Bankrolling customers is a classic tactic to generate sales. European telecoms equipment providers did it to less than great effect when third-generation networks first ramped up. The sector had an estimated $26bn in outstanding vendor finance in 2000. Other industries followed, often to little avail. Reed Elsevier, the Anglo-Dutch publisher, was unable to ditch its magazine titles last year, even when it provided a $330m cheque. Banks, trying to shift assets, are jumping on the bandwagon: Barclays of the UK is reportedly offering financing to woo buyers for iShares, its US exchange traded fund manager. Even the US government is in on the act. The latest plan for migrating toxic assets off banks' balance sheets is, at bottom, vendor financing with Washington footing the bill.
Since everything comes full circle, Asian telecom equipment providers are now in the game. ZTE, the Chinese telecoms equipment maker, is dangling a $15bn cheque in front of potential customers to help boost growth. Because this comes courtesy of China Development Bank, a policy lender, there is less danger of absconding buyers blowing a hole in ZTE's balance sheet. But it is unlikely to be any more effective than previous gambits, bar perhaps the odd deal in developing markets. Unlisted Huawei Technologies, ZTE's bigger rival, received a $10bn credit facility from CDB in 2004 and is understood to have drawn down little, if any, of the facility.
Of course, this need not stop a backlash against the Chinese using cheap money to buy business. Domestic equipment makers are powering into overseas markets, and grabbing more business on home turf – once the domain of foreigners. BDA, the Beijing-based consultancy, expects ZTE and Huawei to secure half of China's 3G market compared with about one-third of the 2G market last year. Hard-pressed European rivals, spoiling for a fight, may yet find a use for vendor financing again.