China to finance $1.1B in telecom equipment exports

China’s government this week extended export credit worth $1.1 billion to the country’s two top vendors of telecommunications and networking equipment in a bid to boost their international sales.

The Export-Import Bank of China granted export financing worth $600 million to Huawei Technologies Co. Ltd. and $500 million to ZTE Corp. over the next three years, the companies said. Export financing is used by many governments to help domestic companies boost their sales overseas by providing favorable credit terms to customers.

The announcement that the Chinese government will back the exports of Chinese-made telecommunications equipment comes as both Huawei and ZTE are taking a bigger place in international telecommunications markets.

In 2003, Huawei’s international sales totalled $1.05 billion, an increase of 90 percent over the previous year, the company said. International sales now account for 27 percent of the company’s sales, it said. Similarly, ZTE saw its international sales rise 100 percent to $610 million, accounting for 17.6 percent of the company’s 2003 sales, it said.

ZTE’s export financing would strengthen the company’s ability to compete internationally against multinational equipment vendors, the company said.

Huawei and ZTE have each won a string of high-profile deals around the world, having proven particularly strong in emerging markets.

Huawei, China’s largest equipment maker, has been awarded contracts for mobile networks in Indonesia, Malaysia and Nigeria. Most recently, the company was awarded a contract for an optical backbone network in Rio de Janeiro, Brazil, and a contract to upgrade Ethiopia Telecommunication Corp.’s national switching network.

ZTE has also won a string of deals to build mobile networks for operators in Pakistan, Vietnam, Romania and India.

The Chinese government has helped Huawei and ZTE finance deals with international customers in the past, particularly in developing countries, said Ted Dean, managing director at market analyst BDA China Co. Ltd. in Beijing.

“It’s not a new policy,” he said.

While the continued financial backing of the Chinese government will help both companies compete overseas, the real key to their success on the international market is low-priced equipment that offers a level of performance that rivals products from their multinational competitors, Dean said.

“They’re competitive internationally without this (financial backing) although this certainly will help them to win some deals that they might not otherwise win,” Dean said.

China is not the only government that helps to finance exports for domestic companies. During the U.S. government’s 2005 fiscal year, the Export-Import Bank of the United States is expected to support up to $16.3 billion in U.S. exports, primarily to emerging markets, through loan guarantees, export credit insurance and direct loans, according to the bank.

IT vendors that have received support from the bank since 1999 include chip-manufacturing equipment maker Applied Materials Inc., software vendor BEA Systems Inc., Cisco Systems Inc., Agilent Technologies Inc., Hewlett-Packard Co., Sun Microsystems Inc., Silicon Graphics Inc., IBM Corp., Lucent Technologies Inc. and Motorola Inc., it said.