China’s ZTE to Pay $1.4 Billion U.S. Fine to Get Back in Business

June 7, 2018, 1:10 PM UTC

The U.S. has reached a deal that will allow ZTE Corp. to get back in business after the Chinese telecommunications company pays a record-large fine and agrees to management changes, Commerce Secretary Wilbur Ross said.

“We still retain the power to shut them down again,” he said Thursday in an interview on CNBC. He said the Commerce Department is fining the company $1.4 billion, including $400 million in escrow, on top of a $1 billion U.S. penalty a year ago.

The U.S. blocked ZTE’s access to U.S. suppliers in April, saying the company violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations. The company announced it was shutting down just weeks after the ban was announced.

Ross said the U.S. will install its “own compliance people” to monitor the company and shareholders will bring in new management and board. An agreement that allows the crippled company to reopen was seen as a key Chinese demand as the world’s two largest economies try to avoid a trade war that could undermine global growth. The U.S. also needs China’s help negotiating the denuclearization of North Korea ahead of a June 12 summit between President Donald Trump and North Korea’s Kim Jong Un.

Qualcomm Deal

Shares in NXP Semiconductors NV rose 3.8 percent in early trading in New York after news of the ZTE deal was announced. The agreement signals that China will be more likely to approve the $43 billion acquisition of NXP by Qualcomm Inc., a deal that has been pending for 18 months. Qualcomm rose 3.2 percent.

Trump has threatened to slap tariffs on at least $50 billion in Chinese imports shortly after publishing a final list of targets on June 15. China has vowed to retaliate on everything from U.S. soybeans to airplanes, and said it will abandon its commitments if the U.S. follows through on its tariff threat.

“The Chinese are well aware there’s a new marshal in town,” Ross said. “His name is Donald Trump and he has a very good shot.”

U.S. goods exported to China last year totaled $130 billion while Chinese imports to the U.S. totaled $506 billion. That left a U.S. deficit of more than $375 billion.

Meanwhile, the U.S. government is also looking at limiting Chinese investment, and will report by the end of this month how it plans to tighten scrutiny of that. Treasury Secretary Steven Mnuchin wants to rely on legislation to tighten controls, instead of an executive move imposing sweeping new limits, according to three people familiar with the matter.