By Sarah Marsh and Andreas Rinke

BERLIN (Reuters) -Germany is considering banning certain components from Chinese companies Huawei and ZTE in its telecoms networks, a government source said, in a potentially significant move to address security concerns.

An interior ministry spokesperson on Tuesday confirmed that the German government was carrying out a general review of telecoms tech suppliers, but said that this was not directed at specific manufacturers.

The German government, which is in the midst of a broader re-evaluation of its relationship with top trade partner China, has been wary of expressly singling out Huawei, even while pursuing legislation enabling it to crack down on the firm.

An interior ministry paper on the review obtained by Reuters said that 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.

“We cannot be reliant on components of individual suppliers,” Finance Minister Christian Lindner told Welt TV.

The review could lead to Germany asking operators to remove and replace components already built into networks, the interior ministry spokesperson said, adding that current legislation did not foresee compensation for them.

“This is a sign that the German government may finally be taking China-related risks to national security seriously,” said Noah Barkin, managing editor with research firm Rhodium Group’s China practice who specialises in German-Chinese relations.

“But after years of dithering, the German 5G network is deeply dependent on Chinese suppliers. It will take many years to unwind this.”

Critics of Huawei and ZTE say that their close links to Beijing’s security services mean that embedding them in the ubiquitous mobile networks of the future could give Chinese spies and even saboteurs access to essential infrastructure.

Huawei, ZTE and China’s government reject these claims, saying that they are motivated by a protectionist desire to support non-Chinese rivals.

Referring to reports in German media about a possible ban, the Chinese embassy in Germany said in a statement Beijing would be “very puzzled and strongly dissatisfied” if any such decision were taken.

In response to a Reuters request for comment, China’s foreign ministry said in a statement that it hoped Germany would “make an independent decision in line with its own interests, economic patterns and international rules that does not receive interference from a third party”.

Beijing has often suggested that decisions made by European countries that it perceives as hostile are due to pressure from the United States.

A Huawei spokesperson said it did not comment on speculation and it had a “very good security record” during its 20 years of delivering technology to Germany and the rest of the world. A ZTE spokesperson said no evidence had been produced to suggest its products were insecure, but it welcomed external scrutiny.

Asked about the potential ban, two of Germany’s top telecoms operators, Deutsche Telekom and Vodafone Germany, said they fully complied with current regulations but did not respond to political speculation.

GERMANY LAGGING

While several countries across Europe are still formulating telecom policies, only Britain and Sweden have so far banned Huawei and ZTE from supplying critical 5G network equipment.

“The devil is in the details, it would be a major step forward if this included all access network components where operators have made excessive use of Huawei in recent years,” said Thorsten Benner, China expert and director of the Global Public Policy Institute in Berlin.

Germany passed an IT security law in 2021 setting high hurdles for makers of telecommunications equipment for next-generation networks, but stopping short of banning Huawei and ZTE as some other countries have done.

A new report shows that Germany has actually become even more dependent on Huawei for its 5G radio access network equipment (RAN) than in its 4G network, even though operators have avoided using the firm’s technology for the core networks.

The German government was last month unable to answer a parliamentary request about how many Huawei components operators were using in their 5G networks, filed in part in response to the report.

“It’s disconcerting that the government only right now starts to do a thorough mapping of where operators use Huawei and ZTE components and that they don’t have that information in real time,” said Benner.

Sweden’s telecom regulator PTS, which in 2020 banned Chinese companies from rolling out 5G, gave telecom operators taking part in 5G auctions until Jan. 1, 2025 to remove gear from China from their infrastructure and core functions.

Britain, meanwhile, wants telecom firms to remove equipment and services from Huawei in core network functions by Dec. 31, 2023, from an original target of Jan. 28, 2023.

The deadline to remove all Huawei gear from Britain’s 5G networks by the end of 2027 remains unchanged.

(Reporting by Sarah Marsh, Andreas Rinke, Friederike Heine and Hakan Ersen; Additional reporting by Supantha Mukherjee and Liz Lee; Editing by Alexander Smith and Stephen Coates)

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