TELECOMS: China, West Need To Settle Telecoms Dispute
Bottom line: China and the west should sign an agreement for telecoms networking equipment trade that creates a transparent and fair playing field for fair trade while protecting national security.
A simmering national security standoff between China and the west involving telecoms networks could soon heat up again, with word that China Telecom, the smallest of China’s 3 state-run carriers, is preparing a bid to build a new wireless network in Mexico. Analysts say the US might object to such a Chinese-run network so close to its borders, fearing it could contain backdoors and other hidden features that might accommodate spying by Beijing.
Similar previous concerns have locked Chinese telecoms equipment makers out of the lucrative US market, and cost leading manufacturer Huawei a chance to help build a cutting-edge broadband network in Australia.
Western governments need to sit down with Beijing and finally end this destructive cycle by finding a solution that addresses national security concerns of both sides without imposing blanket bans on imported equipment. Such a solution would require some compromise, and should include the establishment of specific standards and guidelines over what is and isn’t permissible.
Creation of such agreements would eliminate the risks that Chinese firms face when trying to bid for the lucrative business of building and operating telecoms networks in the west, and vice versa. Such an approach would also help to ease recent tensions between Beijing and the west over national security concerns by eliminating a sore spot that has become a growing obstacle to free trade.
The national security tensions that have become a regular flash point in China’s relations with the west date back over the last 4 years. Most relate to the security of telecommunications networks, which are vulnerable to spying and computer hacking by both individuals and governments.
The concerns have seen both sides take moves over fears that high-tech equipment from the other might include features that create security lapses to allow for spying. The tensions have put a growing crimp on the business of Chinese manufacturers like Huawei and ZTE (HKEx: 763; Shenzhen: 000063), and also big western names like IBM (NYSE: IBM) and Cisco (Nasdaq: CSCO).
The issue was back in the spotlight late last week, when media reported that China Telecom was preparing to mount a bid for a license to build a new telecoms network in Mexico. (English article) The Mexican government is auctioning the license as part of its own effort to break the stranglehold over the country’s telecoms services market now held by local billionaire Carlos Slim.
Media reports said China Telecom has already secured access to major financing commitments for the project from China’s state-run banks, including policy lender China Development Bank. The massive project is expected to cost around $10 billion over the next 10 years, and a winner for the bidding could be announced this summer.
Observers say the US is watching the situation closely, and could quickly voice its objections if China Telecom is selected to build and operate the network. That’s because many major US companies do big business in Mexico, and such a network would also come right up to the US due to the long border that it shares with its southern neighbor.
The clash on the issue dates back to 2011, when Huawei was first disqualified from building several government-supported networks in the US. Since then Washington has informally banned all Chinese networking equipment in both public and private US networks. Politicians in Britain have also expressed concerns over the close partnership between local telecoms carrier BT (London: BT) and Huawei.
Over the same period, China has also taken steps to limit the use of western telecoms equipment from companies like IBM and Cisco for use in government networks and networks run by big banks and other major state-run companies.
Australia has taken a middle road, barring Huawei from bidding to help build a national government-supported broadband network in 2012. But then in 2013 Canberra moderated its approach, saying Huawei was welcome to bid for business from the country’s private carriers even as an implicit ban remained on government network contracts. Such an approach looks like a good compromise, and could be copied by the US and European governments to smooth trade relations.
But rather than rely on this kind of approach involving unspoken rules, China and its western trading partners should sit down and negotiate concrete agreements that spell out exactly what is and isn’t permissible and a process for cross-border bidding. That would create a transparent and fair process where everyone can do business according to a fixed set of rules, which would balance the need for free and fair trade with concerns about national security.
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