Penalty bars ZTE from US tech parts

The United States has banned Chinese telecom equipment maker ZTE Corp from buying any US technology for seven years, a decision that may deal a blow to the Chinese company and negatively affect the global telecom industry.

The US Department of Commerce announced on Monday that it would impose a seven-year ban on ZTE's purchase of crucial US technologies, including chips, for violating terms of a sanctions settlement.

In quick response, China's Ministry of Commerce said it is ready to take necessary measures to safeguard the legitimate rights and interests of Chinese companies, and it urged the US to create a fair, just and stable legal and policy environment for all players.

Wang Xinglin, a researcher at China International Capital Corp, said that on top of hurting ZTE, which relies on imports for components used in its smartphones and telecom gear, the move will have a negative effect on the global telecom network structure.

ZTE accounts for about 10 percent of the global telecom equipment market and 30 percent of the Chinese telecom market. It has equipment in stock for one or two months, which leaves time for negotiations. The matter needs to be handled as soon as possible, Wang said.

Experts estimate that 25 percent to 30 percent of components used in ZTE's products are imported from the US. At the heart of the ban is the Shenzhen-based company's access to high-end chips from US chipmaking giants Qualcomm Inc and Intel Corp.

The case highlights how China's domestic semiconductor industry must step up research and development to reduce its reliance on foreign technology. In recent years, China has spent more than $200 billion on imported chips annually, more than the amount spent on crude oil imports, said Wang Zhihua, a microelectronics professor at the Tsinghua University in Beijing.

To deal with the crisis, ZTE said in an internal letter that it has set up a working group and is "assessing the potential implications that this has on the company and is communicating with relevant parties proactively in order to respond accordingly".

Trading in ZTE shares was suspended in Hong Kong and Shenzhen on Tuesday.

The US decision also weighs on the US companies that supply technologies to ZTE. Acacia Communications Inc, an optical networking telecom company that generated 30 percent of its revenue from ZTE in 2017, saw its shares plummet as much as 35 percent by midday on Tuesday.

The ban is the latest development in the US government's punishment of ZTE, after the company pleaded guilty last year to violating sanctions by shipping telecom equipment to Iran and the Democratic People's Republic of Korea. ZTE has paid $890 million in fines and penalties, and an additional penalty of $300 million could be imposed.

But US officials contend the company has not kept its promise to discipline 35 employees by reducing their bonuses or reprimanding them, so they initiated the ban on ZTE.

Xiang Ligang, CEO of telecoms industry website Cctime, said the twist illustrates the US government's inconsistent policies toward Chinese companies. It is more of a political attempt to contain Chinese tech leaders.