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ZTE: When Disaster Strikes

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ZTE: When Disaster Strikes

What US sanctions could mean for the Chinese telecom giant

Jiemian,

5 min read
5 take-aways
Audio & text

What's inside?

ZTE is buckling under the pressure of US sanctions.

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Editorial Rating

7

Qualities

  • Analytical
  • Concrete Examples
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Recommendation

It looked like game over for ZTE, China’s premiere telecom company. In March 2016, the US Commerce Department (DOC) alleged that ZTE had violated sanctions against Iran by exporting US-made goods to the country. The DOC then fined the company and imposed trade restrictions, making it hard for ZTE to source American technology for its own products. Things took a turn for the worse after ZTE reneged on a deal that served as punishment for the violation. A year later, ZTE found itself on the brink of collapse. Jiemian tech news reporters Rao Wenyi and Zhang Yiyu thoroughly analyze what ZTE has to lose and shed light on a dilemma that could hobble China’s IT industry in the future. Since the article went to press, the Trump administration brokered a deal with Beijing, which allows ZTE to resume business in the United States under the condition that it pays a hefty fines, overhauls its management and remains under American surveillance. ZTE stocks have resumed trading on the Hong Kong stock exchange, and it’s showing signs of recovery. getAbstract recommends this article to those wondering how one foreign government can bring down a company.

Summary

On April 16, 2018, the US Commerce Department forbid American companies to export components, products and services to China’s telecom giant ZTE. This could have been the end of the company, which had already got itself into trouble in 2016 when the United States discovered that it had willfully breached sanctions against Iran and North Korea. After a year-long US investigation into ZTE operations, the United States agreed to continue working with ZTE, stipulating that ZTE had to pay a fine to the US government, fire four top-level executives and penalize 35 other employees involved in the breach. ZTE coughed up the $1.2 billion fine but was lax on punishing its employees. The 2018 ban allegedly was a response to ZTE’s inaction. Now the dispute had spun into the larger Sino-American trade feud, and experts foresaw certain doom for ZTE.

The timing was unfortunate. ZTE had just announced its stellar 2017 performance a month prior, touting a 300% year-on-year revenue growth. Its sales profit had jumped 7.49% from the previous year, totaling ¥108.9 billion ($16.24 billion). Its total capital assets topped ¥143.9 billion. At home, ZTE spent the year maintaining...

About the Authors

Rao Wenyi and Zhang Yiyu are Jiemian reporters who cover global finance and technology.

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