updated 04:16 pm EDT, Mon May 28, 2012
EU regulators allege illegal government subsidies
Chinese telecom equipment manufacturers Huawei and ZTE are under investigation by European Union regulators, who have been building a case that the two companies have benefited from illegal government subsidies. Sources familiar with the investigation have told The Financial Times that the accusations against the two telecom companies make up the major focus of a larger case that could result in punitive tariffs covering a range Chinese exports to the EU.
The case is unique in that it marks the first time that the EU's executive arm has initiated a trade investigation without a formal complaint being filed by a private company or industry group. The commission heading up the case has spent months gathering evidence that Huawei and ZTE have received subsidies from the Chinese government, allowing the two companies to sell products for lower than cost in the European market. The regulators are said to be moving quickly toward formal action, and they could bring their charges forward as early as next month.
The case is part of a larger trend in which officials in the United States and European Union have been alleging unfair competitive practices on the part of China, which has been growing in importance on the world economic stage for three decades. Among other things, officials in the two economic areas accuse China of using its considerable trade surplus to provide cheap loans and real estate to companies in exchange for continuing investment in the fast-developing nation.
For Huawei and ZTE, the forthcoming case constitutes another disruption in the two companies' attempts to expand their tech sector influence beyond China's borders. Last year, Huawei's ties to the Chinese government were a major reason behind the US Commerce Department's decision to disallow Huawei from participating in the building of LTE emergency networks for US first responders. Huawei had also been denied from making hardware for the same reasons in India earlier. A Pentagon report from around the same time alleged "close ties" between Huawei and the People's Liberation Army, a charge vehemently denied by Huawei.
ZTE, for its part, is now said to be the target of a Department of Commerce investigation over sales of embargoed technology to the nation of Iran. The EU investigation, along with the Commerce Department probe, constitute considerable obstacles to ZTE's previously-stated goal of improving its brand image in order to compete with Apple and Samsung in the global high-end smartphone market.