By Bloomberg
May 13, 2018

President Donald Trump has told the U.S. Commerce Department to get ZTE Corp., the massive Chinese telecom equipment maker, back into business after denying the company export privileges in April in a withering statement on ZTE’s “egregious” behavior.

Trump said in a Sunday morning tweet, posted minutes after arriving at his golf course in Virginia, that he and Chinese leader Xi Jinping are working together to give ZTE “a way to get back into business, fast.” He said the “Commerce Department has been instructed to get it done!” because “too many jobs in China lost.”

A U.S. blockade has choked off the revenue of the No. 2 Chinese telecom company, which regards the next two weeks as crucial as it faces potential collapse. The firm said May 10 it’s suspended all major operations.

ZTE has been trying to resolve the blockade that Trump’s Commerce Department imposed in April as punishment for violating the terms of a 2017 sanctions settlement, then lying about it. That cut off access to the U.S. technology it needs to build most of its products, from Qualcomm Inc.’s semiconductors to optical chips from Lumentum Holdings Inc.

In an April 16 statement, Commerce Secretary Wilbur Ross said ZTE made false statements the the U.S. government and “covered up the fact” that the company paid full bonuses to employees that had engaged in illegal conduct.

‘Egregious Behavior’

“ZTE misled the Department of Commerce,” Ross said. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”

U.S. military exchanges also have stopped selling smartphones made by ZTE and China’s Huawei Technologies Co. after the Pentagon warned that the devices pose a security risk to military personnel and operations, the Defense Department said earlier this month.

ZTE’s increasingly precarious position is exacerbating tensions between the world’s two biggest economies, now involved in sensitive negotiations to try and forestall a trade war. Trump is also weeks away from a high-stakes summit with North Korean leader Kim Jong Un, where having China on side would be beneficial.

The company also has been working on new, faster fifth-generation wireless technology, along with local rival Huawei. That’s a key technology battle between the U.S. and China — and one that China has a chance to win.

Stiff Competition

The U.S.’s only major telecom-equipment maker, Lucent Technologies, was acquired by France’s Alcatel SA in 2006, with the combined company later absorbed into Finland’s Nokia Oyj. Nokia and Ericsson AB have floundered as their Chinese rivals churned out capable and relatively cheap gear for wireless networking customers such as China Mobile Ltd. and Telefonica SA.

But ZTE still relies on U.S. companies to supply it with components for its networking gear. Qualcomm and Micron Technology Inc. provided chips. Lumentum Holdings and Acacia Communications Inc. sold key optical equipment. ZTE’s smartphones used Google’s Android operating system. The moratorium disrupted these relationships, putting the Chinese company on life support.


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