Shoppers queue up outside Huawei's first directly managed flagship store in Nanshan district in Shenzhen, South China's Guangdong Province on Septeber 28. Photo: IC

Chinese technology giants ZTE and Huawei have announced plans to issue bonds in the Chinese mainland after the Western financing environment turned tougher.

Experts interpreted the moves as a sign that those companies are moving forward fast in their business expansion, particularly as they are taking action to invest a large amount of capital into long-term research and development. 

ZTE announced on Thursday that it had received approval from the National Association of Financial Market Institutional Investors to issue 2 billion yuan ($282 million) in medium-term notes within the next two years. 

ZTE approved the registration and issue of perpetual medium-term notes of not more than 3.5 billion yuan and short-term commercial paper of not more than 8 billion yuan during an extraordinary general meeting held in December 2017. 

Xiang Ligang, a Beijing-based veteran telecom industry analyst, said he had heard from some of ZTE's executives that the company's capital demands are large, particularly as it lost money in 2018 but is experiencing an uptick in business this year. 

"Generally, companies' financing demands are particularly great when they are in a period of rapid development, as they need a large amount of capital to build products and inventories," he told the Global Times on Sunday. 

ZTE's first-half revenue was 44.61 billion yuan, up 13.1 percent year-on-year, while profits surged 118.8 percent to 1.47 billion. 

ZTE's move followed an announcement by its Chinese counterpart Huawei in September that it was planning to raise 6 billion yuan in two tranches in its first domestic debt issue. 

Previously, Huawei issued four US dollar-denominated bonds and two yuan-denominated bonds in Hong Kong through subsidiaries. 

Xi Junyang, an economics professor at the Shanghai University of Finance and Economics, said that companies like Huawei and ZTE invest heavily in research and development, which doesn't generate returns in the short term, so they need to borrow to meet their capital needs. 

Huawei CEO Ren Zhengfei recently said that Huawei used to raise capital through Western banks, but now that the financing channels in the West are not as accessible as before, Huawei has turned to domestic banks. 

ZTE and Huawei are under mounting pressure from US sanctions as Washington takes measures to hinder China's high-tech sector. 

The Financial Times reported on October 8 that the US government is looking at ways to fund Huawei's European rivals such as Nokia to confront the rise of Huawei.

According to Xi, the cost of a bond issue is generally higher in the Chinese mainland than in overseas markets, and companies face exchange-rate risks if they use money they raise domestically in overseas projects. 

"But companies may have to bear this if the overseas financing  environment gets tougher," he said. 

But he stressed that since domestic banks are often reluctant to take the risk of lending heavily to a single client, fundraising through bond issues will be a better and more convenient means for companies.