Britain could face a damaging multibillion-pound trade war with China and see the roll-out of economically vital 4G mobile internet services derailed if an intelligence report, due to land on David Cameron’s desk within the next two weeks, finds that the UK operations of the Chinese communications giant Huawei represents a threat to the UK’s cyber-security.
Downing Street, according to intelligence sources, is prepared to face a costly trade backlash by Beijing if it opts to blacklist the multinational over allegations that the company has links to the Chinese army and concerns that its equipment could be used for cyber-espionage by the Chinese government.
Huawei, though not a high-profile consumer brand in the UK, controls a quarter of the EU’s telecom-equipment market, winning over half of all the contracts for 4G infrastructure technology awarded throughout Europe. The Chinese multinational is also supplying the 4G technology for EE, the company that controls Orange and T-Mobile, and has signed similar deals with O2 and 3UK.
There is also a major contract with BT to update its fibre-optic broadband network, and Huawei’s other UK clients include Vodafone, BSkyB and Virgin Media. Huawei products are therefore likely to be inside most British households.
Concerns over the potential for state cyber-espionage involving Huawei has recently seen the US House of Representatives’ intelligence committee recommend that the Shenzhen-based company be restricted from operating on US soil. In Australia it has been excluded from bidding to supply the lucrative national fibre network. A similar move is under consideration by Canada.
Huawei was not named specifically in a telecoms report published by the EU earlier this year. However, the dominance of Chinese firms in the European telecoms market was described as a “major security risk”.
Brussels also believes that the Chinese government may be covertly subsidising its leading telecoms firms, allowing them to undercut, and ultimately put out of business, their European rivals.
A leading industry figure who spoke to The Independent on Sunday, on condition of anonymity, said that if the Government opted to blacklist Huawei, “the costs would be considerable to mobile companies and broadband providers.
The infrastructure would be hit if companies couldn’t use Huawei technicians as it is in constant need of repairs and upgrades. It would be a threat to digital Britain.”
Although the UK’s signals intelligence centre at GCHQ in Cheltenham has a technical laboratory which has been vetting and monitoring new Huawei equipment for over two years, Downing Street earlier this year came to the view that growing concern in the US and EU over dominant Chinese telecommunications firms merited an accelerated security evaluation by the UK’s intelligence services.
The Intelligence and Security Committee set up the review in the autumn. The Prime Minister is understood to have been informed of its draft findings, ahead of the final report due before Christmas.
Mr Cameron’s pledge in late 2010 to double UK trade to China to £62bn by 2015 means the report’s findings could be a game-changer for Britain’s trade ambitions with the new Chinese leader, Xi Jinping, if Huawei is blacklisted. But if Downing Street were to dismiss publicly US, Canadian and EU concerns as unsubstantiated conspiracy theory, Mr Cameron would leave himself open to the charge of keeping Beijing happy at the expense of UK cyber-security.
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