China's Huawei and ZTE deny getting illegal subsidy

RadioRaiders · May 29, 2012

This is very interesting. In 2005 I first saw a Huawei stand at CeBit in Germany (Europe's annual telecom show), and had never heard of them before. Today, only 6 years later, they are selling equipment all over the place, mainly simply by undercutting competitors prices (I have personally seen it happen several times, and heard even more second-hand stories that were identical).

As Huawei (and I think also ZTE?) are private companies, they don't have to disclose any financial reportings (ie: they don't have to open their books to anyone). It's been widely speculated that they are selling gear at less than what it costs them to make it, just to get into the market and push competitors out (Nokia-Siemens and Alcatel-Lucent have been damaged very badly, and the market-leader Ericsson is getting pushed to the ropes as well).

I find it ironic that Ericsson is trying to stop the EU probe against Huawei (I would think they'd welcome it!), however, in a larger scale, if Huawei is pushed out of EU, there will be political reprisals against Ericsson and other EU companies selling in China, so I guess they don't want to get pushed out of China, especially as China is growing so fast and sales potentials are large.

...will be interesting to see how this plays out. Stay tuned...

(Reuters) - China's top telecoms gear makers Huawei and ZTE denied receiving illegal government subsidies that helped them undercut rivals in recent years, after media reported the European Union planned to take action over unfair trade practices.

Action by the EU could spark a trade war, analysts warned.

Cheap prices have allowed Huawei and ZTE Corp to grab a big share of the global network gear market in recent years, pushing firms such as Nokia Siemens Networks and Alcatel Lucent to the brink of extinction.

The Financial Times quoted unidentified EU officials and executives as saying the Commission had been gathering evidence to show Huawei and ZTE had used subsidies to allow them to sell goods below cost in the EU.

A spokesman for EU trade chief Karel De Gucht said he could not confirm the contents of the FT report.

Both companies said on Tuesday they had not been contacted by the EU.

"We deny claims made in the media that Huawei employs dumping practices and has benefited from illegal state subsidies," Huawei said in an emailed statement.

ZTE said it "receives no illegal or hidden subsidies, nor does it dump products in any markets where it operates".

EU trade ministers are scheduled to meet in Brussels on Thursday, an EU diplomat said.

"We think that though the ministers will have an informal debate over lunch on China, and they might touch on this topic, there will be no formal decision," he said.

"It's sensitive because there are some European firms in the Chinese market that might face consequences."

A European Commission report in 2011 said China's largest telecom equipment makers benefit from significant government support, including "massive" credit lines from state-owned banks.

However, European telecoms firms rely on smaller-scale export credits from government-backed bodies, emphasizing the blurred lines marking what is allowed under international rules and what is not.

COUNTERPRODUCTIVE

China is the European Union's second-biggest trading partner after the United States, and the bloc is China's biggest trade partner. Trade between the two is forecast to hit a record 500 billion euros ($397 billion) this year.

Despite this, relations have been tense, with the EU's De Gucht complaining China subsidizes "nearly everything", distorting competition.

However, action by the EU over telecoms equipment could be counterproductive.

"I don't think it'll be a very good move by the EU to launch an anti-dumping case," Yang Haofan, an analyst at Guotai Junan Securities in Shanghai, said.

"If that happens, European vendors such as Ericsson and Alcatel-Lucent will have problems trying to sell equipment in China, which is a bright spot of global telecom spending now."

Inge Heydorn, a fund manager at Sentat Asset Management in Sweden, also said China would likely hit back at European firms.

Ericsson, the world's biggest seller of mobile equipment, said it did not support any EU move and had not prompted it to act.

"The EU faces the risk of initiating a negative spiral by targeting individual firms," Ulf Pehrsson, head of government and industry relations at Ericsson, said in an emailed comment.

"Ericsson is a strong supporter of free trade and we don't believe in this type of unilateral measure."

In the first quarter, Ericsson's sales to China and north-east Asia were roughly equivalent to its revenue from the EU, at 9.2 billion crowns ($1.29 billion).

Nokia Siemens Networks and Alcatel-Lucent declined to comment.
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RadioRaiders · May 29, 2012

...and here's the rub...

Ewa Bjorling said EU officials informed European Union member states at a private meeting in Brussels last week that it had evidence that Huawei Technologies Co. and ZTE Corp. (0763.HK) have been benefiting from government subsidies.

She fears Brussels could introduce tariffs against Huawei and ZTE for allegedly dumping wireless network equipment in the Europe at below cost, triggering retaliatory moves that could harm Swedish network equipment maker Ericsson (ERIC).

"While Chinese companies' share of the EU's wireless equipment market is 30%, one has to remember that the EU's share of China's wireless equipment market is 45%. So if China were to hit us back with similar measures, it would hurt us more than what it would hurt them," she said.

The European Commission declined to comment on the matter, but European officials have in the past alleged that subsidies are given to a broad range of Chinese companies. They include cheap credit from state-owned banks, tax breaks and generous research grants.

Read more: Sweden Warns EU Probe Against Huawei, ZTE Could Backfire | Fox Business
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brainjohn · Jun 1, 2012

well I don't think they are just getting customers but no profit just to set themselves in EU. Everyone knows china offers very cheap products but quality matters sometimes so there is competition of Huwaei and other companies like Ericsson, Siemens and Nokia in many countries and there are customers who prefer cost effective products and some prefer quality and durability

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