"In simple terms the 5G ban on Huawei has cost us 1000 high-tech and high-wage jobs from the economy. We have gone from 1200 staff to fewer than 200 and by next year it will be lower still.
“From a revenue point of view we have gone from annual revenues of above $750 million – that could easily have gone to $1 billion with 5G – to a situation where in the next few years revenues will be below $200 million."
Simon Lacey, senior lecturer at the University of Adelaide’s Institute for International Trade, is a former Huawei executive and said some technological decoupling with China is long overdue. Ben Searcy
Some of the extraordinary repercussions of a divergence between the US and its allies and China was played out over the weekend as President Donald Trump told reporters he had blessed an investment by Oracle into Chinese video platform TikTok, which should allow it to keep working in America. However both TikTok and the hugely popular WeChat app have been banned from Apple and Google's app stores for the time being.
Meanwhile China is among countries expressing concerns about US company Nvidia's plan to buy UK-based semiconductor maker Arm Holdings for $US40 billion ($55 billion), as it could feasibly see China's phone and computer makers cut off from accessing the component parts they desperately need.
In Australia, where world-leading anti-China bans against Huawei have been in place for both the National Broadband Network and 5G networks since 2012, Prime Minister Scott Morrison has publicly called out persistent and rising cyber attacks, and news exploded last week about mass intelligence gathering on influential citizens by Chinese operatives.
Further divergence between East and West in the tech realm may be costly, but is both inevitable and sensible from a Western perspective, said experts interviewed by the Financial Review.
'Mindless pursuit' of efficiency
Technological decoupling with China, particularly in the defence electronic supply chain, was long overdue, said Simon Lacey, senior lecturer at the University of Adelaide’s Institute for International Trade.
Until January he was based in Shenzhen, China, where he worked for Huawei as vice-president of trade facilitation and market access.
The COVID-19 era should show Australia, and big US tech companies such as Apple, that they must no longer rely on China for all production and manufacturing needs, he said.
Former Australian government National Cyber Security Adviser Alastair MacGibbon said Australia should have no regrets about taking a firm stand on Huawei. Alex Ellinghausen
"This mindless pursuit of economic efficiency has come at the cost of supply chain resilience, so I would expect to see a lot of companies and governments in the post COVID-19 recovery, thinking about trying a 'plus one strategy,'" Mr Lacey said.
"You can have a supply chain that relies on China, but also have another country. It is something the Japanese started thinking about already [almost] 10 years ago after Fukushima.
"I mean Apple is the most profitable company in the smartphone business ... It can certainly afford to take some hits to its profit margin, even if its executives would probably argue that's not the case."
Mr Lacey, however, said some of the economic decoupling, such as restrictions placed on Tencent-owned WeChat, risked turning into "economic madness" that would be hugely detrimental to US interests as well as hurting China.
Huawei has fought a public battle against its exclusion from local telecommunication networks, saying it has not been given the opportunity to prove that its equipment represents no cyber threat in independent tests.
However it is now seemingly resigned to a dwindling local profile, and Mr Mitchell said the obvious damage to Huawei was also reflected in reduced investment in local endeavours, which would be harmful to the Australian economy.
He detailed recently abandoned plans for large-scale research and developments in Australia, headlined by the closure of a $60 million operational and business support systems R&D operation in Burwood, Melbourne with the loss of about 30 high-skilled jobs.
In addition Huawei has closed a $30 million National Training and Innovation Centre in Chatswood, on Sydney's north shore, terminated multimillion-dollar funding of an Internet of Things laboratory at James Cook University in Cairns, in far north Queensland, and closed its $2 million NSW Customer Solution Integration and Innovation Experience Centre.
"Prior to the 5G ban being introduced we had been in talks with Shenzhen about making Western Australia the global R&D centre for 5G mining applications, given that Australia is a world-leader in the resources sector, but the 5G ban obviously killed that," Mr Mitchell said.
“Since the 5G ban Huawei has terminated $100 million of R&D activity in Australia with investments in Victoria, New South Wales and Queensland wound-up and the important work and jobs taken off-shore.
"As well as this loss of current R&D spending – not to mention the lost future R&D – Australia will also pay a lot more for 5G because competition between vendors is much reduced."
The damages to Huawei's commercial interests have been similarly brutal in its consumer-facing smartphone business as its network infrastructure operations. Its phones had been widely recognised as the closest rivals to Apple and Samsung, in many ways surpassing both in terms of technical innovation, before the US administration imposed a ban last year on US companies selling technology to Huawei.
Huawei now has to sell phones that are missing core parts of Google's Android operating system, and apps such as Google Maps.
Huawei still overtook Samsung to become the world's No. 1 phone maker in 2020 thanks to its strong performance in China, but new numbers released earlier this month showed it suffered a 75 per cent decline in Australian handset sales between January and July compared with the year-earlier period.
Worth the hit from a cyber perspective
Asked whether the financial and diplomatic costs of taking a stand on Huawei was necessary, former Australian government National Cyber Security Adviser Alastair MacGibbon said the government should have no regrets.
Mr MacGibbon is now chief strategy officer at ASX-listed cyber security company CyberCX, but was previously head of the Australian Cyber Security Centre and spent 15 years working for the Australian Federal Police, where he helped establish its Australian High Tech Crime Centre.
"Not all money is good money ... China won't allow a lot of Western kit in its own networks, it will preference its own companies and its 'Made in China 2025' plan calls Huawei out as their communications leader," he said.
"People like Jeremy Mitchell and others will say it is a privately held, staff-owned company, but what he doesn't say is that it's an instrument of the state. They'll preference Huawei inside China, but then use our open trade regimes in Australia to say they should be able to compete openly here."
Whereas Huawei complains that Australia – unlike the UK – turned down its offer to build a testing lab, in which its kit could be checked to verify there were no backdoors to Beijing, Mr MacGibbon said such a facility would be pointless.
He said the security threat of having Huawei and other Chinese companies building and operating core infrastructure would come through the software that runs it.
While equipment could be inspected and deemed safe, he said software, containing millions of lines of code could be upgraded with a click of a button from China, rendering all prior testing obsolete.
"I can review all the lines of code and all the hardware today, but tomorrow when there's a new operating system, it's a totally different piece of technology," Mr MacGibbon said.
"In the 5G world, by default, you would have to have the manufacturer have an ability to have control over all the end points in order to upgrade them. That is where you have no assurance whatsoever that they wouldn't degrade or impede the network under direction from the national security law in China."
Paradise lost
While Western technology companies such as Cisco and SAP have publicly expressed concerns about the financial implications of decoupling with China, Mr MacGibbon said that in the online realm the "nirvana" of an open internet had been a myth for years already.
He said there was a fundamental difference between Western countries' use of the internet to trade and communicate, with the Chinese Communist Party, which he said viewed its own survival as being the paramount purpose.
"I used to think we should try to keep the internet as one, but the reality is that China does not allow the western internet to impact its population, but at the same time it will leverage our open Internet to influence our activities," Mr MacGibbon said.
"They have created a closed system inside China, but then want an open system outside China.
"What I like about the series of articles the Financial Review put out [about the Chinese profiling prominent Australians in order to sow dissent,] is that it will help open our eyes and make us less naive about what I think is an existential threat to our community. That is the weaponisation of our own data in order to divide our liberal democracy,"
UNSW Canberra Cyber director Nigel Phair, meanwhile, said that while he agreed the government was right to ban Huawei from 5G on security grounds, the Balkanisation of the internet needed to be arrested.
He said he believed the social and economic benefits of an open internet outweighed the risk of cyber attacks, and that similar moves to a US TikTok ban would be ultimately futile, as technology such as virtual private networks would let citizens keep consuming it regardless.
"If it was that simple to just restrict access to things there would be no child exploitation material available ... a united internet is a good thing, and splintering it is not," Mr Phair said.
"To avoid a US/China internet split, we need a multilateral umpire, similar to what the WTO does with trade disputes. This would be beneficial to avoid arbitrary blocking of content from a given jurisdiction."
The Link LonkSeptember 21, 2020 at 09:00PM
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Huawei reveals $100m local cost of 'cold war' - The Australian Financial Review
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