China says it's 'puzzled' after report Germany might ban Huawei from parts of 5G mobile network

China's embassy in Germany said it is "puzzled and strongly dissatisfied" after a report suggested Berlin is planning to ban some equipment from Chinese firms Huawei and ZTE in its 5G telecommunications networks on national security grounds.

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

A paper by the German interior ministry which was obtained by Reuters said a specific supplier could be banned from providing critical components if it were deemed to be directly or indirectly controlled by the government of another state.

If the rules came into effect, it could mean ripping out equipment that is already installed in networks and replacing it with other suppliers, an interior ministry spokesperson told Reuters.

Huawei has been accused by a number of governments, in particular the U.S., of posing a national security threat. Washington has alleged that Huawei has close ties to China's communist government and that the company's networking gear could be used to send data on U.S. citizens to authorities in Beijing.

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

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

"In recent years, countries and anti-China forces have continued to attempt to smear Huawei with trumped-up charges, but there has never been any evidence that Huawei equipment and components pose security risks," the spokesperson said, according to a Google translation.

"If the report is true, the Chinese side is very puzzled and strongly dissatisfied with the hasty decision made by the relevant German government department without factual basis."

The embassy spokesperson claimed that any ban of 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 that there should an objective and factual discussion about how risks in cyberspace can be mitigated," the spokesperson said.

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

Germany's position on Huawei has been in limbo since the U.S., under the Donald Trump administration, began to crack down on the telecommunications equipment giant.

Europe's largest economy has sought a balancing act between maintaining business ties with China, it's biggest trading partner, while weighing up geopolitical considerations.

Germany has looked to step up commercial links with China in recent months, with Chancellor Olaf Scholz visiting Chinese President Xi Jinping in November. However, it's been under increased pressure from the U.S. to take a harder stance on Beijing on technology.

Any decision to block Huawei from its 5G networks would mark a major shift from 2019 when the country said it wouldn't make such a move. Since then, Germany has sat on the fence in regards to a Huawei ban as U.S. pressure has ramped up and other countries have moved to block equipment from the Chinese firm in their networks.

"Under Angela Merkel, Germany 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 dithering resulted in Huawei taking an ever-bigger market share," Noh Barkin, managing editor of research 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 bolstering economic resilience."

5G is a key technology that has been thrust in the middle of a broader battle between the U.S. and China over tech supremacy. 5G, which is the latest standard of mobile internet, is seen as crucial to supporting the next generation of infrastructure such as driverless cars but even has potential military applications.

In 2019, Huawei was put on a U.S. blacklist called the Entity List. This restricted American companies from exporting certain technologies to Huawei. In 2020, the U.S. moved to cut Huawei off from key chip supplies it needs for its smartphones. This crushed the company's mobile business.

Washington has sought to convince other governments to block Huawei. In 2020, Sweden banned Huawei and ZTE gear in its 5G networks.

That same year, the U.K. government also announced a ban on Huawei equipment from its 5G network and told carriers they would need to rip out gear from the Chinese vendor from their infrastructure by 2027.

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

"Were the government to decide to phase Chinese suppliers out of the network, which is not yet clear, it would take the better part of the next decade to do so," Barkin said.