ZTE Ceases Operations Due To US Ban, Despite Trump Pledge

President Donald Trump has stepped into the row surrounding the seven year ban on US companies supplying Chinese telecommunications maker ZTE with software and components.

Trump had pledged to help China’s ZTE “get back into business”. But that seems to be too little, too late, after ZTE just announced on Tuesday that as a result of the ban, “major operating activities of the company have ceased.”

ZTE had warned last month that the ban on US firms supplying it with components threatened its very survival.

Component ban

ZTE had earlier this month requested that the United States lift the seven year ban on US companies supplying it with software and components.

The US had imposed the ban in April after it alleged the Chinese company had broken a settlement agreement with repeated false statements (regarding breaching US sanctions on Iran and North Korea), and the ban was punishment for violating the terms of the settlement agreement.

The US Commerce Department’s Bureau of Industry and Security (BIS) had imposed the ban on sales by American companies to ZTE for seven years.

Following that move ZTE immediately suspended trading of its shares on Chinese stock markets and delayed an earnings release.

Chinese negotiators who were holding trade talks with US counterparts in Beijing in late April, asked the United States to hear ZTE’s appeal, and take into account the company’s efforts to improve its compliance, and amend the ban.

Despite now ceasing main business operations, China’s second biggest telecom equipment maker is still trying to have the ban modified or reversed.

But it seems that the ban was too much, and ZTE has ceased ‘major operating activities.’

“As a result of the Denial Order, the major operating activities of the Company have ceased,” ZTE said. “As of now, the Company maintains sufficient cash and strictly adheres to its commercial obligations subject to compliance with laws and regulations.”

“The Company and related parties are actively communicating with the relevant US government departments in order to facilitate the modification or reversal of the Denial Order by the U.S. government and forge a positive outcome in the development of the matters,” said ZTE.

ZTE is known to rely on importing chips from US firms such as Qualcomm and Intel for up to a third of its components.

ZTE had also signed a deal with Taiwanese semiconductor company Mediatek, but this was not enough to avoid crippling ZTE’s supply chain.

Trump pledge

Meanwhile President Trump caused controversy in the United States after he tweeted on Monday a pledge to help ZTE.

“President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast,” Trump tweeted. “Too many jobs in China lost. Commerce Department has been instructed to get it done!”

ZTE employs about 80,000 people, mostly in China. Staff are still reportedly turning up to work, but according to Reuters, “there is not much to do.”

On Monday, Commerce Secretary Wilbur Ross told reporters that the US would consider alternatives to a supplier ban.

“ZTE did do some inappropriate things … the question is are there alternative remedies to the ones we had originally put forward and that’s the area we will be exploring very, very promptly,” Mr Ross was quoted by the BBC as saying.

In 2012 the US House Intelligence Committee had warned that both Huawei and ZTE posed a national security threat and recommended they were banned from the US.

And then in March 2017, ZTE was fined $1.1bn (£800m) after admitting to violating US sanctions by illegally shipping American technology to Iran and North Korea.

It was also accused of lying about the punishment of staff involved in skirting the sanctions.

Do you know all about security? Try our quiz!