World Bank axes sub-sea cable project over Chinese bid

SYDNEY/BEIJING • A World Bank-led project has declined to award a contract to lay sensitive undersea communications cables after Pacific island governments heeded US warnings that participation of a Chinese company posed a security threat, two sources told Reuters.

The former Huawei Marine Networks, now called HMN Technologies and majority owned by Shanghai-listed Hengtong Optic-Electric, had submitted a bid for the US$72.6 million (S$97.36 million) project priced at more than 20 per cent below its rivals Alcatel Submarine Networks, part of Finland's Nokia, and Japan's NEC, the sources said.

The East Micronesia Cable system was designed to improve communications in the island nations of Nauru, Kiribati and the Federated States of Micronesia (FSM) by providing underwater infrastructure with a far greater data capacity than satellites.

Two sources with direct knowledge of the tender told Reuters that the project reached a stalemate due to security concerns raised within the island nations over HMN Tech's bid.

The project's planned connection to a sensitive cable leading to Guam, a US territory with substantial military assets, heightened those security concerns. The project was designed to link to the Hantru-1 undersea cable, a line primarily used by the US government that connects to Guam. "Given there was no tangible way to remove Huawei as one of the bidders, all three bids were deemed non-compliant," one of the sources said.

The source said that HMN Tech was in a strong position to win the bid due to the terms overseen by the development agencies, prompting those wary of Chinese involvement to find an expedient solution to end the tender.

The World Bank said in a statement to Reuters that it was working with the respective governments to map out the next steps.

A Chinese Foreign Ministry spokesman said in a statement to Reuters that all parties should provide a non-discriminatory business environment that companies from all countries, including China, can participate in.

"As a matter of principle, I want to emphasise that Chinese companies have always maintained an excellent record in cyber security," the spokesman said.

"The Chinese government has always encouraged Chinese companies to engage in foreign investment and cooperation according to market principles, international regulations and local laws."

The three island nations involved in the project were represented on the bid assessment committee. Development agencies typically review the committee's recommendations to ensure the selected bidder complies with the agencies' policies and procedures.

During the bidding process last year, Washington detailed its concerns in a diplomatic note sent to FSM, which has military defence arrangements with the United States under a decades-old agreement. The note said Chinese firms posed a security threat because they are required to cooperate with Beijing's intelligence and security services, an assertion rejected by China. Nauru, which has strong ties to Australia and is an ally of Taiwan, initially raised concerns over the bid lodged by the Chinese company.

In separate correspondence, prominent US lawmakers warned that the Chinese government subsidises companies, undermining tenders like those run by development agencies.

While the warnings were issued during the Trump administration, there has been no apparent change to the US position on the issue under the new Biden government.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 19, 2021, with the headline 'World Bank axes sub-sea cable project over Chinese bid'. Subscribe