EU weighing up ZTE/Huawei probe

14 May 2013

The European Union’s (EU’s) trade chief Karel De Gucht is looking for support from European Commission (EC) members to investigate allegations that Chinese manufacturers ZTE and Huawei were employing unfair trade practices, the Wall Street Journal writes citing an unnamed EU official. The two companies are suspected of using government subsidies, in the form of cheap credit from Chinese state-owned banks for both the suppliers and their customers, to offer goods and services at unfairly low prices. Exports of base stations to the EU have reportedly soared in recent years whilst prices have dropped substantially. Brussels has engaged Beijing on the issue several times, with a view to compelling Chinese vendors to sell their goods at above minimum price in the European market, but to no avail.

De Gucht reportedly faces opposition from European vendors looking to expand in the Chinese market, fearing that a probe could potentially damage commercial opportunities there: the source added that EU officials are keeping a close eye on which suppliers are winning contracts in China. Ericsson in particular has condemned the planned investigation, with the Swedish vendor’s head of government and industry relations Ulf Pehrsson quoted as saying: ‘We don’t believe in this type of unilateral measure. Ericsson is supporting global rules that apply for all industry players. The EU faces the risk of initiating a negative spiral by targeting individual firms.’ Huawei strongly refutes the accusations, saying that it does not receive illegal subsidies and that a USD30 billion credit agreement with the China Development Bank was ‘common commercial practice’ that complies with international regulations.

The call for an investigation comes at a particularly sensitive time, with China Mobile, the world’s largest cellco by subscribers, preparing to launch a tender for the supply of some 200,000 Time Division Long Term Evolution (TD-LTE) base stations and related equipment. European suppliers, Ericsson, Alcatel-Lucent and Nokia Siemens Networks (NSN) are reportedly looking to submit bids for contracts, which are worth an estimated CNY40 billion (USD6.47 billion) all told. For its part, Ericsson announced earlier this month that it was looking to gain a greater share of the tender than the 8.1% it won in a previous auction in 2012. It is feared that an investigation into Huawei and ZTE’s practices in the EU may lead state-backed China Mobile to favour the two domestic vendors over international suppliers.

Huawei in particular has drawn the ire of governments, regulators and telcos in recent years, largely over concerns that its equipment was vulnerable to espionage and cyber-attacks sponsored by Beijing. Most recently, Switzerland’s dominant telco Swisscom threatened to cut off ties with the supplier after the company was accused of employing Chinese staff travelling in Switzerland on tourist visas.