The German government will rely on security concerns alone in deciding whether to allow vendors such as China’s Huawei Technologies Co. into the country’s fifth-generation network, it said days after Beijing threatened with potential retaliation.

Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, declined to respond directly to the warnings from Chinese ambassador Wu Ken about trade consequences, should Huawei be banned from the 5G network. But Seibert said political and industry interests would take a back seat to security issues.

“Our position on the security issue with respect to the expansion of the 5G network is driven by the need for security – not industry considerations,” Seibert told reporters on Monday. The government has yet to finalize its security criteria, which the Interior Ministry on Monday said would take “some time.”

Huawei is at the center of an increasingly delicate balancing act for Merkel. On the one hand, she seeks to address concerns from Washington and her own intelligence officials over potential Chinese spying. On the other, she is trying to avoid upsetting trade relations with Beijing, which are vital to Germany, and particularly, its car industry.

What’s at stake

  • China is Germany’s largest trading partner, with 200 billion euros in bilateral trade per year
  • Chinese billionaire Li Shufu largest single shareholder in Daimler AG with 9.7% stake
  • China largest market for VW, Daimler, BMW
  • 34% of VW’s global sales were in China during January and November

The Chinese envoy had cited the millions of vehicles German carmakers sell in China, after he cautioned that excluding Huawei would have consequences.

The bill presented by lawmakers from Merkel’s coalition last week would impose a broad ban on “untrustworthy” 5G vendors. While the proposal doesn’t explicitly name Huawei, it’s tailored to the Chinese company and would represent a challenge to Merkel’s China policy.

The draft will now be reviewed by Merkel’s Chancellery and the Economy Ministry.

Legislators from Merkel’s Christian Democrat-led bloc will meet later on Monday to discuss the issue.

Espionage

During months of debate about 5G security in Germany and elsewhere, Huawei has repeatedly rejected allegations of its equipment’s potential for espionage and sabotage.

The Huawei question is also delicate because President Donald Trump’s administration has sought to enlist U.S. allies in squeezing out Huawei as a 5G supplier. A lawsuit against the Federal Communications Commission this month marked Huawei’s latest attempt to fight U.S. sanctions and curbs that threaten the world’s largest networking business.

Volkswagen AG, BMW AG and Mercedes-Benz maker Daimler AG each invested billions of dollars setting up manufacturing and distribution in the country. While China’s car sales have been shrinking for more than a year, it’s still the top market globally as the U.S. and Europe are also sputtering.

The German brands have been weathering the China slump better than some cheaper local brands, which are popular in rural regions where consumers have been hit by the country’s slowing economy. The German companies have also outlined aggressive spending plans to rev up electric-car sales and add new models in China.