ZTE, the fifth largest handset vendor in the world, has just received a $20 billion loan from the China Development Bank. Said bank is owned by the Chinese government, and it's mainly used to fund large projects that benefit the country. So how is the money going to be spent? To quote the press release (PDF document) that ZTE issued:
“The principal terms of the Agreement include the provision by CDB of a USD20 billion facility for cooperation, comprising financing facilities for the Company's overseas projects and credit facilities for the Company. The overseas project financing facilities shall be applied towards meeting the funding requirements of overseas customers in the purchase of the Company's equipment and related technical services. The credit facilities shall be applied in mid-to-long term loans, short-term loans, debenture financing, factored financing, supply chain financing, as well as trade financing such as guarantees, bills and letters of credit.”
That's easily the most confusing block of text we've encountered this year. We think it means ZTE is going to get cash to build factories, factories that will be used to pump out not just smartphones, but also infrastructure equipment such as 4G LTE cell towers.
So is this news significant? It's $20 billion, of course it's important! That's more than what Nokia and RIM are worth combined. What we want to know is why ZTE and why not Huawei or Lenovo? We know Lenovo is doing well, so they don't technically need the money. But Huawei?
Analysts much smarter than us are going to break this news down later today. Here are the questions we want to see answered: How is this deal going to impact how people in the West see China? The factories that ZTE are going to build, what are they going to produce? Will ZTE start an agressive expansion outside of China?