New 4G Contracts Test Beijing’s Fair Trade Commitment
The coming months will be a pivotal time for Beijing to show its commitment to free trade, as China’s three telcoms operators get set to award billions of dollars in new contracts to build 4G mobile networks. The building spree will mark the first batch of big new contracts since both the US and Europe took moves last year that could severely limit or ban the import of Chinese networking equipment for reasons of national security and unfair competition.
A weak showing in the bonanza of new contracts for big foreign suppliers like Ericsson (Stockholm: ERICb) and Alcatel Lucent (Paris: ALUA) would reflect poorly on China’s commitment to free trade, since many might see such results as revenge for the US and European moves against Chinese giants Huawei and ZTE (HKEx: 763; Shenzhen: 000063). A more balanced result would reflect China’s commitment to free markets, showing the world that Beijing is letting the big three State-owned telcos make their own independent decisions based on commercial factors.
China’s leading wireless carrier, China Mobile, has been the most aggressive in 4G, awarding numerous contracts over the last two years to build major trial networks in about a dozen Chinese cities. All of the world’s major equipment suppliers received contracts in that early build-out, including Ericsson, Alcatel Lucent and Nokia Siemens Networks, as well as domestic heavyweights Huawei and ZTE.
Media reported late last week that following completion of those trial networks, China Mobile (HKEx: 941; NYSE: CHL) is set to offer 20 billion yuan ($3.2 billion) in new contracts to start commercializing its 4G network, as many expect the telecoms regulator to award formal 4G licenses later this year. (Chinese article)
At the same time, other media reported the major foreign equipment suppliers, all of which are based in Europe, are quietly urging the European Union to drop its unfair trade investigation into Huawei and ZTE. The EU launched the probe last year over allegations of unfair support for the Chinese companies from Beijing, and confirmation of those claims could result in major punitive tariffs. (Chinese article) Such tariffs would deal a double blow to Huawei and ZTE, after the pair were banned from selling their equipment in the US last year due to national security concerns from Washington.
With that kind of anti-China sentiment in the background, the central government could easily retaliate by ordering China Mobile and the nation’s other two telcos, all of which have close government ties, to curtail or suspend their 4G buying from foreign suppliers. The 3 Chinese telcos were already moving in that direction during a spending binge on 3G networks four years ago, when ZTE reportedly received more than a third of all 3G contracts, and Chinese suppliers collectively received more than two-thirds of the contracts to build China Mobile’s new network.
But the government should resist such temptation to retaliate unless it has its own security, trade or other concerns, in which case it should provide an open, transparent explanation. Otherwise, it should let the three telcos make their own decisions based on commercial factors, demonstrating its commitment to fair trade even when it encounters occasional disagreements with its trading partners.
Bottom line: Beijing should demonstrate its commitment to fair trade by letting China’s 3 telcos choose their 4G network suppliers based on commercial and not political factors.
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