EU arms second front in China trade war with Huawei probe

The EU’s trade police in Brussels secured support from all 27 commissioners for action last week, and last-ditch efforts to reach a solution appear to have failed. “The clock is ticking,” said an official.

Beijing has vowed to retaliate, warning that people in glass houses should not throw stones. China is already bristling over the Commission’s plans for sanctions on €21bn (£17.7bn) of Chinese solar panels, the EU’s biggest ever trade case.

The move has angered Germany, even though cheap Chinese imports have pushed Germany’s top solar firms Q-Cells and Solarworld into bankruptcy or debt restructuring.

“It is a grave mistake,” said German Vice-Chancellor Philipp Roesler. “German industry is very concerned. I expect the Commission to do everything to prevent a trade conflict.”

Trade commissioner Karel De Gucht told Reuters that Huawei and ZTE are “dumping their products on the European market”, threatening a strategic sector of European industry. Both companies deny the claim.

Mr Gucht said subsidised credit for the mobile equipment makers has created “distorted playing field”. Soft diplomacy appears to have been fruitless. “We have already had three rounds of negotiations, but without any satisfactory outcome. It is better for the whole world economy to come to an amicable solution, but you need two to tango,” he said.

The Commission has the power to act unilaterally, even if several EU states are luke-warm or oppose sanctions.

Germany has different interests from France, Britain, Italy and Spain, since it alone sells as much to China as it imports, with booming exports of machine tools and luxury cars. China is the biggest market for Mercedes S-Class cars.

“At present, there is an almost perfect symbiosis: China needs technology and Germany needs markets,” said Hans Kundnani, from Europe’s Council on Foreign Relations.

Club Med states have had far less success exporting to China, while their home markets have been flooded with cheap Chinese goods that undercut their own mid-tier industries.

Mr Kundnani said Germany is pursuing its own “special relationship” with China regardless of the rest of the EU. Former Chinese premier Wen Jiabao took 13 ministers to Germany last year for what amounted to a joint cabinet session of the two countries, treating Berlin as the de facto capital of Europe.

It is part of broader pattern in which Germany does energy deals with Russia that cut against the rest of the EU, or with Britain inside the inside the EU whenever trade interests trump the other imperatives of the EU Project.

Mr Kundnani said Germany’s policy towards China is inspired by Chancellor Willy Brandt’s Ostpolitik in the 1970s when West Germany chose to overlook human rights issues and political differences with the Communist regime in the East, hoping for “change through rapprochement”.

It worked with East Germany, but the Council on Foreign Relations warns that China is a different animal.