As Huawei abandons the sale of a stake in its telecom equipment business—and ZTE's shares plunge—China's goal of becoming a global tech player is delayed

China's ambition to become a global technology power suffered a double blow last week. The stock price of ZTE, the largest publicly traded Chinese telecom equipment maker, plunged following reports Beijing was going to restrict spending on new networks by the state-owned telecom operators. In just one day of trading, ZTE shares collapsed 24%.

At the same time, Huawei Technologies, the privately held company that is a powerful challenger to companies such as Cisco Systems (CSCO) and Ericsson (ERIC), announced it was scrapping its long-anticipated sale of a stake in its terminals business to private equity investors. The deal, which Huawei had hired Morgan Stanley (MS) to coordinate, was supposed to be the first step toward an initial public offering for the company, which is projected to have $16 billion in sales this year. Huawei called the deal off following the plunge in ZTE shares and the ongoing crisis in the global credit markets. In a statement, Huawei blamed "current global market conditions and prevailing economic uncertainty."

The latest problems are setbacks to the two companies' plans to establish themselves as global players. Both Huawei and ZTE are important names in emerging markets (BusinessWeek.com, 8/3/07), having leveraged their solid base in China to build operations in Asia, Africa, and the Middle East. The two companies have also started to make inroads into the developed world with contracts in Europe. The one piece of the global pie they've been missing, however, has been the U.S., where both Chinese companies have small operations.

Special Challenges

Since the Chinese government is so eager for local champions to become industry forces globally, failure in the U.S. is especially embarrassing. "With the lack of [a presence in] the U.S., we are not a real globalized company," says Eric Xu, senior vice-president at Huawei in Shenzhen.

Aside from the usual problems that newcomers have in establishing themselves in the highly competitive U.S. market, the Chinese face special challenges since some Americans are suspicious of investment by companies with links to the Chinese government. For instance, Huawei, working with partner Bain Capital, tried to buy a stake in 3Com (COMS) in September of last year. In February 2008, the deal failed after it roused the ire of Washington lawmakers (BusinessWeek.com, 2/21/08) and other critics who expressed concern about the security implications of a Chinese company with ties to the People's Liberation Army gaining a foothold in the U.S. Xu calls the failed attempt to buy the 3Com stake "a closed matter" and says it "has no relationship on our business development in the U.S. market."

Huawei had hoped to bounce back from that disappointment by selling a piece of its terminals business (which makes phones, data cards, and home gateway equipment) to a Western private equity investor. The next step would be a public listing. The terminals business has been growing nicely, says Xu, with projected sales of $3.5 billion this year, compared with $2.5 billion in 2007. Customers include Vodafone (VOD), which buys 3G phones made by Huawei and then sells them to consumers in Europe as Vodafone-branded handsets (BusinessWeek.com, 9/29/06).

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suffer 忍受
blow 打击
restrict   vt. 限制 制约
scrap 丢弃
anticipated 预期的
prevailing [priˈveiliŋ] 占优势的,主流的
setback(s) 挫折
leveraged [ˈli:vəridʒ] 杠杆作用
make inroads into   入侵
be eager for 渴望
embarrassing 令人为难的
with ties to 受困于...
Aside from 除此之外, 既...又..
be suspicious of 怀疑
critic 评论家
implications 暗示
bounce back   受挫折后恢复原状
handsets 手机