updated 03:14 pm EST, Tue December 4, 2012
ZTE, China Development Bank agree to $20B loan
ZTE, the world's fifth-largest telecom equipment maker, announced today that it had entered into a $20 billion financing agreement with China Development Bank. The funds are meant to cover "financing facilities for the company's overseas projects and credit facilities for the company," according to a statement ZTE released today. The agreement will shore up the finances of the Chinese tech firm, which has seen significant losses this year, but it will likely raise concerns among ZTE's international competitors and regulators in the west, who are suspicious of the firm's ties to the Chinese government.
According to ZTE's statement, the agreement lays out the framework for business cooperation between the two entities over the period of five years. The funds will be applied toward "meeting the funding requirements of overseas customers in the purchase" of ZTE's equipment and technical services. The loan will take the form of mid-to-long term loans, short-term loans, debenture financing, factored financing, supply chain financing, guarantees, bills, and letters of credit.
The China Development Bank operates under the direct jurisdiction of China's State Council and is the only bank in China whose governor is a full minister in the Communist Party of China. At the end of 2011, CDB counted its total assets at close to $1 trillion (RMB 6.252 trillion).
The apparent tightening of ties between ZTE and a CPC-affiliated financial institution may draw increased scrutiny from western regulators. Already, the Chinese firm has seen conflicts with European regulators over alleged improper subsidies from the Chinese government. Competitors and regulators in the EU contend that favorable land deals and loans allow ZTE and Huawei to sell their products in foreign markets at price points that undercut their international competitors. Both companies have strongly denied any illegal subsidies.
In the United States, ZTE has also come under fire for its ties to the CPC. Legislators in the US have stated outright that the alleged subsidies ZTE receives constitute a national security threat due to the potential for espionage. The Department of Commerce is also investigating ZTE over alleged sales of embargoed US computer equipment to Iran.