02 Feb 2019
West will find 2019 a turning point in its dealings with China
It takes a special kind of genius for the Australian arm of Huawei to appoint Sophie Monk ambassador for their business. Confronted in the United States with charges of industrial espionage and sanctions busting on Iran; with its CFO on bail in Canada pending extradition to America and with a flood of countries banning the company’s products, Huawei is facing an existential moment in its global operations from which it may not recover.
Explaining her credentials for the ambassadorial role Sophie Monk told the Daily Telegraph last week “I’m lucky to know who the prime minister is, so the politics behind it I don’t really understand.”
Perfect! Hopefully Monk will be able to share with her fans the ‘independent legal advice’ obtained by her Australian boss, John Lord, which apparently finds that Beijing’s national security law requiring Chinese companies to support their intelligence agencies doesn’t apply to Huawei either in Australia or according to Lord ‘even in China.’
Monk will find that Huawei is a generous employer. The US Justice Department revealed last week that the FBI had ‘obtained emails revealing that in July 2013, Huawei offered bonuses to employees based on the value of information they stole from other companies around the world, and provided to Huawei via an encrypted email address.’
2019 is shaping to be a major turning point in the way many developed democratic countries deal with China. What was once seen to be largely positive trade and investment relationships with China are becoming much more difficult to manage.
A driving factor here has been the emergence of a more assertive Chinese Communist Party leadership under President Xi Jinping who has done away with the ‘peaceful rise’ rhetoric of his predecessors in favour of a more assertive military, a diplomacy that often slips into outright bullying of smaller countries and highly aggressive espionage and cyber spying.
Awkwardly for Huawei and other Chinese high-technology companies these factors are bumping into major decision points that many countries imminently face about the design of their 5G mobile telecommunications networks.
The future 5G networks will rapidly become the most vital part of many nations’ critical infrastructure because of 5G’s potential to rapidly process vast amounts of data. 5G will enable the core control systems of driverless vehicles, remote medicine, smart grids, so-called smart cities and indeed any of the billions of devices linked to the internet of things.
The technology that enables 5G networks will be a vital strategic asset controlling the economic and social functions of modern life. Given the Chinese Communist Party’s obsession for controlling their own population it shouldn’t come as a surprise that the Party championed Huawei’s turbo-charged assault on global telecommunications infrastructure in every possible location from Australia right through to Zimbabwe.
No country is too small to escape Huawei’s interests. The company’s website proudly describes how it has transformed the small island state of Mauritius ‘into a safer country’, with saturation coverage of ‘intelligent video surveillance’ cameras: ‘Huawei’s Safe City solution can prevent crimes targeted towards the normal citizen, tourists, students, elderly persons etc before they occur.’
The synergy between the company’s technology and the Communist Party’s drive towards an all-encompassing state surveillance system – one that monitors and measures ‘the Social Credit’ score of citizens to decide if they are politically reliable – is not coincidental.
Huawei’s global success has been to position itself as the supplier of telecommunications infrastructure at prices that competitors could not match. Unfortunately with the gear comes the non-monetary cost of predatory industrial espionage now detailed by the US Justice Department in its indictment last week of Huawei’s alleged theft of trade secrets, wire fraud and obstruction of justice involving the telecommunications company T-Mobile.
A second indictment details how Huawei is alleged to have engaged in money laundering, conspiracy to defraud the United States, obstruction of justice and sanctions violations involving trading with Iran. The Justice Department claims that Huawei’s chief financial officer, Meng Wanzhou, the daughter of the company’s founder, lied to American banks about Huawei’s relationship with Skycom, a wholly-owned subsidiary that was selling material to Iran in violation of American sanctions.
These are not trivial charges. They will play out in America’s transparent legal system in ways that will profoundly shape Washington’s bilateral relations with Beijing, and they will expose a range of Chinese vulturine business practices that will likely be damaging to the operations of Chinese companies in many other countries.
Beyond Huawei’s own industrial interests a broader western concern has been the extent to which the company may be a vehicle for Chinese state espionage.
In August last year the Turnbull government took a decision that effectively excluded Huawei and other Chinese telecommunication companies from the future Australian 5G network. Characteristically neither China nor Huawei were identified in the Government’s explanation of the decision.
This was the key paragraph in Scott Morrison’s press release: ‘The Government considers that the involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference.’
An important part in the government’s decision-making was that China’s 2017 National Intelligence Law says ‘all organisations and citizens shall, in accordance with the law, support, cooperate with and collaborate in national intelligence work.’ Of course Huawei vigorously denies that this law applies to their operations, but the denial needs to be offset against the reality that China is engaged in massive industrial-strength cyber spying in Australia and many other countries.
In Australia it became publicly known in 2018 that Chinese intelligence operatives had established domain control over the Australian National University’s information technology network. Years earlier a similar hack of the Federal Parliament’s computer system led unsuspecting MP’s to think they were dealing with the building’s IT help-desk when they were in fact engaging with the ever-helpful IT gurus of China’s Ministry of State Security.
While the systematic, relentless and massive scale of Chinese cyber and human-enabled espionage has been known for years, what has become clear in the last few months is that the US intelligence community has come to the shared view that China rather than Russia represents the greatest threat to the interests of the advanced democracies.
The US Justice Department’s release of detailed indictments against Huawei revealed the massive effort across many American police and intelligence agencies to gather a publically actionable case against Chinese intelligence gathering. Readers would be right to assume that what has been detailed thus far is only a tiny fraction of the bigger intelligence picture on Chinese state-run espionage activities.
In the same week of the Huawei indictments, America’s senior intelligence leaders appeared before Congress to release their annual ‘Worldwide Threat Assessment.’ The language on China is astonishingly blunt. The report says:
“China remains the most active strategic competitor responsible for cyber espionage against the US Government, corporations, and allies. Beijing will authorize cyber espionage against key US technology sectors when doing so addresses a significant national security or economic goal not achievable through other means. We are also concerned about the potential for Chinese intelligence and security services to use Chinese information technology firms as routine and systemic espionage platforms against the United States and allies.”
It’s distressing that President Trump dismissed this report because it did not agree with his delusional fantasies that North Korea is denuclearising and that the so-called Islamic State group has been defeated. There has surely never been a US President with a less functional relationship with the Intelligence community. But put Trump’s uninformed and flailing Tweets to one side, what’s most important about the Worldwide Threat Assessment are its tough judgements about China and the complete unanimity of the American security establishment (outside of the Oval office) on the risks that China presents to the established global order.
The Assessment makes it publicly known that China has developed the capability using cyber means to damage critical infrastructure: “China has the ability to launch cyber attacks that cause localized, temporary disruptive effects on critical infrastructure—such as disruption of a natural gas pipeline for days to weeks—in the United States.”
That revelation amply justifies Treasurer Josh Frydenberg’s decision last November not to allow Hong Kong’s CKI Group from taking over the massive gas pipeline assets of the Australian company APA.
The intelligence estimate also makes it even more mystifying that the Treasury’s Foreign Investment Review Board, in Frydenberg’s words : ‘was unable to reach a unanimous recommendation, expressing its concerns about aggregation and the national interest implications of such a dominant foreign player in the gas and electricity sectors over the longer term.’
Notwithstanding the FIRB’s inability to reach a unanimous recommendation, it’s clear to many countries that there are serious risks associated with transferring the ownership of critical infrastructure to Chinese companies.
One risk is that internet-enabled systems can be hacked and damaged by depositing malicious code that can shut systems down, surge or suppress power flows or otherwise play havoc with the controls of vital machinery.
A second risk is that Chinese state intelligence actors may well have interests in gathering information about the state design of critical infrastructure or the customers of these systems.
People can sometimes be surprised that there is intelligence value to be gained, say, from billing or supply databases. The reality is that not all espionage is focussed on accessing nuclear weapons codes. Chinese intelligence methodology places a lot of value on big data. It became known in late 2018, for example, that Chinese state-sponsored hackers were most likely responsible for stealing data of more than 500 million Marriott hotel customers in a hack that began four years ago and exposed the records of Marriott’s Starwood hotels reservation system.
Those records will contain the passport and credit card information of many individuals of interest to Chinese intelligence, moreover the Ministry of State Security and the intelligence arms of the People’s Liberation Army have the people and computing power to sift this data and link it to other intelligence information.
Bringing this back to Huawei and the world’s evolving 5G networks, the only sensible conclusion that political decision makers could reach is that Chinese intelligence services would have every interest to access national 5G networks. China has established the legal framework to compel companies to work with the State on intelligence tasks. When the Ministry of State Security comes knocking, no Chinese individual or business have the option to turn them away.
With Australia having decided to exclude Chinese companies from 5G, and the United States taking a similar but unofficial approach it’s not surprising that other countries are considering their position. New Zealand followed suit last December, British Telecom has announced it will remove Huawei equipment from its networks. Canada has a decision pending on Huawei and 5G which will surely be influenced by China’s thuggish hostage taking of Canadian citizens after Ms Meng was detained. Japan, India and the European Union, as well as many individual European countries are all looking hard at the case for excluding Huawei from 5G.
Speaking on ABC television last week Huawei’s Australian Chairman, John Lord denied that the Chinese state had any influence on his company, although Ms Meng was on the Australian board, he said she played no active role in Australian matters. Huawei, he claimed followed Chinese law, but would never do anything to break the laws of other countries saying, ‘if we did not operate by those countries’ rules our business would be dead. Overnight one country distrusting us could almost cause our business to collapse.’
Too late, the horse has bolted. 2019 will be a tough year for Chinese telecommunications companies in overseas markets. 5G networks will divide between those using Chinese sourced equipment and those that don’t and in time it will become much harder to do businesses across that fundamental political and technological divide.