(Yicai Global) April 17 -- China’s second-largest telecoms equipment maker ZTE Corp. has set up a crisis management group to tackle a seven-year US ban forbidding American companies supplying the firm, assessing its full range of potential implications on the company and communicating with relevant parties proactively in order to respond accordingly, it said in an internal message today.
“In such a hard time, we need the strength of our 80,000 ZTE employees. I hereby appeal and call for all employees to have confidence and stick together to work through such difficulties. The company is actively communicating with relevant parties and making the best efforts to resolve the issue. We hope that everyone will maintain a steady state of mind and stick to their posts. Your work will be the greatest support for the company,” said ZTE Chairman Yin Yimin in the message.
The US Department of Commerce announced a seven-year ban yesterday, claiming ZTE made false statements to its Bureau of Industry and Security in 2016 and 2017 by failing to take punitive measures against employees involved in the illegal export of US products to Iran in March 2016.
It announced activation of denial of export privileges against ZTE for alleged violations of the Export Administration Regulations. The DOC has also imposed a fine of USD300 million on the Chinese telecoms equipment firm, which can be suspended depending on the implementation of the deal in the next seven years.
The impact of the ban will depend on the progress of the situation, Wang Qing, a pseudonym, from a telecom equipment supplier told Yicai Global, adding a seven-year embargo would have a huge impact on ZTE in the worst-case scenario.
The main customers of Wang's company fall under two categories: major telecom operators in China and equipment vendors such as ZTE, Huawei Technologies Co. and Datang Telecom Group. "The chips for base stations and terminals and filters for terminals cannot be made domestically in the short term," Wang told Yicai Global.
The huge domestic market fostered tremendous development in China's communications industry, but the basic and physical technologies are still weak, Wang said, adding chips and terminal filters are the core technologies.
This will also have an impact on ZTE's suppliers. "The suppliers will be hugely affected if ZTE cannot do businesses. ZTE is in system integration business. If the core components of the system are not available, there won’t be a whole set of equipment. In the long run, this will even affect the progress of 5G,” Wang warned.
ZTE today suspended trading in its Shenzhen-listed shares after the DOC’s decision cut off more than a fifth of its suppliers.
The Shenzhen-based company depends on US suppliers for components. ZTE gets between 20 percent and 30 percent of its parts from the US and has long-term agreements with Microsoft Corp., Intel Corp. and IBM Corp, according to an analyst from China Merchants Securities. It has bought USD14 billion worth of chips and equipment from the US in recent years, creating 20,000 jobs, the analyst added.
China’s commerce ministry stepped in today to defend its companies. “The ministry of commerce will closely track the case and is ready to take necessary measures to protect the legitimate rights and interests of Chinese companies,” a spokesperson said. It also urged the US to create a fair, just, and stable legal and policy environment for Chinese companies.
Editors: Mevlut Katik