Caixin
May 22, 2018 06:13 PM
BUSINESS & TECH

U.S., China Edge Closer to Ending ZTE Ban

A ZTE Corp. store is seen in Hangzhou, Zhejiang province, on May 14. Photo: IC
A ZTE Corp. store is seen in Hangzhou, Zhejiang province, on May 14. Photo: IC

* Broader framework of agreement could see ZTE forced to make more management changes, pay more fines, reports say

* Source close to company says ZTE could collapse if U.S. ban isn’t lifted within two months of when it was imposed

(Beijing) — Washington is aiming to lift crippling sanctions against ZTE Corp., a move previously hinted at by U.S. President Donald Trump, as the embattled telecom giant fights for its life, a source close to the company told Caixin.

Washington and Beijing had agreed on the broader framework of a deal to end the sanctions, though details were still being finalized, The Wall Street Journal reported, citing unnamed sources with knowledge of the matter in both countries. Such a framework could see ZTE forced to make major management changes, including to its board, and possibly pay more fines, the report said.

The U.S. Department of Commerce said in mid-April it would cut off ZTE, whose main products include smartphones and networking equipment, from its American suppliers as punishment for previous sales of American-made products to Iran. The U.S. had earlier declared such sales illegal under sanctions aimed at pressuring Iran to curtail its nuclear program.

ZTE officials have been spending the roughly five weeks since that time crafting contingency plans, including a potential management reshuffle and how to restart the company’s business if and when the ban is lifted, according to another source close to the company. ZTE announced two weeks ago that it had halted its main business operations as a result of the sanctions.

“It’s as if a person’s heart had stopped beating, but there’s still blood flowing through his veins,” a source close to the company previously told Caixin, describing the severity of the company’s condition. He forecast the company could collapse if it were to fail to get the U.S. ban lifted within two months of when it was first imposed.

The U.S. had originally found ZTE guilty of the illegal sales in 2016, but suspended a threatened seven-year ban on its purchase of American-made components after the two sides reached a settlement that included a fine of nearly $1 billion. But this year, the Commerce Department, which is overseeing the matter, determined ZTE had failed to live up to all its commitments, citing instances of employees who were not punished adequately. As a result, it reimposed the seven-year ban.

The issue was later drawn into broader discussions between Washington and Beijing, as the former put pressure on the latter to reduce their large trade imbalance. Trump earlier tweeted that he hoped the U.S. could find a positive resolution for ZTE’s case, though the matter wasn’t mentioned when the two sides announced a broader new trade agreement over the weekend.

A ZTE spokesperson had no comment on the situation.

ZTE’s Shenzhen- and Hong Kong-listed shares have been suspended since the crisis began.

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Contact reporter Yang Ge (geyang@caixin.com)
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