China’s muted response to US export ban on ZTE

April 23, 2018 08:58
The seven-year export ban on ZTE Corp. will definitely affect the Chinese company's supply chain. Photo: Reuters

The United States has imposed a seven-year export ban on China's ZTE Corp., which means American companies are prohibited from selling hardware and software to the Chinese telecom giant. The ban, which will last until 2025, may threaten to cut off ZTE's supply chain.

In March 2017, after a five-year investigation into the company, ZTE pleaded guilty in a US federal court to charges of violating US sanctions against Iran by illegally selling US technology to the Gulf nation.

The Chinese company reached a settlement with Washington and agreed to pay US$1.2 billion in penalty and punish those responsible for covering up the sales to Iran.

But the US Department of Commerce discovered later that the company had made false statements during the investigation. Also, no disciplinary action was taken by the company against its 38 employees who had conducted business with Iran.

As a result, the US commerce department imposed the seven-year ban on ZTE.

The timing of the decision will inevitably lead to speculation that it has something to do with the escalating trade tensions between the US and China.

In fact, telecommunications equipment could be considered the most critical of the business disputes between the world's two largest economies.

When US President Donald Trump decided last month to block Singapore-based Broadcom's proposed US$117 billion buyout of Qualcomm, his concern was that the deal could lead to a cutback in research spending, raising the chance that Chinese firms like Huawei Technologies and ZTE will dominate the industry, thus undermining US national security.

So far, Beijing’s response has been fairly muted, probably because the US seems to have a strong case. China’s Foreign Ministry spokeswoman Hua Chunying said China is ready to take necessary measures to safeguard the legitimate rights and interests of Chinese companies.

China has always asked its companies to comply with local laws and regulations and operate in a legal manner in foreign nations.

ZTE has business dealings with hundreds of American companies and creates millions of jobs for the US, China’s Commerce Ministry said.

The Chinese company had a 6.2 percent share of the global telecommunications equipment market in 2016.

This article appeared in the Hong Kong Economic Journal on April 20

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist