China Threatens European Union Over Investigation

The People's Republic of Manufacturing is rattling sabers and promising a tit-for-tat battle if the European Union investigates allegations of anti-competitive practices by Chinese telecom equipment manufacturers.

This threat by the Chinese government was incited by the European Trade Commission's announcement on Wednesday that there is reason to look into reports of the Chinese government subsidizing the dumping of telecom gear into the European marketplace.

Reuters reported EU officials said any investigation would look at the selling methods of Huawei and ZTE.

"If the European side insists on opening an investigation, the Chinese side will according to WTO rules and Chinese law take firm measures to safeguard its legitimate rights and interests, and the consequences must be borne by the party provoking the friction, " a Chinese Ministry of Commerce spokesman said.

The main victims of cheap Chinese imports from the alleged dumping would be European companies such as Ericsson (NASDAQ: ERIC  ) , Nokia Siemens Networks, and Alcatel-Lucent (NYSE: ALU  ) , yet they have not complained -- at least formally -- because of fear of Chinese reprisals. The launching of an investigation without a complaint is to shield companies from Chinese retaliation.

Currently, of the 31 ongoing EU trade investigations, 18 of them involve China. If the telecom equipment anti-competitive case does happen, it would be the largest EU trade investigation ever.

A Chinese diplomat told Reuters, "I think that the EU in the end does not want to make a big fuss about this. If tariffs are leveled on Chinese products, it will not only harm the interests of Chinese Industry but also the European Union. It is like cutting one finger will hurt the whole hand."

At risk for the European companies would be losing out on contracts to supply equipment for the building of China's speedy LTE network infrastructure.

Huawei and ZTE have already been burnt by U.S. congressional hearings into allegations they have provided equipment to U.S. telecoms that could be hacked by the Chinese government. Huawei has since withdrawn from the U.S. telecom infrastructure marketplace.

But Huawei never really got more than a toehold in the U.S. despite an aggressive push. Europe is a different matter for the world's No. 2 telecom equipment supplier. Huawei's business there is worth around $1.3 billion a year from its one-quarter slice of that market. That's a share the Chinese government is not willing to let disappear -- at least, not without a fight.

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