(Adds Chinese Foreign Ministry comment)
By Colin Packham
SYDNEY, Oct 30 (Reuters) - Australia must restrict foreign firms with government ties from its 5G mobile communications network because it is critical infrastructure, the head of one of the country's intelligence agencies said, helping to explain why China's Huawei was banned.
Australia expanded its national security rules in August to exclude telecommunication equipment suppliers that it believes have ties to foreign governments. Huawei Technologies Co Ltd HWT.UL said after the policy announcement that it would be prohibited from Australia's new broadband network. events soured bilateral relations between Canberra and China.
"5G technology will underpin the communications that Australians rely on every day, from our health systems and the potential applications of remote surgery, to self-driving cars and through to the operation of our power and water supply," Mike Burgess, director-general of the Australian Signals Directorate, said in rare public comments late on Monday.
"A potential threat anywhere in the network will be a threat to the whole network," he said in a speech that did not mention Huawei or any other firm by name.
A spokesman for Huawei did not immediately respond to requests for comment. The company has previously denied it answers to the Chinese government.
Speaking in Beijing, Foreign Ministry spokesman Lu Kang said cooperation between Chinese and Australian companies was win-win, and Australia should not put up barriers to this.
"We urge the Australian side to abandon ideological prejudices and create a fair competition environment for Chinese companies' operations in Australia. We hope Australia handles this issue with caution," Lu added.
Huawei had offered Canberra access to its technology to satisfy security concerns, while it also argued the company structure hadn't changed since it was allowed to supply equipment to Australia's 4G network.
But Burgess said the 5G network requires different rules.
"Historically, we have protected the sensitive information and functions at the core of our telecommunications networks by confining our high-risk vendors to the edge of our networks," Burgess said.
"But the distinction between core and edge collapses in 5G networks," he said.
Western intelligence agencies have raised concerns for years that Huawei, the world's largest maker of telecommunications network gear, is beholden to the Chinese government, raising the risk of espionage.
The United States in August restricted access for Huawei and compatriot ZTE Corp (HK:0763) 000063.SZ to its lucrative market for similar reasons. previously banned Huawei from providing equipment for its fibre-optic network and moved to block it from laying submarine cables in the Pacific. widely expected, the move added to tensions in bilateral ties as Canberra had previously accused China of meddling in its domestic politics, which soured trade ties.