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Vulnerabilities / Threats

ZTE $1.5 Billion Development Hits Snags

The contract manufacturer is addressing concerns about its planned manufacturing, research, and training base in southern China.

After a banner year last year in which profit surged 48%, ZTE announced earlier this month that it will build a manufacturing, research, and training base in southern China. But there are some snags the company will have to address before the plan can get off the ground.

The telecommunications equipment and network solutions provider said in a statement earlier this month that it plans to build a manufacturing and research base in the Heyuan Hi-Tech Development Zone in Guangdong province's Heyuan. It is projected to be completed in six years at a cost of $1.47 billion.

Before the plan gains approval from shareholders, however, it will need to address a number of potential pitfalls. "The risks present with this investment have to do with politics and construction," a staff member of the board of directors' secretary office said.

When asked to elaborate, the staffer said that ZTE is engaged in talks with the Heyuan City government, which has already agreed to perks but has not elaborated fully on what these will be. As for construction, the cost estimate is based on expected price rises in the construction industry that are subject to change. But he brushed off these concerns as normal investment risks.

There are also worries about whether ZTE will be able to make back the outlay needed for the project. But, the staffer said, "this base will include manufacturing and research. Since there are products being manufactured, there definitely will be a return."

Analysts say that choosing Heyuan as the site of the base will benefit both ZTE and the locality. A lot of ZTE's investments are currently in Shenzhen, but Heyuan will offer lower property costs and worker salaries. Heyuan is also already well known as a cell phone manufacturing base.

ZTE's profit last year jumped 48% to $361 million on sales of around $8.89 billion, an increase of 36%.

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