US bans firms from sell­ing parts to ZTE

> Ac­tion could threaten Chi­nese tele­coms equip­ment maker’s sur­vival if not re­solved

The Sun (Malaysia) - - SUNBIZ -

NEW YORK: The United States has banned Amer­i­can firms from sell­ing parts to China’s ZTE Corp for seven years, a po­ten­tially dev­as­tat­ing move for the tele­coms equip­ment maker and ex­ac­er­bat­ing tensions be­tween the world’s two largest economies.

The ac­tion, first re­ported by Reuters, comes at a time when the two coun­tries have threat­ened each other with tens of bil­lions of dol­lars in tar­iffs in re­cent weeks, fan­ning wor­ries of a full-blown trade war.

The US Com­merce Depart­ment im­posed the ban af­ter ZTE vi­o­lated an agree­ment on pun­ish­ing em­ploy­ees that was reached af­ter it was caught il­le­gally ship­ping US goods to Iran.

China re­sponded swiftly, warn­ing it is pre­pared to take ac­tion to pro­tect the in­ter­ests of Chi­nese firms and say­ing it hopes the United States can deal with the is­sue in ac­cor­dance with the law.

The US ac­tion could be cat­a­strophic for ZTE since Amer­i­can com­pa­nies are es­ti­mated to pro­vide 25-30% of the com­po­nents used in ZTE’s equip­ment, which in­cludes smart­phones and gear to build telecom­mu­ni­ca­tions net­works.

“If the is­sue can­not be solved smoothly and im­me­di­ately, we think that ZTE will face tremen­dous dis­as­ter and would be forced to scale back on its smart­phone busi­ness, not only in the US, but also in other mar­kets,” said Strat­egy An­a­lyt­ics an­a­lyst Woody Oh.

ZTE, whose Hong Kong and Shen­zhen shares were sus­pended from trade yes­ter­day, said in a state­ment it was as­sess­ing the im­pli­ca­tions of the US de­ci­sion and was com­mu­ni­cat­ing with “rel­e­vant par­ties”.

The com­pany has set up a cri­sis man­age­ment group in re­sponse to the ban, said a ZTE source, de­clin­ing to be iden­ti­fied.

Worth some US$20 bil­lion (RM77.7 bil­lion) as of Mon­day’s close, ZTE is China’s sec­ond-largest tele­com equip­ment maker af­ter Huawei Tech­nolo­gies Co Ltd and the fourth big­gest seller of smart­phones in the US. In 2017, it de­rived 59% of rev­enue from its net­work busi­ness and 32% from its con­sumer busi­ness.

“If the com­pany is not able to re­solve it, they may very well be put out of busi­ness by this. Many banks and com­pa­nies even out­side the US are not go­ing to want to deal with them,” said Eric Hirschhorn, a for­mer US un­der­sec­re­tary of com­merce who was heav­ily in­volved in the case.

The Chi­nese com­pany paid US$890 mil­lion in fines and penal­ties af­ter it pleaded guilty last year to con­spir­ing to vi­o­late US sanc­tions by il­le­gally ship­ping US goods to Iran.

As part of the agree­ment, Shen­zhen­based ZTE promised to dis­miss four se­nior em­ploy­ees and dis­ci­pline 35 oth­ers by ei­ther re­duc­ing their bonuses or rep­ri­mand­ing them, se­nior US of­fi­cials told Reuters. But the Chi­nese com­pany ad­mit­ted in March that while it had fired the four se­nior em­ploy­ees, it had not dis­ci­plined or re­duced bonuses to the 35 oth­ers.

Un­der the ban, US com­pa­nies can­not ex­port pro­hib­ited goods, such as chip sets, di­rectly to ZTE or via an­other coun­try, be­gin­ning im­me­di­ately.

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