European Commission vs. China: "unlikely to turn to real havoc"

Following on from TelecomsTech's report on the EU anti-dumping investigation and alleging Chinese mobile manufacturers Huawei and ZTE benefit from illegal subsidies, here's our Beijing Correspondent, Dr. Lin Sun, with his take on the imbroglio.

 

 

It will be interesting to see how the Chinese government reacts to the EU's charges which I believe will be restrained albeit a few rounds of ruckus. The EU may have its own reason (rather than dumping) for the action, but China has its own interest hanging on the balance, and a direct conflict in trade will hurt China as much as the EU.

Although Huawei is not owned by the government, it has risen to a symbol of rising China, so China has every reason to come to its defence. However, the price is too high, the ruckus should escalate to an all-out trade war. After all, China gains a lot more than just what Huawei and ZTE sell in Europe so, in the eye of the government, it may not be a wise move to stir up the flame but to find a way to settle.

Huawei received $10 billion in 2004 from the State Development Bank in the form of "export credit" which was intended to help customers pay for buying its equipment. This is especially important for emerging countries where demand does not always translate to ability to pay.

After that was used up, Huawei got another credit of $30 billion in 2009 for the same purpose. During this period, Huawei said it generated $110 billion worth in sales, so that its argument is government finance played a small role in its activity.

What we do not know is how Huawei (and ZTE which has also received SDB's credit lines but in a smaller scale) has divvied up the money, such as in which part of the world and by how much. We also do not know whether the money has been used exclusively for export or to support other aspects of its business, such as R&D or "internal" activities.

And it would be difficult to establish the case for dumping because Huawei and ZTE are known as aggressive price cutters to drive out competitors, with or without government financing. In fact, it is the primary reason behind their stunning ascent to where they are today.

Therefore, it would be a little unfair to blame government financing for their pricing since other factors are not easily discernible to an outsider, such as cost of labour, utilities, and materials.

I think the Chinese government will try to defend Huawei and ZTE if the EU does push the situation. Rhetoric is inevitable even trades of harsh words, even some gestures of duke-out, but all this is unlikely to turn to real havoc. It is the last thing both the EU and China want to see when the economy is vulnerable.

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