Beijing probing 'illegal EU subsidies'

With the European Union reportedly poised to launch trade cases against telecom equipment makers in China, accusing them of getting subsidies, Beijing is set to investigate if the EU is actually illegally subsidizing its industries, a source close to the matter told China Daily.

The industries include "agriculture, telecom equipment, wind energy, electrical and mechanical goods," and China has already "obtained sufficient evidence," the source, who requested anonymity, said.

The remarks followed a recent report by the Financial Times. The EU is set, according to the report, to launch trade complaints and investigations against Chinese makers of mobile network equipment, including Huawei and ZTE, as soon as next month. The European Commission, the EU body charged with investigating trade complaints, has got "very solid evidence" the report said, showing that they benefited from illegal government subsidies and had sold products in the EU below cost.

An official from the Ministry of Commerce told China Daily that China has not got any official confirmation from the EU on the matter.

"If the report is correct, China will not put up with such trade protectionism," the source said.

According to the FT report, EU officials informed representatives from the bloc's 27 member states of their decision at a closed-door meeting on Thursday.

The EU's declaration appeared to be one of the final steps before bringing a formal case next month.

The case would mark the first time that the commission has initiated a trade investigation of its own accord, rather than responded to formal complaints filed by companies or industry groups.

"Generally, a nation launches trade remedy cases in response to complaints by domestic industries or companies. The EU has never launched any case on its own initiative," the source said.

The European Commission said in March that it is considering charging duties on made-in-China products to offset alleged subsidies.

The commission said it believes that European companies are hesitant about asking the EU to take protective measures for fear that China will retaliate against their business interests.

Zhang Xiangchen, director-general of the Ministry of Commerce's department of policy research, said the EU, if it moved against China, would violate WTO rules.

Chinese companies denied they received illegal state subsidies.

"Huawei has not received any notice from the European Commission regarding an investigation," a Huawei spokesman said.

"The EU has been advocating fair and open competition, which we appreciate and adhere to. We believe globalization requires an open and fair business environment," the spokesman said.

ZTE said in a statement that the company did not receive illegal government subsidies or conduct dumping practices in Europe.

"Being a listed company, both in Shenzhen and Hong Kong, ZTE strives to operate in an open and transparent way. ZTE obeys the WTO rules and trade regulations of relevant countries," it said.

The EU joined the United States and Japan in March to file a case with the WTO questioning the quotas China places on exports of rare earths, the 17 elements used in a variety of high-tech industries.

The European Commission also proposed to revise its government procurement agreement to bar companies in certain countries, including China, from benefiting from that agreement.

"If the EU did conduct an investigation, as reported, China could lodge appeals against the EU to the WTO, and also take retaliatory measures immediately," said Zhou Shijian, senior trade expert from Tsinghua University.

China is becoming tougher on leveraging WTO rules to fend off hostile trade cases, Zhou said.

Days after the US Commerce Department announced its preliminary decision on imposing anti-dumping tariffs of up to 250 percent on imports of Chinese solar cells, the Ministry of Commerce said last week that programs supporting renewable power, including wind and solar, in five US states violated WTO rules.

China also filed a complaint last week at the WTO over US measures for calculating anti-subsidy duties on 22 categories of Chinese exports.

The case would be the first of its kind that the EU has initiated against Chinese high-end goods of huge commercial and strategic value.

"This is political for the EU and it expects to curb the fast growth of China's high-tech industry," Zhou said.

Hurting both

The EU's move, if taken, would harm both sides, experts said.

China's telecom industry s deeply connected to the global market. Huawei and ZTE are both among the global top five telecom gear makers.

Huawei has more than 7,000 employees in Europe and indirectly created more than 6,000 jobs. Last year, Huawei made purchases worth more than 2.9 billion euros ($3.64 billion) in Europe, the Huawei spokesman said.