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October 17, 2005 4:24 pm

No half-measures for telecoms chief

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Hou Weigui, chairman and co-founder of leading Chinese telecoms equipment vendor ZTE, spends about a quarter of his time overseas ? but he still has a lot of travelling to do to see all 80 nations where his company does business.

?I was thinking about it on a plane one day: I?ve now been to 40 countries. That?s only half,? Mr Hou says in a rare interview at ZTE?s headquarters in the southern Chinese boomtown of Shenzhen.

ZTE?s overseas efforts have been bearing fruit. Offshore sales have soared in recent years and the company has begun to establish itself as one of China?s few home-grown international brands.

However, even as Mr Hou spearheads corporate China?s efforts to ?GoGlobal?, he is clearly concerned about developments in his home market.

China?s huge demand for telecoms equipment has made possible the success of ZTE and crosstown rival Huawei Technologies. But foreign vendors still play a dominant role and Mr Hou says Beijing is not doing enough to protect the locals.

?[We want] a reasonable degree of market protection and favour that would help enterprises get the exercise they need to get their blood moving,? Mr Hou says.

Mr Hou?s complaint about lack of market protection is likely to surprise overseas observers who see his country as a monolithic ?China Inc?, where officials and industry march in lockstep on the road to development and ever greater export production.

Certainly, state support in the form of policy loans, R&D subsidies and government-organised contracts have been crucial to the early survival of many ventures in the Chinese IT industry.

But even foreign rivals who argue that ZTE and Huawei have benefited from such favour agree that China?s telecoms equipment sector in general is much less protected than markets elsewhere in the world.

?It?s been very open,? Very open,? says Simon Beresford-Wylie, executive vice-president for networks at Finnish mobile telecoms group Nokia.

However, global vendors stress their local contributions. Nokia employs more than 5,000 people directly in China and another a further 30,000 or so indirectly, says Mr Beresford-Wylie.

But liberalised markets make it much for local manufacturing brands to win the experience and scale they need to compete head-on with global rivals who have their own Chinese factories and research centres.

?The pace at which China is opening up sectors gives local companies very limited time to develop,? says Gordon Orr, Greater China chairman at consultancy McKinsey.

ZTE?s offshore success shows it is already doing better than most. After a cautious start in neighbouring countries a decade ago, it has become an important supplier to operators in developing countries and is now challenging for a greater role in Europe and the US.

International competition is growing ever fiercer, however, and the need to undercut incumbent rivals to win sales means that a more secure source of domestic demand would benefit ZTE.

It is not clear whether Mr Hou?s plea will be heard, however. China?s telecoms regulators are notoriously opaque and regional telecoms networks uninterested in putting patriotism above profit or the comfortable ties many have forged with foreign vendors.

?Contrary to local popular perceptions of a ?local first? market similar to Japan or South Korea, [local operators] often demand a harder bargain from their own countrymen than from foreign suppliers,? telecoms consultancy BDA said in a report this year.

?That?s not normal,? complains Mr Hou.

Beijing could back local vendors by requiring use of home-grown TD-SCDMA technology when it issues ?third generation? mobile licences, although many analysts say TD-SCDMA will play only a minor role in 3G.

Still, Mr Hou sees a silver lining in the lack of state protection.

?I feel the current openness of the Chinese market and relative lack of protection for Chinese companies ... offers very great training and challenges for us.?

?If we can grow in this kind of comparatively bad environment, then I think we will be even stronger when it comes to international competition.?

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