The U.S. Has Banned Chinese Telecoms Firm ZTE From Buying American Tech for Seven Years

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The U.S. government said Chinese telecommunications-gear maker ZTE


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violated the terms of a sanctions settlement and imposed a seven-year ban on purchases of crucial American technology needed to keep it competitive.

The Commerce Department determined ZTE, which was previously fined for shipping telecommunication equipment to Iran and North Korea, subsequently paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to U.S. authorities, the department said.

“Instead of reprimanding ZTE staff and senior management, ZTE rewarded them,” Commerce Secretary Wilbur Ross said in the statement. “This egregious behavior cannot be ignored.”

The ZTE rebuke adds to U.S.-China tensions over trade between the world’s two biggest economies. President Donald Trump threatened tariffs on $150 billion in Chinese imports for alleged violations of intellectual property rights, while Beijing vowed to retaliate on everything from American soybeans to planes. Trump on Monday accused China along with Russia of devaluing their currencies, opening a new front in his argument that foreign governments are exploiting the U.S.

China’s Ministry of Commerce rapidly responded to the ZTE ban, saying it would take necessary measures to protect the interests of Chinese businesses. It said the Shenzhen-based company has cooperated with hundreds of U.S. companies and contributed to the country’s job creation.

For ZTE itself, the latest U.S. action means one of the world’s top makers of smartphones and communications gear will no longer be able to buy technology from American suppliers, including components central to its products. ZTE has purchased chips from Qualcomm Inc.


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and Intel Corp.


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, and optical components from Acacia Communications Inc.


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and Lumentum Holdings Inc. A seven-year ban would effectively cover a critical period during which the world’s telecoms carriers and suppliers are developing and rolling out fifth-generation wireless technology.

“All hell breaks loose,” wrote Edison Lee and Timothy Chau, analysts at Jefferies, after the export ban was announced.

They downgraded ZTE shares to underperform and cut their price target on its stock by more than half. Trading in ZTE shares was suspended in Hong Kong.

The company’s suppliers in Asia tumbled in response, with MOBI Development Co. down 13 percent and Zhong Fu Tong Co. off 7.9 percent. Shares in Acacia and Lumentum plunged in the U.S.

ZTE faces tough options in particular due to the ban on buying Qualcomm’s processors and modems, the main components in smartphones. China’s Huawei Technologies makes those chips for use in its own handsets, while MediaTek


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is Qualcomm’s largest rival in offering chips on a so-called merchant basis. ZTE may have to either buy from a competitor or get chips from a Taiwanese company whose products generally lag those of its U.S. rival’s in performance.

ZTE said it was aware of the sanctions and is evaluating its impact while talking with related parties. Qualcomm declined to comment.

Separately, the U.K.’s National Cyber Security Centre warned the country’s telecommunications companies and regulator that national security risks from using …read more

Source:: Fortune

      

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