The U.S. and other developed countries are increasingly taking steps to block products from Chinese telecommunications equipment companies, citing concerns over possible data leaks and cyberattacks. Their main targets are Huawei Technologies, China's largest player and seen as a front-runner in fifth-generation mobile technology, and ZTE, another big name.
Huawei has been at the center of a dramatic series of developments in recent days. Meng Wanzhou, the company's chief financial officer and daughter of the founder, was arrested in Canada at the request of the U.S. government. Meanwhile, the BT Group of the U.K. said it would remove Huawei equipment from its core mobile networks.
In Japan, where concerns over national security risks are receiving increasing attention, the government plans to make new guidelines on procuring telecom equipment for ministries and agencies and the Self-Defense Forces. Though it has not specifically named China as a reason, Tokyo clearly has Chinese manufacturers in mind.
Behind these international moves to contain China is the enactment in August this year of a U.S. defense bill -- the National Defense Authorization Act -- which bans government entities and their contractors from using products from Huawei. The administration of U.S. President Donald Trump asked Japan and other allies to take similar steps, and Australia and New Zealand said they are on board. European Commission Vice President Andrus Ansip said at a press briefing that Europe should be worried about security risks when using Chinese products.
National security concerns can be a compelling reason for shutting the door on products from a specific maker. But we still have not been told exactly how Chinese products pose a threat. We urge the Japanese government to obtain this information from U.S. authorities, confirm it independently and disclose -- to the extent possible -- what it learns.
Additionally, the Japanese government should share the new procurement guidelines with Japanese telecom companies, such as NTT Docomo, and others. Investment in 5G mobile technology by telecom carriers is likely to come into full swing in 2019. Japanese companies will no doubt be attracted by Chinese-made equipment that is not only less expensive but also well-made. Indeed, SoftBank Group has already bought large quantities of it.
Should the procurement of telecom equipment be left to the discretion of individual companies, or should purchases from specific manufacturers be banned outright for reasons of guarding against potential risks? Further, should regulatory restraints be imposed on purchases of made-in-China smartphones and other devices, too? These policy matters require quick decisions by the Japanese government if the 5G mobile launch is to be smooth.
The arrest of Huawei's CFO for allegedly violating U.S. trade sanctions against Iran has emerged as the greatest potential source of tension between Washington and Beijing and rocked global stock prices.
At the same time, the related changes in the business environment might present a growth opportunity for Japanese companies. We hope they weigh all sides of the matter and respond with their eyes wide open.