Richard McGregor on Huawei

Richard McGregor is a senior fellow for east Asia at the Lowy Institute, Australia’s premier foreign policy think tank, in Sydney. Mr McGregor is a former journalist and author who has won numerous awards for his reporting in China and east Asia. McGregor is an expert on the Chinese political system – his book, The Party, on the inner-workings of the Chinese Communist Party, published in 2010, was called a “masterpiece” by The Economist. Translated into seven languages, The Party was chosen by the Asia Society and Mainichi Shimbun in Japan as their book of the year in 2011. His latest book on Sino-Japanese relations, Asia’s Reckoning: China, Japan and the Fate of US in the Pacific Century, published in 2017, was called “shrewd and knowing” by the Wall Street Journal and the “best book of the year” by the Literary Review in the UK.

As the Former Bureau Chief of Financial Times in Beijing and Washington D.C., he led a team of senior reporters in both capitals for one of the world’s biggest business newspaper. He has also been based in Hong Kong, Shanghai, Tokyo, and Taipei. On top of the Financial Times, he has worked for the BBC, the Far Eastern Economic Review, the International Herald Tribune, The Australian and the Australian Broadcasting Corporation. He was born and spent the early years of his career in Australia.

McGregor was a visiting scholar at the Wilson Center and George Washington University in Washington from 2014-2016.

In August 2018, the Australian government released a national security review that effectively banned the Chinese telecommunications firms Huawei and ZTE from involvement in the upcoming construction of the country’s 5G network. Why did Australia make this decision? 

For some context, this is not the first time that Australia has excluded Huawei from a major telecommunications infrastructure project. They did so about seven or eight years ago, when the then-prime minister from the Labour party excluded Huawei from bidding on the National Broadband Network, which was the new internet backbone of the time. So in fact, the suspicions and the antagonism towards Huawei have been in the Australian system for a long time.

As for why they did that, there are a number of reasons, which I won’t put in any particular order. I think that the U.S. Alliance is important. Official Australia places great weight on that. It's a cornerstone of Australian foreign policy. A big part of that is intelligence cooperation, and Australia hosts a number of U.S. intelligence bases, therefore there is a premium on securing the telecommunications network.

The second factor since the initial decision to exclude Huawei from the NBN network is that wariness towards China and declining trust in China have gathered speed. That's another issue, so I think there is a propensity to exclude China.

The third thing is that there would have been a very strong recommendation from the defense and intelligence agencies to exclude China, so even if the politicians had wanted it the other way, politically speaking it would have been difficult to do. Politicians are wary about going against their intelligence agencies because of the damage it could do to them if it leaks, or if something goes wrong.

Finally, and I'm not a technical expert, but the very nature of 5G technology matters as well. It doesn't seem like you can fence off one part of the network from another, or the core from the non-core activities. That is a reason as well because of the advanced nature of the technology.

China’s 2017 National Intelligence Law requires citizens and corporations in China to cooperate with the intelligence-gathering efforts of the state. What role did this law have in Australia’s decision? Does this law require Huawei or ZTE to gather intelligence in foreign countries?

Well it's impossible to know exactly what this law means, but there's no doubt that it is the gift that keeps on giving to people in Western countries who want to keep China at arm's length, because it unequivocally states that Chinese companies, public or private, must work with and be directed by intelligence agencies. It's common sense, frankly. If you think about how the Chinese system operates, it is obvious that these companies would have to be responsive to the directives of the party or the security services under them. The Chinese say, of course, that this law is meaningless, and that it does not apply to activities overseas, but it's very hard to see how that's the case.

China is very much a joined-up system, and I have no doubt that the relationship between Huawei and the authorities of the party state in China is complex in ways we don't understand. But the reason that we don't understand that is that China is so opaque. That in fact plays against them in this case because we are very easily able to think the worst about this law. So in that respect, this law either operates as stated, or is a giant own goal on behalf of the Chinese, because it cited everywhere as a reason to keep them out.

So it basically gives some kind of official legitimacy to the suspicions of how Huawei that were already fairly powerful before?

Absolutely, it's there in black and white.

What is the extent of Huawei’s activities in Australia? Are there specific known actions Huawei has taken that would have raised national security concerns? 

They might have been involved in parts of the 3G and 4G networks. They are certainly involved in some rail projects or transport projects, most recently right now in Western Australia. You can buy Huawei handsets and the like, but in global terms for a company that had annual revenues last year of $110 billion, Australia is a small market.

There is nothing that I know of directly that would have raised national security concerns, so the answer is no. There have been a few stories and newspapers alluding to particular concerns where Huawei has been involved in espionage overseas. One of the main cases is the African Union headquarters in Ethiopia, so those concerns have gotten worse now, but there has been no hard evidence that I know of of Huawei compromising anything in Australia.

There are two things you could say about that. The first thing is the reasoning in Washington. They say that they do not need to show any breaches of security, because the Chinese system is hostile. Thus, basic prudence would dictate that you don't let a company which is part of a country like China run your telecommunications networks.

The second argument which would tell you to be wary of Huawei is to look at what Edward Snowden told us. Edward Snowden told us that all manner of activities by U.S. intelligence agencies – backdoors, tapping into internet cables, and all sorts of things – had the cooperation of telecommunications companies. It just beggars belief that Chinese telecommunications companies don't have similar relationships with their own intelligence agencies. It's almost common sense. Every big telecommunications company in Western countries has always had or been forced to have close relationships with their intelligence agencies, and I can't see why the same would not apply to Huawei in China. 

The Chinese government condemned the Huawei ban, and seemed to retaliate against some Australian imports. What other steps might China take if its companies continue to be locked out of critical infrastructure projects abroad, especially in Australia?

It’s a good question. Huawei has not been the only controversy between Australia and China. There's been a debate about Chinese influence operations in Australia and the use of the very large ethnic Chinese community here to manipulate politics. I won't say one way or another whether that is right or not, but it's nonetheless been a massive controversy, and the government has been vocal about that, pushed laws through Parliament to combat it.

It's not just about Huawei, it's about other aspects of the China relationship.  Obviously the business community and others were paranoid about economic retaliation from China, but in fact there's been remarkably little. There was some wine held up on the docks in Shanghai, which was eventually cleared. I heard the other day about a case of Shenzhen fish and lobster importers switching suppliers because of concern about political risk due to the poor bilateral relationship with Australia, but generally speaking we have not had anything like the sanctions directed at South Korea. I'm not saying that will not happen, and it might. But first of all, China's big fight is with the U.S. At a time China is fighting with the U.S., I don't think it wants to be having a high-profile fight with Australia, and particularly it doesn't want to be seen to be punishing Australia economically at a time when its relations with Canada, Germany, France, Singapore, and New Zealand are all getting worse or are subject to pressure. So Australia has been lucky because Donald Trump has drawn the heat away from us, and that might explain why there has been relatively little economic retaliation so far.

So you think it's a matter of the Chinese government trying to pick its battles, essentially?

I would say that China is picking its battles. It's a complex issue inside China, as there are always constituencies that would be hurt if China did decide to punish Australia. The classic one is iron ore, the key ingredient for steel, which is crucial for construction and infrastructure. China could get more of it from Brazil, but Brazil is more expensive and it is not as reliable. So China has to pick its battles, not just because it does not want to be fighting with every country at one time but also because there is an economic cost to China when it does use economic sanctions against other countries.

Early this year, the Australian government announced the expansion of infrastructure investment and military cooperation in the South Pacific, widely seen as an attempt to counter Chinese influence there. What does this, along with the move on Huawei, mean for future Sino-Australian relations?

There is no doubt that Australia's “Pacific Reset,” as it is called here, is a reaction to China's growing presence in the Pacific Islands. Australia is working with New Zealand in particular, which is very much a Pacific nation, but we are also working with the U.S. The series of initiatives from Australia has been quite amazing actually. It may be long overdue, but they have finally gotten off their backsides, as it were. It's not just increasing aid or having a greater diplomatic presence in the Pacific nations, but it's also potentially building or refitting a naval base that was used by allied forces in the Second World War in Papua New Guinea, at Manus Island. The big question is whether Australia can sustain the very ambitious plans that they have laid out. It's more money, it's more resources, it's more people, and it's more military hardware. So I think that has been one of the biggest new commitments in Australian policy for a long time.

Is there a question of whether Australia can continue to counterbalance China there, given China's much larger size and greater resources? 

Well that’s totally open to question. China is very big, but its own foreign aid budget is under pressure with the Belt and Road initiative. It is a relatively small amount that they're putting into the Pacific, but I'd say let's see how the Chinese investments work out, how welcome they are among the Pacific nations. I'm not here to say that China is engaging in debt trap diplomacy. Australia and New Zealand in some respects have neglected politically the Pacific Island nations, but they have always been the biggest donors there. As we all know, and as America knows well, you can give a lot of money to a lot of people for many years and they still will not love you anyway. No good deed goes unpunished, as the saying goes. So let's see how the Chinese do.

I think the big strategic issue is whether China at some stage establishes its own naval base in the South Pacific, which would in strategic terms cut off our pathway off our shores in the Pacific. Some people have rejected that idea, but I don't really underestimate China's ambition. There are many ways of fashioning bases like that. So there is a new great game afoot in the Pacific, and we'll see if Australia is actually up to it.

The US-China trade war has highlighted competition between those two states in the technology sector, and some see the two sides as forming technological blocs with starkly different views on privacy and the role of the state. Does this move on Huawei suggest that Australia is strongly aligning itself with the US bloc? Given Australia’s relative size and proximity to China, how might it have to triangulate between the two major powers?

That's very hard to answer. Certainly we seem to be headed towards a bifurcated world of technology. The old thing about Chinese goods is that they used to be attractive because they were cheap. Now they are both good and cheap. Huawei is a good example of that, because Huawei in some respects represents the clear choice for Australia. There are going to be many other technologies where the choice of Chinese technology would be attractive, but it is a difficult thing for smaller third countries to get through.

I'm quite persuaded by the argument on security grounds, but if all we have are competing industrial policies, is it always in Australia's interest to choose America? Maybe not. There may be some areas which do not impinge on national security concerns where we could buy from China, so that is going to be a very difficult issue. If Trump can dress up steel, aluminum, and car parts all as “national security” for tariff policies, do we have to buy into that?


Sam Fraser CMC '19Student Journalist

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