Chinese telcos get taken to the cleaners

While Chinese telecom makers are facing a  security purge in the US, in Europe they have fallen foul of anti-dumping and anti-subsidy guidelines.

European Union Trade Commissioner Karel De Gucht is preparing a formal investigation into anti-competitive behaviour by Huawei and ZTE in order to protect a “strategic” sector of Europe’s economy.

De Gucht told Reuters that Huawei and ZTE are dumping their products on the European market. If the EU takes action against the two, then they could lose their most important trading partner.

Chinese exports of goods to the 27-member bloc reached $372 billion last year but cheap capital for these Chinese companies creates a distorted playing field, De Gucht said.

Huawei denied it had broken any rules, claimed that it always plays fair and wins business  through innovative technology and quality service, rather than via pricing or subsidies.

Huawei’s Western Europe president Tao Jingwen said the firm’s rivals were blaming the company for their own losses.

He said that such losses were caused by their own laziness, rather than any price fixing from Chinese companies. ZTE has also in the past denied benefiting from illegal state support.

De Gucht’s office said an investigation was prepared but put on hold. At the time no companies were officially named. The pause is to allow further negotiations with China in hopes for a resolution. However, the Chinese government has threatened the EU with retaliation if it takes any steps against its companies.

What is strange about the EU moves is that it lacks the backing of EU manufacturers. This is based on a theory that European telecom equipment makers have not made any complaints for fear of Chinese reprisals. After all, most of their gear is made behind the bamboo curtain and they also want to sell in China.

Equally, there might be opposition to the moves from European companies. Ericsson is the global leader with a 35 percent market share and openly said it opposed the Commission’s move.

If the EU makes the case, it does so for the first time on its own initiative and the question is why it would be doing that. Some think that the EU is hoping to squeeze something out of the Chinese companies and the US by doing a complex alliance with America over trade tariffs. It would explain why the US is making some unusual claims about the security of Chinese products, even though no one has actually explained how this works.