Huawei denies using Chinese subsidies to grab more business

By Denis Pinchuk

ST PETERSBURG, Russia | Sat Jun 23, 2012 2:44am EDT

ST PETERSBURG, Russia (Reuters) - Huawei Technologies Co Ltd HWT.UL, the world's No.2 telecom gear maker, has denied using Chinese subsidies to gain global market share after it was accused by U.S. lawmakers and EU officials of unfair competition.

Huawei and cross-town rival ZTE Corp 000063.SZ (0763.HK) have come under close scrutiny by U.S. lawmakers and the European Commission, which say both are able to use subsidies to bid for contracts at lower prices than Western competitors.

Both companies rose to prominence rapidly over the past few years, clinching contracts with major telecom carriers and sometimes edging out European rivals Ericsson (ERICb.ST), Alcatel Lucent SA (ALUA.PA) and Nokia Siemens Networks NOKI.UL.

"It's not true that Huawei uses subsidies to gain market share," Chen Lifang, Huawei's global board director, told Reuters in an interview on the sidelines of a business event at St Petersburg in Russia.

"We receive legal subsidies. Like European countries, China also gives out subsidies for R&D-related activities. Huawei has taken part in such European and Chinese schemes," said Chen, a member of Huawei's 13-person board.

Huawei, together with the world No. 5 telecom equipment maker ZTE, denied accepting illegal subsidies earlier this year, but this is the first time a Huawei board member has commented about the issue.

The head of the U.S. House of Representatives' Intelligence Committee this week said apart from the investigation on subsidies, legislation could be proposed to deal with any related national-security threats.

In May, EU diplomats said the trade bloc would like to take action against Huawei and ZTE on the grounds that they receive illegal state subsidies that allow them to sell equipment at lower prices.

Analysts said Chinese telecoms equipment makers had also the support from policy banks, such as China Development Bank CHDB.UL, which provided low interest rate loans for network infrastructure projects in emerging economies.

Chen brushed off rumors that Huawei did not need to pay back such loans.

"Our competitors even spread rumors that we needn't repay these loans. This is impossible and untrue," she said late on Friday.

She said Huawei usually worked with Chinese and foreign banks in project financing and loans, and was transparent in the process.

In 2011, Huawei borrowed $4.6 billion from banks, with more than 70 percent from overseas banks and less than 20 percent from Chinese lenders, Chen said.

"These banks usually make necessary risk assessments before agreeing to the loans. All of such loans have also been audited."

Huawei has been successful in selling telecom equipment in Europe and emerging economies in Asia and Africa, expanding its presence in the mobile phone and enterprise segments.

In Russia, for instance, Huawei has worked closely with major carriers and is in negotiations to possibly provide equipment for 4G LTE (fourth-generation long term evolution) mobile technology, Xiong Lening, chief of Huawei's Russia operations, has said.

However, the prized U.S. telecom carrier market remains elusive for the Shenzhen-based company that was started by its Chief Executive Officer, Ren Zhengfei.

Ren, who is also in Russia this week for the event, was a former military officer who was laid off by the People's Liberation Army in a downsizing exercise over 20 years ago.

Several years ago, Huawei and ZTE were blocked from taking part in a bidding process for a network project by U.S. carrier Sprint Nextel Corp (S.N) due to national security concerns.

More recently, Huawei was blocked from participating in a tender in Australia's $38 billion National Broadband Network due to cyber security concerns.

"It's supposed to be straightforward commercial transactions, but the U.S. likes to link economic issues to politics because Huawei has its roots in China," said Chen, who joined Huawei in 1995.

"Our competitors also take advantage of this fact to paint an unfriendly image of us."

Huawei has denied having any ties with the Chinese military.

After years of rapid expansion and market share gains in the telecom equipment and mobile phones sectors due to aggressive marketing and pricing, Huawei's profitability has been hit lately with rumors surfacing of massive layoffs.

Chen brushed off such concerns.

"We are not laying off staff in China or India. In Russia, we're expanding and might even add staff," she said, but stopped short of elaborating.

(Reporting by Denis Pinchuk; Writing by Lee Chyen Yee; Editing by Ed Lane)

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