Huawei to Hell: PRC Threatens Trade Spat w/ EU

There's so much controversy over Chinese-made and -designed telecommunications gear: While the American solution to denying market access to budding Chinese telecoms giants / national champions Huawei and ZTE is to treat them as security threats--their investment is not welcome in the "Land of the Free"--Europeans have another tack. Namely, these PRC champions have been styled by EU trade authorities as heavily subsidized competitors. Nobody doubts the EU's penchant for raising a ruckus over competition law or unfair trade--go ask Microsoft, Google, Boeing and so on. It was thus probably only a matter of time before the Europeans got around to Huawei and ZTE. Ironically, the Chinese trade threats were made at a meeting meant to relax trade tensions:

Beijing has threatened swift retaliation against a range of European Union industries if Brussels presses ahead with an investigation into government subsidies granted to two Chinese telecoms equipment companies. The Chinese threat was delivered at a meeting with EU trade officials in Beijing late last month that was arranged at the behest of Chen Deming, China’s commerce minister, to try to defuse a brewing trade dispute that is straining commercial relations between the two sides.

Instead, it collapsed into acrimony, with the Chinese warning their EU visitors that they would respond to any investigation of Huawei and ZTE Corp by probing subsidies granted to European agriculture, automotive, renewable energy and telecoms companies.

Alike US quarrels with Huawei and ZTE, the interesting thing is that the most vocal parties are not Western telecoms gear manufacturers but rather the politicos. They probably are more keen on "setting an example" for China lest such practices continue or even expand in other industries. Yet, as a demonstration of emerging Chinese market power, European manufacturers are actually pressuring the European Commission not to go forward with, say, a WTO case against Huawei and ZTE:

Nonetheless, concerns about the Chinese reaction – and pressure from worried member states – appear to have put on ice a case that once seemed imminent, according to several EU diplomats. They said it was now unlikely that Mr De Gucht would act before September...

Combating Chinese government subsidies has been one of Mr De Gucht’s top priorities. The cutting-edge telecoms equipment industry, in which Huawei and ZTE have quickly gained market share, would be a signature case. The European Commission was poised to open its investigation after informing member states at a closed-door meeting in June that it had “very solid evidence” that both companies had benefited from illegal subsidies to develop their fast-growing businesses.

The case, which could result in steep tariffs, is believed to centre on export credits supplied by the Chinese governments to facilitate overseas sales. Huawei and ZTE have denied receiving improper subsidies. Chinese officials have also denied the EU allegations. Mr De Gucht’s case has been undermined by a lack of support from European telecoms companies – Ericsson, Siemens-Nokia, and Alcatel-Lucent – which fear that any action from Brussels could harm their own business interests in China’s fast-growing market. 

It looks to me like the Chinese have the Dutchman De Gucht by the balls here if industry bigwigs and various EU nations are wary of annoying the dragon. Who exactly will he draw support from for trade litigation? China many not be playing fair as he says, but he has few backers for demonstrating that such is the case.