Merkel to Ratchet up Huawei Restrictions in Concession to Hawks

(Bloomberg) -- Chancellor Angela Merkel’s government is prepared to make a key concession to security hawks by tightening barriers aimed at Chinese equipment supplier Huawei Technologies Co., according to people familiar with the plans.

A draft of security measures being rolled out by the German government aims to block Huawei components from entering the core network of the country’s ultra high-speed fifth-generation technology, the people said on condition of anonymity. The new rules may assuage officials in Merkel’s intelligence services and the U.S. administration who have warned about the risks of Huawei’s ties to the Chinese government and 5G’s susceptibility to sabotage or espionage.

Telecom executives are prepared to accept such a restriction in the key areas of next-generation infrastructure if Huawei’s products aren’t barred from the less sensitive parts, where they’re needed to ensure an efficient build-out, according to an industry official familiar with the talks.

The German leader, who has cultivated relations with Beijing and insisted that her government won’t single out a Chinese vendor, has come under increasing pressure to toughen her stance on Huawei to ensure that German data is protected. Security hawks have accused Merkel and her allies in the Economy Ministry of taking a soft line on China in an effort to bolster trade relations.

Now Berlin’s planned move could potentially upset Beijing which has lobbied governments across Europe and the West to resist a U.S. campaign against the company. Moves to restrict Huawei’s market access have already strained Beijing’s ties with nations ranging from Australia to the Czech Republic.

The debate has mirrored the one in the U.K., where government action has been ensnared by a division in the administration and the public. The government in London will defer a decision on Huawei and 5G until after the general election next month.

Merkel hinted at the shift toward greater security last week, saying Germany will “significantly strengthen” standards for 5G, even as the government won’t single out individual companies. Chinese components make up a significant share of previous generation networks, she said.

“Huawei is a partner, or a provider, that has already been active in Germany for the construction of the 2G and 3G networks,” Merkel told reporters in Berlin last Friday. “We know that we will have to significantly strengthen security standards for the 5G expansion.”

Security measures will include assessing a vendor’s “trustworthiness” in order to receive certification by German authorities, according to one of the people. 5G networks will also be required to diversify suppliers, so that no single vendor can control parts of the infrastructure, and to include overlapping capacity in case sections of the network are taken offline, the person said.

The Huawei restrictions could quell tensions within Merkel’s government, which seeks to balance security concerns with good relations to a key export market. Merkel, who has built a rapport with President Xi Jinping’s government, made her 12th visit as chancellor to China in September.

The tensions in Germany spilled into the open last month when Merkel’s spy chief, Bruno Kahl, the head of the Federal Intelligence Service, said in rare public testimony Huawei was too dependent on the Chinese Communist Party and “can’t fully be trusted.” U.S. Secretary of State Mike Pompeo, who has leaned on Merkel’s government to reject Huawei, cited the comments in a speech on Friday.

Still, Kahl said that Huawei restrictions should only be applied for 5G core networks. “There may be areas where a participation doesn’t have to be excluded,” he told lawmakers on Oct. 29.

That’s a salve for industry, which has warned that an across-the-board Huawei ban would hobble its ability to expand 5G in Germany, which is struggling to keep pace on digital infrastructure. Deutsche Telekom AG said earlier this year that a ban would delay roll-out of the technology by at least two years and cost billions.

Huawei has insisted that it poses no risk to infrastructure in Europe’s largest economy. David Wang, the company’s deputy chief executive officer in Germany, said there’s no reason to exclude a company that’s served the telecommunications industry without fault for years.

“We have a 100% clean record,” Wang said Monday on a panel at an economic conference in Berlin. Huawei would never do something to hurt its business, he said.

--With assistance from Peter Martin.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net;Birgit Jennen in Berlin at bjennen1@bloomberg.net;Stefan Nicola in Berlin at snicola2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Raymond Colitt, Chris Reiter

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