China telecoms pose risks to Indian defences 50 years after Himalayan victory

There has been a stream of articles in India’s newspapers over the past week marking the 50th anniversary of country’s humiliating defeat by China in a brief Himalayan border war that shattered India’s self-confidence so devastatingly that the country has yet fully to recover. Headlines have included “The war we lost – the lessons we didn’t learn” and “Lessons from 1962 - India must never lower its guard”.

Yet India’s guard is still lowered and lessons have not been learned about anticipating an unexpected invasion – not just by the People’s Liberation Army (PLA) taking up positions on India’s side of mountainous borders, but by Chinese telecom companies possibly planting leaky and crippling bugs in networks and communications systems.

In a neat coincidence, just as India’s defence pundits were revisiting the failings of the early 1960s, the US Congress's intelligence committee issued warnings in Washington that two Chinese telecom companies – Huawei and ZTE – were a threat to national security. The report said the companies could disrupt information networks and send sensitive data secretly back to China. Neither company had cooperated fully with the investigation, and Huawei had “provided evasive, non-responsive, or incomplete answers to questions at the heart of the security issues posed”. Although Huawei and others suggested this was a protectionist ploy encouraged by American telecom companies to beat off low-cost competitors, the report triggered fresh complaints and renewed inquiries. Other countries are also worried, including Canada, Australia and the UK.

India is clearly vulnerable to these security risks from a country that is its biggest long-term defence worry. Concerns that could one day lead to war include a 50-year old row over the border that China will not resolve, plus disputes over access to river waters and potential differences on sea lanes and other issues. Over the past 10 years, Huawei has become a leading telecom provider, along with ZTE. It has a five-year $2bn investment plan and is the second biggest provider of networks after Ericsson, with a 25-30% market share, It also supplies telecom systems to companies, and has a substantial share of the market for devices such as data cards and phones, and a large research centre in Bengaluru (Bangalore).

It is not just telecoms where China is gaining a significant hold on India’s business and economy. Two-way trade currently stands at $60bn, heavily in China’s favour, making it India’s largest trading partner, with a 2016 target of is $100bn.

The Indian government is publicly in denial, though the army’s senior signals officer has apparently expressed some concerns. I have asked various officials and policy pundits about the risks in recent weeks and most duck the issue, offering no solution. Most take the same line as India’s telecom operators - that the products are irresistible because Huawei’s total costs of ownership are 25-30% lower than rival companies such Alcatel-Lucent, Ericsson, and Nokia Siemens..

The Economist had a cover story headlined Who’s afraid of Huawei? in August that acknowledged Huawei’s ability “to sneak in malware and sneak out sensitive data”. Westerners fretted that its networks were “used by Chinese spooks to eavesdrop during peacetime and could be shut down suddenly during wartime” and saw the firm as a “potent weapon in China’s burgeoning cyber-arsenal”.

But, unsurprisingly for a free market journal, it said that “techno-nationalism” was not the answer to fears of cyber-espionage. Noting that Huawei is a $32bn company operating in 140 countries with 140,000 employees, it said it “commands respect by delivering high-quality telecoms equipment at low prices”. It added however that, “given the power of the state in China’s version of capitalism”, the west was “right to be vigilant”.

That hits the point because China’s version of capitalism means that companies owe primary allegiance to Beijing, whether they are in the private or public sector, and will surely do the government’s bidding. Some supporters point out that the PLA, where Huawei’s founder, Ren Zhengfei, used to work, had severed any ties (including possible equity stakes). But a company does not have to be tied to the PLA to obey Beijing.

It is however hard to know what can be done, especially since European manufacturers sources components from other Chinese suppliers that might be harder to check than Huawei and ZTE.

John Gapper, a leading Financial Times columnist, was probably right last week in an last week headed It is too late for America to eliminate Huawei. He said that “the time to declare telecoms a strategic, protected industry like defence, was 20 years ago; now is the time to make a deal”.

He suggested that such a deal could involve Huawei opening up its very secretive books and ownership pattern by listing on London or New York stock exchanges, and separating its US (and presumably other country) divisions, as America demands for defence equipment manufacturers.

That might be part of the solution, but surely it would be better for India and other countries to ban Chinese high technology companies from all security and communications sensitive networks and gradually ease them out of as many other areas as possible. The chances of a war with China are remote in the foreseeable future, so India has time, if it starts now, gradually to remove the threat as contracts expire and technologies change.

A longer version of this article is on John Elliott's current affairs blog at http://wp.me/pieST-1N0