June 14, 2012 / 7:27 PM / in 7 years

U.S. company says China subsidizes rivals Huawei, ZTE

WASHINGTON (Reuters) - A U.S. telecommunications equipment company on Thursday charged that its Chinese rivals Huawei and ZTE Corp receive unfair government support and called for a tough U.S. response on both economic and security grounds.

“China’s intentions are clear. They’ve announced their intention to intensify government support for the optical networking industry and to make their national champions world market leaders,” said Michael McCarthy, chief legal and administrative officer for Infinera Corp.

“Our response must be equally clear to ensure the competition in this vital sector is not based on which government is willing to lavish the most aid to their producers, but rather on the quality of the products and the strength of the innovation,” McCarthy said in testimony before the U.S.-China Economic and Security Review Commission.

Huawei Technologies Co Ltd is the world’s second-largest maker of telecommunications equipment after Sweden’s Ericsson. ZTE is the fifth-rank provider. Both are facing increasing Western government resistance as they expand market share.

The House of Representatives Intelligence Committee on Tuesday, as part of a probe into security threats to U.S. telecommunications, pressed the two Chinese companies to disclose their inner workings.

The investigation reflects fears that booby-trapped technology could be supplied knowingly or unknowingly by the companies, which have been accused of being a stalking horse for the Chinese authorities.

McCarthy said Germany and Australia had already banned Huawei from certain projects based on national security grounds.

He charged the companies’ rapid rise over the past five years would not have been possible without massive Chinese government support and a market closed to foreign telecommunications firms.

“(China’s) perspective is ‘let’s lock up the business now. Over time that will drive out competition, drive out innovation and we’ll be left the winner,’” he said.

McCarthy told the panel, which makes annual recommendations to Congress, that he was encouraged the European Union was considering punitive duties on the companies.

“Our view, if we got a vote, is that is absolutely the right answer,” McCarthy said.

Terry Stewart, a trade lawyer who helped McCarthy prepare his testimony, said he was bound by client confidentiality rules not to comment on whether Infinera was planning to petition the U.S. government to impose import duties on its Chinese rivals.

Editing by Eric Walsh

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