Europe's debt woes take toll on ZTE

The eurozone crisis is creating serious headwinds for Chinese telecom equipment manufacturers as client orders and consumer demand shrink.

While European countries are struggling with high public debt and weak economic growth, major telecom carriers in the region are under pressure to cut back investment.

"The impact on us is pretty serious," said Chen Liang, general manager of ZTE France, China's fifth-largest telecom equipment maker by sales and the nation's fourth-largest mobile phone maker by shipments.

"When our clients are short of money and demand is dropping, our business is directly affected."

Chen said that the company's major clients are cutting back their direct investment, and declining product prices due to weak consumer demand is also driving down the company's profit margin.

"The crisis is lasting longer than we expected and no one knows when it will come to an end," Chen said, adding that a weaker euro against the yuan is also hurting the company's export competitiveness.

"The telecommunications industry requires constant technological innovation. So the challenges we face are very significant," he said.

While the European economy is facing a critical stage of economic reform and industrial upgrading, rising protectionism is also posing challenges for Chinese companies.

The European Union is reportedly poised to launch an anti-dumping case against Chinese telecom gear makers Huawei and ZTE.

"It is evidence of protectionism," Chen said.

However, the European market remains a strategic priority in ZTE's overseas expansion despite concerns over sluggish revenue growth and reduced profits.

"There is no doubt that we will increase investment in Europe, a market that is strategically important for us," he said.

In order to diversify its business in Europe, ZTE has sought to explore new markets including enterprise and government IT solutions. It is also increasing investment in brand building of its smartphones.

ZTE France posted revenue of 1.5 billion yuan ($236 million) last year. It has secured a 10 percent share of the mobile phone market in France, according to Chen.

lixiang@chinadaily.com.cn