US want China's key beneficiary subsidy ‘Huawei’ ended

Over the past 10 years, Huawei has received 11 billion yuan ($1.6 billion) in grants, according to its annual reports.

BEIJING (AFP) - A replica of the Palace of Versailles, medieval turrets, and spires rise across Huawei’s new campus in southern China, a monument to the telecom giant’s growing fortune -- and the benefits of state aid.

The fairytale-like facilities rest on land that was sold by the local government at cut-rate prices to woo and bolster a strategic, high-tech company like Huawei.

It is the kind of government largesse that has fanned US frustrations at China’s industrial policies -- subsidies are a sticking point in protracted trade talks between the world’s top two economies.

Huawei has become a major flashpoint in the trade war, with President Donald Trump taking steps to block the company’s dealings with US companies, threatening its global ambitions.

With the dispute shining a spotlight on China’s technological shortcomings, the subsidies are a window into the kind of measures Beijing may step up as trade negotiations founder.

Huawei’s annual reports and public records show that it has received hundreds of millions of dollars in grants, heavily subsidised land to build facilities and apartments for loyal employees, bonuses to top engineers, and massive state loans to international customers to fund purchases of Huawei products.

"Below market price land sales, massive targeted R&D grants, and export financing on terms that are more favourable than what Huawei could get from the private sector collectively appear to provide significant subsidies that other countries could challenge at the WTO if they are harming domestic companies," said Claire Reade, a former assistant US trade representative.

Huawei founder Ren Zhengfei had denied that the company received subsidies in a BBC interview in February, but a Huawei spokeswoman later said Ren meant the firm did not receive any special government aid.

"Like other companies, Huawei receives research subsidies from governments in several jurisdictions," the spokeswoman told AFP.

Over the past 10 years, Huawei has received 11 billion yuan ($1.6 billion) in grants, according to its annual reports.

More than half was given by China as "unconditional government grants" because of the firm’s "contributions to the development of new high-technology" in China, according to Huawei’s 2009 annual report.

Even some of Huawei’s top engineers receive bonuses through government programmes: more than 100 of them received hundreds of thousands of dollars from the city of Shenzhen last year.

Bargain-rate lakeside land

Heavily subsidized land is often used by local governments in China to bring in companies.

Huawei’s European-inspired campus was zoned for research by the Dongguan city government, and because of Huawei’s status as a top Chinese company, it received the 127 hectares of land at about one-tenth the cost of nearby residential land.

The city also sold bargain-rate lakeside land to the firm to build upwards of 20,000 employee apartments around its campus in a series of engineered auctions producing a single bidder: a Huawei subsidiary.

From 2015 to 2018, the subsidiary picked up 46 hectares for about one-sixth the going rate, suggesting Huawei saved as much as 16.5 billion yuan ($2.4 billion) on the purchases.

Asked about the subsidised land, a company spokeswoman said that Huawei contributed to Dongguan’s economic development and pays taxes.

At the Huawei Lakeside Garden complex, Huawei employees who stick around for three years and meet other metrics will be able to purchase their apartments at about one-third of the price their neighbours pay.

Outside China, the country’s state policy banks have provided financing to boost Huawei’s sales to the developing world -- at times leaving the state on the hook when risky loans go bad.

Huawei inked a $10 billion credit line with the China Development Bank (CDB) in 2004 to provide low-cost financing to customers buying its telecom gear. It was tripled to $30 billion in 2009.

China’s demand for infrastructure, including communications and internet gear, is not as high as it used to be, said CDB President Zheng Zhijie, so "what can we do with the excess production capacity? We can only send it abroad".

"We may give you loans to buy Chinese equipment or materials, but there must be a Chinese element," Zheng told AFP of his bank’s loans to help Chinese firms expand abroad.

Brazilian telecom firm Telemar Norte Leste obtained a $500 million CDB loan in 2009 with a two-year grace period on principal payments at a well-below-market interest rate to buy Huawei gear.

This type of loan is known as export credit and primarily regulated under an OECD arrangement incorporated into the WTO.

But China has refused to sign on or abide by its rules, said Kristen Hopewell, an expert at the University of Edinburgh, adding the credit line for Huawei could be in violation of those rules.

Since 2015 China has provided more funding each year to support its exports than the OECD’s 36 member-nations combined, according to US Export-Import Bank data.

In late 2015, then struggling Oi S.A., Telemar’s parent company, dispatched an executive team to China to seal a deal with the CDB for $1.2 billion in even cheaper loans -- half to buy Huawei gear, and half to refinance debt -- with its original loan still on Oi’s books.

Six months later Oi filed for Brazil’s largest ever bankruptcy. The CDB was owed $650 million, and under new terms will not see payments until 2023 at an even lower set interest rate.

Nevertheless, Oi is working with Huawei to prepare for 5G.

Similarly, Indian wireless provider Reliance Communications filed for bankruptcy this spring with the CDB and the Export-Import Bank of China among its largest lenders, while Huawei competitor Ericsson has been left battling for its debts in court.

"Most telecom companies are operating really well, one or two telecom companies because of some reason or another may encounter difficulties," Zheng said. "This is business risk for a bank."

China accuses US of ‘naked economic terrorism’

China accused the United States of "naked economic terrorism" as Beijing ramps up the rhetoric in their trade war.

The world’s top two economies are at loggerheads as trade talks have apparently stalled, with US President Donald Trump hiking tariffs on Chinese goods earlier this month and blacklisting telecom giant Huawei.

"We are against the trade war, but we are not afraid of it," vice foreign minister Zhang Hanhui said at a press briefing to preview President Xi Jinping’s trip to Russia next week.

"This premeditated instigation of a trade conflict is naked economic terrorism, economic chauvinism, and economic bullying," Zhang said, stressing that China opposes the systematic use of sanctions, tariffs and protectionism.

"There is no winner in a trade war," he warned.

China has hit back with its own tariff increase that will take effect June 1, while state media has suggested that Beijing could stop exports of rare earths to the United States, depriving Washington of a key resource used to make hi-tech products.

TV debate

Meanwhile, state media and officials have stepped up the rhetoric, tapping patriotic fervour as the Communist Party digs in for what could be a long fight with the United States.

An anchor for the English-language state broadcaster China Global Television Network (CGTN) even held a rare debate on Thursday with a presenter from Fox Business Network to discuss the trade war after jousting on social media.

The debate between CGTN’s Liu Xin and Fox Business’s Trish Regan was civil, with the American journalist saying "I appreciate you being here" and the Chinese anchor inviting her to come to China, adding "I will take you around".

But China’s propaganda apparatus has stepped up the rhetoric.

"We advise the US to not underestimate China’s ability to safeguard its own development rights and interests, and not to say we didn’t warn you," the party’s mouthpiece, The People’s Daily, said in an editorial on Wednesday warning that rare earths could be used as a counter-measure.

China produces more than 95 percent of the world’s rare earths, and the United States relies on the Asian superpower for upwards of 80 percent of its imports.

US Secretary of State Mike Pompeo, asked about the rare earths threat during an interview, said that Americans have already "lost and suffered for decades under the current rules" and that Trump’s "singular focus is to push back" on China.

He renewed his attack on Huawei, saying there was a "deep connectivity" between the company and the Chinese state that had no parallel in the US system.

"If it’s the case that the Chinese Communist Party wanted to get information from technology that was in the possession of Huawei, it is almost certainly the case that Huawei would provide that to them," he told the Fox Business Network.

Huawei has rejected the criticism and on Tuesday filed a motion for summary judgment, hoping it would swiftly win a lawsuit against US legislation that bars federal agencies from using the company’s equipment.

Russia, China get closer

"This trade conflict will also have a serious negative impact on the development and revival of the global economy," Zhang said Thursday.

While Washington and Beijing spar, Xi is preparing to meet with President Vladimir Putin from June 5 to June 7 as the neighbouring giants forge closer ties.

China and Russia have broad consensus and common interests on the trade war issue, Zhang said.

"China and Russia will certainly strengthen economic and trade cooperation, including cooperation in various fields such as economic and trade investment," he added.

"We will certainly respond to various external challenges, do what we have to do, develop our economies, and constantly improve the living standards of our two peoples."