The EU's attempt to reach a working arrangement with China on access to each other's telecom equipment markets seems to have reached a dead end.
Back in 2014, the EU agreed to drop its case over apparent subsidies to Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) if Chinese authorities gave it better access to China's own markets.
That hasn't happened. The Wall Street Journal reported Friday that the Chinese side doesn't seem to have kept any of its commitments. The critical part of the deal was appointment of an independent commission to monitor telecom equipment markets.
The panel was supposed to identify practices like dumping and ensure that Europe had access to the Chinese market. But nearly two years after the pact was signed, the body has yet to be set up. China hasn't provided funds for it and has rejected a demand by Brussels that panel members have no ties to the government, one EU official said.
Europeans came up with this arrangement because EU member states did not share the enthusiasm of then-trade commissioner Karel De Gucht in prosecuting a dumping case against China. According to Reuters, De Gucht concluded that Huawei's growth in Europe could only have come through subsidies that breached WTO rules.
But not even Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) backed the case -- and understandably. China might aspire to market economy status under WTO rules, but it has never been shy about tying politics to business in meting out punishments to those that challenge its interests.
It was obvious to Beijing that it could agree to any deal without worrying about the consequences. Events in Europe have since made this even more apparent.
The Europeans have signaled they are more desperate to access China's markets -- not to mention Chinese sources of finance -- than China is Europe's.
Additionally, as the WSJ reports, the EU and China have other business between them, like steel dumping and the issue of market economy status.
None of this would surprise foreign businesses in China. In recent years, Beijing's treatment of them has been increasingly tough.
The latest annual survey by AmCham Beijing found that 77% of members felt less welcome in China in the past year. Business groups have expressed concerns about the legal attacks on foreign companies, opaque regulation and concepts like "secure and controllable" technology.
For IT and telecom firms, the environment has been especially chilly since Edward Snowden, a former contractor with the US National Security Agency, revealed details of US spying activities. Cisco Systems Inc. (Nasdaq: CSCO) -- whose routers were being hacked by the NSA, according to Snowden -- has become the best-known victim of China's anger about US eavesdropping.
Indeed, Cisco's gear has progressively been replaced by local equipment. A decade ago, Cisco sold more than half of all its routers in China, dominating in particular the top end of the core router segment. Last year its share was down to 11% of all routers, while Huawei's had risen to 67%, according to IHS.
As China's dependence on foreign gear declines, so does its willingness to cooperate. It doesn't feel it owes the Europeans any favors and, in any case, snubbing them is risk-free.
Operating in the Chinese market isn't going to get any easier, and nor will China be any more obliging.
— Robert Clark, Contributing Editor, special to Light Reading