Amid spying and dumping claims, what does Chinese telecommunications giant have in store for Europe?
On September 20, Huawei, the Chinese telecommunication equipment producer, announced that it intends to create 5,500 new jobs in Europe, partly as a diversion from the United States where the company is facing allegations of spying for Beijing. Patrick Zhang, president of marketing and solutions at Huawei, told the China Daily that a future expansion in Europe could lead to a turnover of $1 billion in the next three to five years.
What great news for the Old Continent, right at a time when Europe is struggling with a weak recovery and high unemployment. There is, however, a devilish detail in the happy story: European authorities are currently considering an investigation into Huawei and ZTE for dumping – a practice, deemed illegal, which sees companies exporting below production cost in order to crowd out competitors and acquire larger shares in a given market. In May, when the Commission said they were moving ahead with such a move, Trade Commissioner Karel De Gucht was quite direct. “Huawei and ZTE are dumping their products on the European market,” he told Reuters.
The debate over Huawei and ZTE is part of a bigger – global, as a matter of fact – picture, which saw an impressive rise of Chinese companies in the last decade. This rise has created some fear and much suspicion, with Huawei being often associated with poor transparency or worse.
Founded in Shenzhen in 1987, Huawei became a big player only recently, establishing itself as the world’s second largest company in terms of share of radio access equipment in 2008. The origin of its founder Ren Zhengfei does not greatly help in doing business abroad: a former military man turned investor in technology equipment in a country which is routinely accused of espionage is bound to create suspicion. Many seem to believe that his company could turn into a Trojan horse, allowing hackers to access key national infrastructures if the Chinese government wants it.
In April 2012, Huawei was excluded from tendering for contracts in Australia’s National Broadband Network (NBN) – a $38 billion infrastructure project – due to security concerns. In October of the same year, the U.S. House of Representatives Intelligence Committee advised American companies not to do business with Huawei and ZTE on the ground that they might constitute a security threat. In an interview with the Australian Financial Review published in July, General Michael Hayden, former head of both the Central Intelligence Agency (CIA) and the National Security Agency (NSA), was even blunter: “at a minimum, Huawei would have shared with the Chinese state intimate and extensive knowledge of the foreign telecommunications systems it is involved with,” the general said. The scandal which exposed the extent of NSA’s spying activities may have hollowed out the institution’s image, but it did not automatically generate trust in the Chinese side.
In Europe, accusations fall short of spying, focusing instead on price-fixing. And that is serious enough, at both the international and domestic level. “This time it is going to be a much bigger controversy than in the case of solar panels, partly because the Chinese have made more political investment in the telecom sector and partly because member states in the EU know that they might pull a nuclear trigger if they go ahead. The Chinese might retaliate not only with duties, but also by playing on the share of contracts that European companies get in China,” Fredrik Erixon, a Swedish economist and Director of the European Centre for International Political Economy (ECIPE), told Asian Correspondent. On top of that, such cases have, “an enormous dividing effect as states hold radically different views. The Commission knows that there is going to be a giant conflict inside both the European Union and the Commission itself.”
It is hard to say if Huawei is trying to lure job-starved Europeans into a milder position, but the timing certainly raises suspicions. “I think it is fair to assume that Huawei’s decision to create 5,500 jobs in Europe is related to these potential investigations by the Commission,” said Rem Korteweg, a senior research fellow on foreign and security policy at the Centre for European Reform. According to Mr Erixon, the Commission will take little notice, in any case. “It would be different if the number was around 60,000.”
Last summer, a similar dispute over solar panels was solved after a long struggle. Karel De Gucht used harsh words in Spring 2013, giving the impression that sanctions on cheap panels – too cheap, he said – were unavoidable. Despite the rhetoric, a settlement was finally found after much discussion and the beginning of Beijing’s retaliation on imported wines.
Many think that the best option would be another settlement to avoid igniting dangerous trade conflict. Some believe this could well be the logic behind recent loud shouts: everyone wants a cozy deal, but at the best conditions. “My best estimate is that the Commission is intent on reaching a settlement with China, not start a trade war. There is a deal to be made since the Chinese telecoms companies have an interest to retain access to European markets,” Mr Korteweg told Asian Correspondent. Commissioner De Gucht himself left an open door to negotiations in May, arguing that “it is better for the whole world economy and trade that these two big trading partners come to an amicable solution on what is in fact a very strategic and crucial sector.” We shall now see if EU authorities are willing to bite after barking.