Australia has effectively banned Chinese telecommunications giant Huawei from participating in the development of its new 5G mobile phone network, citing national security concerns.
In a move that could further inflame tensions with Beijing, Canberra yesterday blocked the involvement of companies that are subject to foreign control. The decision, announced by Acting Home Affairs Minister Scott Morrison and Communications Minister Mitch Fifield, did not name China but was widely seen as aimed at Huawei, which has lobbied heavily to be involved in the project.
"The involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference," the ministers said in a statement.
The controversial decision would also block other Chinese firms, like ZTE, which has bid for the project. Other foreign firms such as Ericsson and Nokia would be eligible to bid for work on the 5G project because they are not subject to "extrajudicial directions". But Chinese security law - which appears to have shaped the announcement - can compel firms to cooperate with the state intelligence authorities.
Huawei expressed disappointment at the decision. It has insisted it is independent of the Chinese government and could participate in less sensitive parts of the new 5G network.
"This is a extremely disappointing result for consumers," the firm said in a tweet. "Huawei is a world leader in 5G, has safely and securely delivered wireless technology in Australia for close to 15 years."
Canberra's statement said the new 5G network was particularly susceptible to security risks. "5G requires a change in the way the network operates compared to previous mobile generations," it said.
"These changes will increase the potential for threats to our telecommunications networks, and these threats will increase over time as more services come online."
Huawei was previously banned from participating in Australia's broadband network in 2012. Canberra earlier this year revealed plans to build an undersea cable to the Solomon Islands and Papua New Guinea, a move designed to exclude Huawei from the project.
The United States has expressed concerns about the security risks posed by allowing Huawei and ZTE to participate in sensitive projects and has reportedly urged Canberra to bar the firms' involvement in the 5G network.
But the latest decision is likely to add to tensions with China, which has expressed anger over Australia's foreign interference laws announced last December.
These laws were widely seen as aimed at preventing China from trying to exercise influence in Australian domestic political affairs or at universities.
China has also objected to previous decisions to bar the country's firms from investment in Australia.
Canberra can block investments deemed contrary to the public interest - a power that it has used on numerous occasions against Chinese firms. For example, Chinese bidders have been blocked from buying S. Kidman & Co cattle empire, Australia's largest private agricultural holding. China's state-owned State Grid Corp and Hong Kong-listed Cheung Kong Infrastructure were also blocked from an A$10 billion (S$10 billion) deal to lease the New South Wales electricity provider, Ausgrid, due to "national security concerns".
Some telecommunications firms have warned that the decision could limit competition and lead to higher prices for consumers.
But analysts in Australia have largely welcomed the government's decision. Mr Nigel Phair, director of the University of New South Wales' Canberra Cyber centre, told The Australian Financial Review: "Under Chinese law, a company has to assist when asked by the government, so I think it's the correct decision.
"While in the interests of the free market it would be good to have as many players involved as possible, I think we have to wear it on national security grounds. There are just too many unknowns."
A cyber policy expert at the Australian Strategic Policy Institute, Ms Danielle Cave, said Canberra was right to be "wary", noting Huawei's alleged links to the Chinese military and government.
"If you piece all of those things together, I really don't think (the government) would have been able to allow Huawei full access to the 5G network," she told ABC News.