SYDNEY, June 24 (Reuters) – The peaceful island of Nauru is negotiating to build an undersea communications cable that would connect to an Australian grid, two sources familiar with the talks told Reuters after the earlier rejection of ‘a Chinese proposal.

The United States and its Pacific allies fear that the cables laid by China could jeopardize regional security. Beijing has denied any intention to use commercial fiber optic cables, which have a data capacity far greater than that of satellites, to spy.

Nauru, which has close ties to U.S. ally Australia, helped defeat a World Bank-led cable tender earlier this year over fears the contract could be awarded to the former Huawei Marine, now known as HMN Tech, after the Chinese company submitted an offer priced more than 20% below its competitors.

The tiny Pacific nation of just over 12,000 has now approached the Asian Development Bank (AfDB) to help fund an alternative, the development agency told Reuters.

“The AfDB is involved in very early discussions with the government of Nauru to explore possible options to help finance an undersea cable to provide low cost and high quality internet service,” the AfDB said in a statement. to Reuters.

“Details of the connection arrangement and sources of funding will be determined in due course.”

Both sources said the new plan would involve laying a cable from Nauru to the Solomon Islands capital, Honiara, which is about 1,250 kilometers (776.7 miles) apart.

The new line would then operate the Coral Sea Cable system, a 4,700 km network that connects Australia to the Solomon Islands and Papua New Guinea. This line, mostly funded by Australia and built by Vocus Group, headquartered in Sydney (VOC.AX), was completed in 2019 to exclude a competing offer from Huawei Marine, then owned by Huawei Technologies.

The former Huawei Marine is now majority-owned by Shanghai-listed Hengtong Optic-Electric Co Ltd (600487.SS) after Huawei Technologies sold the submarine cable business last year.

Nauru’s plan requires buy-in from Australia and the Solomons, the sources said. It is not known if Nauru has applied for financial assistance from Australia or if it only needs Canberra’s permission to join the Coral Sea Cable system.

A source, who has first-hand knowledge of the planned cable route, called the talks “early stage negotiations.”

The second source provided information on discussions between officials in Nauru and the ADB, Australia and the Solomons. The source said Nauru was in the process of “making a deal”.

The governments of Nauru, Australia and the Solomons did not respond to requests for comment. The World Bank said it was not involved in discussions over the cables connecting Nauru.

Nauru was the first to worry about a bid made by Chinese company HMN Tech during the World Bank’s bidding process last year to build submarine cables for Nauru, Federated States. from Micronesia and Kiribati, sources told Reuters in December. The United States followed up by warning Pacific island nations that HMN Tech’s bid posed a threat to regional security.

The project then collapsed after island governments heeded US warnings and refused to award a contract.

“The Chinese government has always encouraged Chinese enterprises to conduct investment cooperation in various fields in accordance with market principles and international rules and on the basis of compliance with local laws,” said Zhao Lijian, spokesperson. of the Chinese Ministry of Foreign Affairs.

“Chinese companies have always maintained a good track record in network security, and so-called Chinese espionage activities are baseless,” Zhao said Thursday at a regular press conference, when asked about the plan. submarine cable.

Australia has strengthened its presence in the Pacific through the creation of an Australian $ 2 billion ($ 1.5 billion) infrastructure finance facility and its membership in the new “Quad” group, with the United States. United, India and Japan, to counter China’s expansion interests in the Indo-Pacific.

Australia is also part of a trilateral partnership with the United States and Japan that was formed to fund an undersea fiber-optic cable for Palau, another Pacific nation.

Washington has urged governments around the world to prevent Huawei and other Chinese companies from supplying sensitive communications equipment, alleging that the company could turn over data to the Chinese government for espionage, a charge denied by Beijing and operators of Chinese telecommunications.

A spokesperson for the Chinese Foreign Ministry said in a statement to Reuters last week that Chinese companies have an excellent cybersecurity record and need to be able to participate in a non-discriminatory business environment.

Nauru, located in the central Pacific, has maintained diplomatic relations with Taiwan, creating tensions with China, which views Taiwan as its own territory. Hosting a large Pacific forum in 2018, Nauru President Baron Waqa called a Chinese envoy “very insolent” and “tyrant” after an angry exchange between officials.

Reporting by Jonathan Barrett; Editing by Simon Cameron-Moore

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