable business with Huawei, worried that such business could backfire, and unable to make an informed decision either way.

Uncertainty and distrust help no one, and Australia and its allies should be working to ease them, not make them worse. If there is evidence against Huawei, it should be presented without compromising national security. It might be impossible for Huawei to completely allay fears without going public, which it has so far proven unwilling to do. But in the meantime, Australia, the United States, and their allies should set an example of transparency, not obfuscation.

Gregory Poling is research assistant with the Pacific Partners Initiative at the Center for Strategic and International Studies in Washington, D.C.

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© 2012 by the Center for Strategic and International Studies. All rights reserved.

Gregory B. Poling
Senior Fellow and Director, Southeast Asia Program and Asia Maritime Transparency Initiative