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April 12, 2013 2:36 pm
ZTE, the world’s fifth-largest telecommunications equipment maker by shipments, is facing a corruption probe in Mongolia, adding to the Chinese company’s difficulties as it tries to fend off western suspicions about its government connections.
The management of ZTE is being investigated following the arrest of a Mongolian tax official who handled ZTE’s tax affairs, the anti-corruption agency’s lead investigation officer, E. Amarbat, said at a press conference.
The Mongolian probe could further damage ZTE’s reputation at a time when the Hong Kong-listed, state-owned company is actively seeking to break into western telecoms markets.
ZTE prides itself on its transparency but has had trouble entering some overseas markets due to political opposition.
A US Congress report in October branded ZTE and its larger rival Huawei a national security threat. Both companies rejected the allegations at the time.
Separately, ZTE is being probed by the US Department of Commerce and the FBI for allegedly selling equipment to Iran in violation of trade sanctions. Previously ZTE has fought accusations of corruption in several overseas markets, including Algeria and the Philippines.
In its Mongolian operations, ZTE has previously denied any wrongdoing. In response to questions from the FT in March, a ZTE spokesman wrote: “The company’s operations in Mongolia comply with all relevant local and international rules and regulations.” ZTE did not respond to written questions about the fresh allegations on Friday.
Mongolia, a landlocked country that is sandwiched between China and Russia, has stepped up its fight against corruption since the election of a new parliament last year. The probe against ZTE was initially triggered by authorities’ investigation into the assets of a Mongolian tax official – who has been arrested – and his family. The authorities are also looking at tenders and purchases made by the Mongolian ministry of education, science and culture.
ZTE’s previous contracts in Mongolia include a 2004 deal to expand Skytel’s CDMA spectrum coverage and a 2005 deal with ICTA of Mongolia to improve infrastructure for international phone calls, according to the company’s website.
The group has been trying to transform itself from a telecoms infrastructure equipment maker to a more consumer-facing smartphone maker amid tough competition in the telecoms equipment market.
It expects to make a full-year loss of more than Rmb2.5bn ($400m) for 2012, due to weakness in the handset sector, according to preliminary estimates from the company.
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