ZTE stock plummets 40% after crippling United States ban

13 June, 2018, 19:40 | Author: Sheila Harris
  • By Patricia Zengerle

In February, U.S. intelligence officials warned Americans not to use smartphones made by ZTE or Huawei - another Chinese telecom company - as the communication technology could be compromised "to gain positions of power inside our telecommunication networks that provides the capacity to exert pressure or control over our telecommunications infrastructure".

The company's shares have fallen 13 percent since the ban was imposed in April.

Days after the Trump administration agreed to restore Chinese telecom firm ZTE's access to its USA parts suppliers, a bipartisan group moved to block the deal. The new punishment would require a restructuring of ZTE's management, a $1 billion fine, and $400 million to be held in escrow as a deterrent for ZTE from violating laws again.

Confirming details of the US deal, ZTE said late on Tuesday it would replace its board of directors and that of its import-export subsidiary ZTE Kangxun within 30 days of the June 8 order being signed by the United States. The Commerce Department placed additional sanctions on the company after it failed to follow through with its reorganization plan and lied to the USA government about it.

ZTE must replace the boards of directors of two corporate entities within 30 days, according to a 21-page order signed June 8 and published on Monday on the Commerce Department website along with the settlement agreement. Cotton said the president won't veto the bill "because the bill pertains many other critical priorities".

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As part of the US order, the Commerce Department also will select a monitor, known as a special compliance co-ordinator, within 30 days to report on compliance by ZTE and its affiliates worldwide for 10 years. The coordinator will have a staff of at least six employees funded by ZTE.

ZTE shares plunged in Hong Kong and Shenzhen on Wednesday following the settlement, with investors wiping about $3 billion off its market value.

There is also a risk that the Trump administration's move to lift the ban on ZTE could be undercut by Congress.

The case has become a focus of bargaining talks as Washington and Beijing look to avert a trade war. He stressed that lawmakers must "remain clear-eyed and unified on the threat China poses to USA interests and national security", even if the president wasn't.

ZTE employs 70,000 workers in China and is the fourth-largest vendor of mobile phones in the U.S.

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