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International relations

Japan scrutinizes China's Huawei and ZTE over spying fears

With US citing security risks, allies consider tighter regulations

Huawei and ZTE together accounted for roughly 9% of Japan's telecom-equipment market in 2017.   © Reuters

TOKYO (Dow Jones) -- Japan is studying restrictions on Chinese telecommunications-equipment companies Huawei Technologies Co. and ZTE Corp. as U.S. fears of cyberspying by Beijing prod allies to follow suit.

U.S. officials have been arguing that using equipment from the two companies in network infrastructure constitutes a security risk. Australia last week banned both Chinese companies from its next-generation mobile network. A July study by the U.K. government said it found "shortcomings" in Huawei's engineering processes that exposed new risks.

Officials responsible for cybersecurity in the Japanese government's Cabinet Office said they have begun to study whether tighter regulations are needed to reduce the risk of infiltration through imported equipment, including equipment made by the Chinese companies. One of the officials said Japan was aware of other countries' moves but would make a decision about regulation on its own.

Tokyo's study is still preliminary and nothing concrete has been decided, officials said. A representative of ZTE declined to comment. A Huawei spokesman declined to comment.

In response to earlier criticism, Huawei has said that its equipment is safe. It says it is owned by its employees and operates independently from the government in Beijing. In the U.K., Huawei says it is working to address the government's concerns.

Huawei and ZTE together accounted for roughly 9% of Japan's telecom-equipment market in 2017, according to IHS Markit Technology.

Huawei doesn't disclose its Japanese sales figures. It employed more than 950 people in Japan as of last year and has partnered with major Japanese electronics companies, according to the website.

Japan is racing to roll out so-called fifth generation networks next year, ahead of the 2020 Summer Olympics in Tokyo. Japan's carriers are already placing orders for software and equipment that they spent years developing with Huawei, analysts said. Japan's biggest cellphone carrier, NTT DoCoMo Inc., as well as the No. 3 carrier, the Japanese mobile unit of SoftBank Group Corp., say they have conducted field trials with Huawei, in accordance with instructions from Japan's communications ministry.

If no action is taken, Huawei, the world's largest supplier of telecom equipment, looks poised to reap big rewards after it identified Japan as a key market in its ambition to set the standard on network technology more than a decade ago. The faster networks are expected to better connect vehicles, homes, banks, and infrastructure.

"The safety [of Huawei and ZTE equipment] has been demonstrated," SoftBank mobile executive Jun Shimba said at a news conference Wednesday. Asked about possible government action against the companies, he said SoftBank would "conduct serious discussions" with regulators.

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