Chinese Telecoms Giant demands Protection at Home

Michael Schwartz commented recently on an Indian Minister's opinion that priority should be given by Indian operators to local telecoms manufacturers. Now he analyses a leading Chinese telecom vendor's demand for protection in its home market.

Well, at first it was a government minister's plea for Indian telecoms players to place orders with Indian companies. To be frank, the idea did not impress the editor. One reason was that if India blocked products from China, for example, it was risking being blocked by what is soon to become the world's largest economy. And that is not a good economy to offend. 

Imagine the editor's surprise when he read a story from a Chinese company demanding protection. But here we have it; the chairman of a Chinese tiger (or dragon or whatever you want to name this key player) wants his government to increase its protection of Chinese companies from foreign competition.

Now, the editor will just let that sink in...

A economy which is actually forwarding money to the USA to help it buy Chinese goods, an economy whose government can claim to have lifted 200 million people from poverty, and which turns out high quality goods to be sold at highly competitive prices after product development from highly trained designers, is being lobbied to protect one of those winners.

The company is ZTE.The executive making issuing the call is Hou Weigui, who founded and now chairs ZTE. Hou Weigui bases his concerns on two factors: foreign equipment vendors are finding it too easy to business with China, while the Beijing government is doing too little to help Chinese companies.

One report on this statement describes the plea as unusual. Unusual is not the same as unique but it still means a minority. Some Chinese telecoms manufacturers are apparently feeling aggrieved that non-Chinese companies are dominant and are being awarded contracts that apparently should be given to Chinese enterprises.

The complaining Chinese companies forget one thing...

Without outside expertise Chinese telecoms would have been much slower in getting to where they are today. That very expertise in turn helped non-Chinese firms gain lucrative government contracts more quickly than still-unformed local companies. If the products are of the right quality and priced attractively, and local companies still can not compete on price or quality, then what do 'locals' want?

Valuable revenue streams from Chinese telecoms have seeped their way into the balance sheets of many companies in the last few years. If the streams dry up there will be major consequences for some of the key players in the world telecoms market (cynics will say that is why the plea has been made in the first place).

If Beijing does implement a response to this request, then there would surely be repercussions for overseas players. Each of the last five years has seen capital expenditure of more than US$25 billion on Chinese telecoms. China has become an important source of revenue for such companies. Why should overseas companies - who encouraged and helped Chinese companies to get where they are today - be punished.

Global Comparisons...

One important comparison is between China and previous rising telecoms giants such as Japan. China is growing far more quickly than these players did in their formative years. One is thus even more surprised to learn of the need for protection.

Chinese companies have low wage costs and R&D and, of course, low transportation costs. If a company still can not compete after all this, then it must ask what is going wrong, why does it need government help?

ZTE is China's second largest telecoms equipment vendor. It does business in over 80 countries. Why is it calling for protection?

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