Penalty bars ZTE from US tech parts

China Daily (Hong Kong) - - FRONT PAGE - By MA SI masi@chi­

The United States has banned Chi­nese tele­com equip­ment maker ZTE Corp from buy­ing any US tech­nol­ogy for seven years, a de­ci­sion that may deal a blow to the Chi­nese com­pany and neg­a­tively af­fect the global tele­com in­dus­try.

The US Depart­ment of Com­merce an­nounced on Mon­day that it would im­pose a sev­enyear ban on ZTE’s pur­chase of cru­cial US tech­nolo­gies, in­clud­ing chips, for vi­o­lat­ing terms of a sanc­tions set­tle­ment.

In quick re­sponse, China’s Min­istry of Com­merce said it is ready to take nec­es­sary mea­sures to safe­guard the le­git­i­mate rights and in­ter­ests of Chi­nese com­pa­nies, and it urged the US to cre­ate a fair, just and sta­ble le­gal and pol­icy en­vi­ron­ment for all play­ers.

Wang Xinglin, a re­searcher at China In­ter­na­tional Cap­i­tal Corp, said that on top of hurt­ing ZTE, which re­lies on im­ports for com­po­nents used in its smart­phones and tele­com gear, the move will have a neg­a­tive ef­fect on the global tele­com net­work struc­ture.

ZTE ac­counts for about 10 per­cent of the global tele­com equip­ment mar­ket and 30 per­cent of the Chi­nese tele­com mar­ket. It has equip­ment in stock for one or two months, which leaves time for ne­go­ti­a­tions. The mat­ter needs to be han­dled as soon as pos­si­ble, Wang said.

Ex­perts es­ti­mate that 25 per­cent to 30 per­cent of com­po­nents used in ZTE’s prod­ucts are im­ported from the US. At the heart of the ban is the Shen­zhen-based com­pany’s ac­cess to high-end chips from US chip­mak­ing gi­ants Qual­comm Inc and In­tel Corp.

The case high­lights how China’s do­mes­tic semi­con­duc­tor in­dus­try must step up re­search and de­vel­op­ment to re­duce its reliance on for­eign tech­nol­ogy. In re­cent years, China has spent more than $200 bil­lion

on im­ported chips an­nu­ally, more than the amount spent on crude oil im­ports, said Wang Zhi­hua, a mi­cro­elec­tron­ics pro­fes­sor at the Ts­inghua Univer­sity in Bei­jing.

To deal with the cri­sis, ZTE said in an in­ter­nal let­ter that it has set up a work­ing group and is “as­sess­ing the po­ten­tial im­pli­ca­tions that this has on the com­pany and is com­mu­ni­cat­ing with rel­e­vant par­ties proac­tively in or­der to re­spond ac­cord­ingly”.

Trad­ing in ZTE shares was sus­pended in Hong Kong and Shen­zhen on Tues­day.

The US de­ci­sion also weighs on the US com­pa­nies that sup­ply tech­nolo­gies to ZTE. Aca­cia Com­mu­ni­ca­tions Inc, an op­ti­cal net­work­ing tele­com com­pany that gen­er­ated 30 per­cent of its rev­enue from ZTE in 2017, saw its shares plum­met as much as 35 per­cent by midday on Tues­day.

The ban is the lat­est de­vel­op­ment in the US gov­ern­ment’s pun­ish­ment of ZTE, af­ter the com­pany pleaded guilty last year to vi­o­lat­ing sanc­tions by ship­ping tele­com equip­ment to Iran and the Demo­cratic Peo­ple’s Repub­lic of Korea. ZTE has paid $890 mil­lion in fines and penal­ties, and an ad­di­tional penalty of $300 mil­lion could be im­posed.

But US of­fi­cials con­tend the com­pany has not kept its prom­ise to dis­ci­pline 35 em­ploy­ees by re­duc­ing their bonuses or rep­ri­mand­ing them, so they ini­ti­ated the ban on ZTE.

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