Research Notes

Cybersecurity threats will increase cost for telecom sector – 13 Questions to the Chinese government

Huawei has been in the news in recent months with operators investing in 5G networks and security concerns that the equipment could be compromised by the Chinese government. Huawei is in the midst of a big public relations push to counter the criticism. Last week it brought 250 analysts and journalists to China for a tour of its headquarters and corporate presentations. Strand Consult was invited but declined to attend the all expense paid tour and was not confident that the trip would meet Western standards of transparency and candor.

Strand Consult has analyzed the telecom industry for years and believes that the current attention on cybersecurity is long overdue. Cybersecurity is increasingly important and demands greater attention. It costs real money to build resilience into products and services, and it is important to have frank discussion about the costs and tradeoffs for cybersecurity with other political goals. Just as the financial sector has incurred huge costs for managing regulatory compliance around the world, the telecommunications sector will be hit by similar costs to ensure the security of networks, products, and services. As governments require online platforms to monitor and remove certain kinds of content, governments will require the telecommunications sector to police networks for cybersecurity threats. The telecommunications sector will bear an increased burden to address the security threats, many of which fall into the category of national defense. Operators should be recognized for their efforts.

There needs to be more focus on how the Chinese view cybersecurity, the requirements they make of their own companies for surveillance and espionage, and the conditions they impose on foreign companies doing business in China, including the surrender of intellectual property. Had Strand Consult went to China, it would have presented the following questions for the Chinese government.

1. What is the Chinese government’s policy for which entities have permission to build and run communications networks in China?
2. Which entities design, build, and operate the infrastructure often referred to as “The Great Firewall of China” which blocks Chinese users access to websites inside and outside China that have been approved?
3. Which entities design, build and operate China’s Social Credit System, the government scheme which measures each citizen’s economic and social reputation?
4. Which entities design, build and operate “the world’s biggest camera surveillance network”, the set of hundreds of millions of closed CCTV cameras which monitor people in China?
5. At Mobile World Congress, Huawei’s Deputy Chairman Gou Ping discussed spying by the US government. What is China’s policy about spying conducted by the Chinese government? Why is there no Chinese Edward Snowden, a person who exposed government surveillance by China? How does China treat whistleblowers, citizens of China who dare to criticize the government?
6. How does the Chinese government work with Chinese ICT companies such as Huawei, ZTE, and Lenovo?
7. Why must foreign companies surrender their intellectual property to the government when working in China?
8. What is the market share of Western makers of network equipment in China?
9. What is the Chinese government’s process to approve vendors and suppliers for wind turbines, aircraft, telecommunications infrastructure, and smartphones?
10. How successful is China in realizing its China 2025 strategy? How does the government measure success?
11. What kind of new intelligence has China gained from its 2017 National Intelligence Law, which compels Chinese citizens and companies to provide unmitigated intelligence both within China and outside of the company to the Chinese government?
12. Many countries have a fear of the use of Chinese equipment for 5G given multiple reports from intelligence agencies. Does the Chinese government have the same fear in the case of equipment from the West?
13. Many Chinese firms claim that they are immune to influence from the government, but how if the government gets to have seat on their board of directors, how is it that the government is not influencing corporate decisions?

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