Following TelecomsTech’s report on the EU anti-dumping investigation alleging that Chinese mobile manufacturers Huawei and ZTE benefit from illegal subsidies, our Beijing correspondent Dr. Lin Sun offers his perspective on the dispute.
It will be important to watch how the Chinese government responds to the EU’s allegations. A restrained reaction is likely, although the exchange may include several heated rounds. The EU may have motives beyond simple dumping claims, but China also has significant interests at stake, and an open trade conflict would harm both parties.
Although Huawei is not state-owned, it has become a symbol of China’s technological rise, giving Beijing strong reasons to defend it. Still, a full-scale confrontation would be costly; the Chinese government may prefer to avoid escalating the dispute into a trade war. China’s gains from engagement with Europe extend well beyond the sales of Huawei and ZTE, so authorities may seek a way to resolve the matter without inflaming tensions.
Public records indicate Huawei received $10 billion in 2004 from the State Development Bank (SDB) in the form of export credit, intended to help overseas customers finance purchases of its equipment — a crucial support for many emerging markets where demand does not always match purchasing power. When that credit was exhausted, Huawei reportedly secured another $30 billion in 2009 for the same purpose. Over that period Huawei has claimed roughly $110 billion in sales, which the company uses to argue that government financing represented only a small portion of its overall activity.
What remains unclear is how Huawei and ZTE — the latter is reported to have accessed SDB credit lines on a smaller scale — allocated those funds geographically and by purpose. It is not publicly known whether the credit was used solely to support exports or whether it also financed research and development, domestic operations, or other internal activities.
Proving dumping is complicated because both Huawei and ZTE have earned reputations as aggressive price competitors independent of government support. Price competitiveness has been a central factor in their rapid rise, making it difficult to attribute low prices solely to state financing. Other cost factors such as labor, utilities, manufacturing efficiency, and supply-chain advantages are not easily evaluated from the outside and may explain part of their ability to offer low prices.
Given these uncertainties, it would be simplistic to pin blame entirely on government subsidies. If the EU pushes ahead with punitive measures, China is likely to mount a defense of Huawei and ZTE. That response may include strong rhetoric, reciprocal statements, and symbolic gestures, but a full-blown trade war remains unlikely. Both the EU and China have reason to avoid severe economic confrontation while their economies remain vulnerable, and so a negotiated or measured resolution is the more probable outcome.