Will Nokia’s risky China connection become a problem?

There is a good reason for the secrecy: The construct in China could become a problem for Nokia in Europe – where the company wants to do lucrative business in building the networks for 5G mobile communications. Many EU countries, especially Germany, have made digital networks a critical infrastructure and have issued strict requirements. The People’s Republic in particular is perceived as a threat.

The Federal Office for the Protection of the Constitution (BfV) even names the expansion of super-fast 5G mobile communications as a target for Chinese secret services. “The BfV is assuming an increased threat potential to German authorities from state-controlled cyber attacks of Chinese origin,” warns the authority in its annual report.

Unlike countries like Great Britain or Sweden, the federal government has not excluded any Chinese manufacturers from the 5G expansion. To do this, however, all manufacturers have to undergo a critical examination. So far, the focus has been primarily on the companies Huawei and ZTE, which have their headquarters in China. But due to the close cooperation with a Chinese state-owned company, Nokia could also be examined particularly critically.

Technology expert Tim Rühlig from the German Association for Foreign Policy (DGAP) is critical of Nokia’s partnership with the state-owned Huaxin. “That is definitely a risk. Today, such a cooperation would probably no longer be entered into. ”The Chinese state grants its security authorities extensive access to companies in the country. In the case of state corporations, the connection to the Communist Party is particularly close.

At Telekom, Nokia components are in the sensitive core network

Nokia’s cooperation with a Chinese state-owned company is already having an impact in Germany. There are three mobile network operators in Germany: Deutsche Telekom, Vodafone and Telefónica. As a consequence of the critical debate about the security of the networks, all three operators decided not to use any more products from Chinese manufacturers in their core network, the most sensitive area of ​​the infrastructure.

As the largest provider, Deutsche Telekom selected Nokia for its core network, among others. “In the core network, we consciously rely on different manufacturers from Europe and the USA for the various functions,” confirmed a company spokesman. He went on to say: “Deutsche Telekom has been testing security-critical network components extensively before and during their use and has been for a long time.”

The first practical test in Germany is soon waiting for Nokia. The new IT Security Act 2.0 stipulates that critical components of the infrastructure must be certified by the Federal Office for Information Security (BSI). The BSI looks primarily at the technical security of the products.

There is a second hurdle. The government demands a declaration of trust from companies. This should be checked for credibility with the help of intelligence information from the ministries involved – interior, foreign, economic and possibly the Chancellery. Products from the manufacturer concerned may only be installed if everyone agrees.

The BSI does not know anything about the Nokia cooperation in China

The new Foreign Minister Annalena Baerbock (Greens) had already emphasized in her inaugural speech that Germany and Europe must insist on their own values ​​and norms when dealing with countries like China. “We can not only set our own standards and norms, but also define which products will be put on our and thus on the largest domestic market in the world,” said Baerbock, thereby expanding the focus to all of Europe.

A spokeswoman for the BSI said on request that the authority was not aware of the cooperation between Nokia and Huaxin, nor had Nokia disclosed the details of the cooperation and possible security consequences so far.

The BSI has not yet started the examination process. To do this, Nokia would first have to be named by one of the network operators as the supplier of components for critical infrastructure. Discussions were still ongoing between the network operators and the Federal Network Agency responsible for the telecommunications industry about what counts as part of the critical infrastructure.

The cooperation between Nokia and Huaxin was driven by local business interests, says the Danish telecommunications expert John Strand. “Nokia set up the joint venture in the hope of doing more business in China,” says Strand. However, the company was not successful with this strategy.

“The truth is that China accounts for around a quarter of the global telecommunications market, but is dominated by the domestic companies Huawei and ZTE,” says Strand. Nokia hardly got a chance when the Chinese network operators awarded lucrative contracts for 5G mobile communications.

In the 2020 financial year, Nokia even had to report a 25 percent drop in sales in China. In the “Greater China” region, which includes Hong Kong and Taiwan in addition to mainland China, Nokia reported sales of just under 1.4 billion euros, after more than 1.8 billion in the same period of the previous year. For comparison: In 2017, when the joint venture was closed, sales in “Greater China” were around 2.5 billion euros.

For tech expert Strand, however, the cooperation in China is not automatically a security risk. “I assume that Nokia has sealed off the deal in China and that it has nothing to do with the equipment in Europe,” says Strand. In China, research is being carried out primarily for the Chinese market.

Nokia itself, however, left inquiries about this unanswered. The China business is led by the Nokia manager Markus Borchert, who comes from Germany. He left interview requests unanswered. As recently as 2019, Nokia advertised that the research laboratory in the Chinese coastal metropolis of Hangzhou was the largest for 5G globally.

Nokia went its own way

It is not unusual for international companies to work with state-owned corporations in China. The German automakers Volkswagen, BMW and Daimler are all in joint ventures with Chinese corporations. However, they did not choose to do so voluntarily, but were forced by Beijing. And the partnerships are designed to be limited primarily to the Chinese market.

Nokia took a different route. The group has proactively entered into close cooperation with the state-owned company Huaxin and has sold the partnership as part of global product development from the start. That’s what makes the deal so special.

Technology expert Rühlig from DGAP therefore hopes for a particularly critical examination by Nokia in Germany. “I would say it would be a good sign if Nokia got into trouble,” said Rühlig. It would underline that Germany takes the security of critical infrastructure seriously. He does not speak out against cooperation with Chinese partners in principle. “Cooperations are possible. It depends on the conditions, ”said Rühlig.

Whether Nokia has really succeeded in maintaining a close partnership with a state-owned company in China and at the same time being able to guarantee the safety of its products in Germany will soon have to be revealed in the course of an inspection of its products.

More: Ex-software chief of the Pentagon: “We are at war with China – we just don’t know it yet.”