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Ukraine walks telecoms tightrope between China and the West

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Ukraine faces a conundrum: Use Chinese telecom kit to repair its shattered infrastructure or side with Western allies in icing out the likes of Huawei and ZTE.

Either decision carries risk. Cutting Chinese equipment from networks could come at a steep cost even if it plays well with the United States and Europe. On the other hand, China’s willingness to discreetly deliver military equipment to Moscow, as previously reported by POLITICO, demonstrates its friendliness toward Kyiv’s antagonist. 

“It must be clearly understood that today China has already determined its position regarding Ukraine,” said Yuriy Matsyk, the head of fixed broadband at the Ukrainian Ministry for digital transition.

China, still, could provide both Russia with wartime equipment while gaining from Ukraine’s reconstruction efforts through its telecom companies’ contracts. 

Kyiv is now contemplating a ban on Chinese telecom vendors as it seeks to secure ties with the European Union and NATO. Western countries cracked down on Huawei and ZTE over security fears and in an effort to tame China’s global tech footprint. More recently, the European Commission recently chose to block Chinese firms from research funding and to stop contracting operators using their equipment, saying they posed “materially higher risks than other 5G suppliers.”

“Today America and Europe are very acutely raising the question, ‘Why are there no measures regarding Chinese contractors?’” Matsyk said, referring to actions taken by Ukraine’s allies to limit reliance on or ban the use of Chinese kit.

“We absolutely support the position regarding the ban on Chinese equipment for government agencies. It was an initiative of the Committee of the Parliament of Ukraine,” he told POLITICO. 

But this potential ban, Matsyk warned, “can also be implemented in different ways” and has been taken “into development” at the National and Defense Council of Ukraine, a state task force presided over by President Volodymyr Zelenskyy.

Some proposed options include doing without cheaper equipment from Huawei and ZTE in the brand-new and yet-to-be-restored Ukrainian telecom masts and dismantling the Chinese equipment already in place.

ZTE did not respond to a request for comment. Huawei didn’t comment in time for publication.

Costs and benefits

Outright stripping and replacing the Chinese kits, however, would come at an even greater cost — more than $1 billion, according to the ministry’s estimates. Some Ukrainian operators get about 70 percent or more of their equipment from these Chinese suppliers, Matsyk said — and removing or cutting off this kit could slow down the country’s post-war reconstruction plan.

“The question is timely,” he acknowledged.

About a quarter of all internet networks in the country have been destroyed since the war with Russia broke out in February 2022, he said. As of last February, the World Bank estimated Ukraine would need at least $1.47 billion in the short term just for its telecom infrastructure.

Europe is pitching in assistance to that end. In June, Dutch-based telecoms company Veon pledged to invest $600 million in its Ukrainian subsidiary Kyivstar, the country’s largest operator, as a part of the international Ukraine Recovery Conference in London.

The catch? Kyivstar, like many Ukrainian telecom companies, heavily relies on Chinese kits and could see its ambitions scaled back if it has to turn to more expensive equipment for its base stations.

An urgent swap to Western suppliers would be “impossible,” Kyivstar’s CEO Oleksandr Komarov previously told Bloomberg. He mentioned the company had a “mid-term program” involving the swapping of Chinese core components with European vendors’ kit if policies toward Chinese companies were to change.

Veon didn’t respond to POLITICO’s request for comment.

A ban on Huawei and ZTE in Ukraine could benefit their European competitors, like Finnish Nokia and Sweden’s Ericsson. Nokia is already involved in the reconstruction plan and will help modernize networks in two pilot settlements in the Kherson and the Kyiv Region, Matsyk said.

Although the timeline for and the extent of any final decision on Chinese telecom equipment are unclear, “it is obvious that there will be some solutions,” he added.

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