China concerned about EU's Huawei trade case -Commission official

By Ethan Bilby

BRUSSELS, Oct 12 (Reuters) - China has expressed concerns about a potential EU investigation of telecom equipment makers Huawei and ZTE Corp <<000063.SZ> over illegal subsidies, a European Commission official said on Friday.

European Trade Commissioner Karel De Gucht has been collecting evidence for a potential anti-dumping or anti-subsidy case against the companies, the world's second- and fifth-largest makers of wireless telecoms gear, as the Commission suspects they receive illegal state subsidies to undercut rivals in Europe.

Trade experts and diplomats said this week that the Commission has held off in launching a case, probably until the middle of next year, w h ile it awaits Beijing's response to subsidies and dumping on another area, solar panels.

Huawei and ZTE have denied receiving illegal subsidies.

A senior official from the European Commission told Reuters on Friday that Chinese officials had expressed concern about the possible investigation.

"Discussions have taken place on issues of trade defence between the two sides, including this issue and other potential irritants," the official said.

The two Chinese companies compete with European producers such as Swedish Ericsson and French Alcatel-Lucent . The Commission, however, is looking into the two Chinese companies on its own initiative and not due to any complaint.

Huawei and ZTE are also under scrutiny in North America and in Britain over security risks, rather than prices. A U.S. congressional report released this month said they were potential security risks and should be shut out of the U.S. market.

Huawei said on Friday it was not part of the discussions between the European Commission and Beijing.

"We are not involved in any governmental discussion between (China's) Mofcom and the (EU) directorate general on trade. It won't be surprising if the two parties have discussed about this," the company said.

A Huawei executive said the company has not been informed of any EU trade concerns but it has nevertheless provided information to the Commission following media reports.

"Up to now we haven't received any informal or formal questions," Leo Sun, president of Huawei's Brussels office told Reuters.

"We still provide a lot of answers without questions to the Commission and to the other governments to say: we assume you will have these kinds of questions, so this is our side, particularly on the issue of dumping and subsidies," he said.

Sun said data provided included details on how it runs its funding structures, its interaction with customers and its relations with Chinese banks and international banks.

He said the company has yet to receive any feedback from the Commission.

So far no European association of companies has made a complaint, which is normally a prerequisite for an EU probe. Individual companies have been reluctant to see a complaint, fearing potential retaliation by trade authorities in China.

China is the European Union's second-biggest trading partner after the United States, and the bloc is China's biggest trade partner, with 500 billion euros ($647.15 billion) worth of trade this year.

Although the Commission could launch a complaint without any complaint by industry, this is very rare, with the last occurrence taking place in a case against India in 1997.

One of the largest Chinese companies operating on the continent, Huawei had European sales of over 3.75 billion dollars last year and employs over 7,000 staff.

The Commission has still not opened a formal investigation.

($1=0.7726 euros)

(Reporting By Ethan Bilby, Editing by Foo Yun Chee and Susan Fenton)

(( 2287 6812)(Reuters Messaging: