Huawei is back in the spotlight in Europe after a report suggested that Germany may ban some equipment from the Chinese telecommunications giant in its 5G network.

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China’s embassy in Germany said it is “puzzled and deeply dissatisfied” after a report suggested Berlin plans to ban some equipment from Chinese companies Huawei and ZTE in its 5G telecommunications networks for national security reasons.

On Tuesday, Reuters reported, citing a government source, that Germany is considering banning certain components from Chinese companies in its mobile networks.

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A German Interior Ministry document obtained by Reuters said a specific supplier could be banned from providing critical components if it is deemed to be directly or indirectly controlled by the government of another state.

If the rules come into force, it could mean ripping out equipment already installed in networks and replacing it with other suppliers, an Interior Ministry spokesman told Reuters.

Huawei has been accused by a number of governments, particularly the United States, of constitutes a threat to national security. Washington has claimed that Huawei has close ties to China’s communist government and that the company’s network equipment could be used to send data on American citizens to authorities in Beijing.

Huawei has repeatedly denied that it poses a threat to national security.

China’s response

A spokesperson for China’s embassy in Germany said late Tuesday that Huawei has operated in accordance with laws and regulations in the country, hitting back at Germany’s stance, as reported by Reuters.

“In recent years, countries and anti-Chinese forces have continued to try to smear Huawei with falsified accusations, but there has never been any evidence that Huawei’s equipment and components pose security risks,” the spokesperson said, according to a Google translation.

“If the report is correct, the Chinese side is very puzzled and strongly dissatisfied with the hasty decision made by the relevant German government without any factual basis.”

The embassy spokesperson claimed that any ban on Chinese equipment in telecommunications networks “violates economic laws and the principle of fair competition”.

A Huawei spokesperson told CNBC that the company has a “strong security record” in Germany and globally for over 20 years.

“Huawei believes there should be an objective and objective discussion on how to mitigate risks in cyberspace,” the spokesperson said.

ZTE did not immediately respond to a request for comment when contacted by CNBC.

Germany follows the UK, USA

Germany’s position on Huawei has been in limbo since the US, under Donald Trump’s administration, began cracking down on the telecom equipment giant.

Europe’s largest economy has sought a balance between maintaining business ties with China, its biggest trading partner, while weighing geopolitical considerations.

Germany has sought to intensify commercial ties with China in recent months, and Chancellor Olaf Scholz visited Chinese President Xi Jinping in November. But it has been under increasing pressure from the US to take a tougher stance on Beijing on technology.

Any decision to block Huawei from its 5G networks would mark a major change from 2019 when the country said it would not make such a move. Since then, Germany has been on the fence about a Huawei ban as US pressure has mounted and other countries have moved to block equipment from the Chinese company on their networks.

“Under Angela Merkel, Germany has consistently played down the risks arising from the country’s close economic relationship with China. This was particularly evident in the debate over 5G, where years of political wrangling resulted in Huawei gaining an ever-increasing market share,” Noh Barkin, Editor-in-Chief for analyst firm Rhodium Group’s China practice, told CNBC.

“The current government is in the midst of developing a new approach to China, focused on reducing dependencies and strengthening economic resilience.”

5G is a key technology which has been fueled amid a wider battle between the US and China for technological supremacy. 5G, which is the latest standard for mobile internet, is seen as critical to supporting next-generation infrastructure such as driverless cars but even has potential military applications.

What is 5G?

In 2019, Huawei was placed on an American blacklist called the Entity List. This restricted US companies from exporting certain technology to Huawei. Year 2020, The US moved to cut off Huawei from key chip supplies it needs for its smartphones. This crushed the company’s mobile business.

Washington has tried to convince other governments to block Huawei. Year 2020, Sweden banned Huawei and ZTE equipment in their 5G networks.

The same year, the British government also announced a ban on Huawei equipment from its 5G network and told operators they would have to phase out equipment from the Chinese supplier from their infrastructure by 2027.

It is unclear whether Germany’s rules would go that far. But if it did, it would be an expensive endeavor that would take a long time to complete, according to Barkin.

“If the government were to decide to phase out Chinese providers from the network, which is not yet clear, it would take most of the next decade to do so,” Barkin said.