Wilbur Ross: US and China’s ZTE have reached a deal
(CNN Money) — Chinese smartphone maker ZTE will pay a fine of $1 billion and bring an American monitoring team on board to resolve a high-profile dispute with the United States.
The full terms of the deal — announced by US Commerce Secretary Wilbur Ross — were not clear. The deal could mean the end of a ban on ZTE buying American parts.
Ross said the deal was struck at around 6 a.m. ET on Thursday, and it will impose “the most strict compliance that we’ve ever had on any company, American or foreign.” ZTE will also put $400 million in an escrow account.
“We are literally embedding a compliance department of our choosing into the company,” Ross said on CNBC.
The fate of the company has become a major flashpoint in trade tensions between the United States and China.
In April, the US Commerce Department blocked American firms from selling parts or providing services to ZTE, which also makes telecommunications equipment.
The crippling ban was put in place after Washington said ZTE violated a 2017 deal in which the Chinese company admitted to evading sanctions on Iran and North Korea.
The new agreement will force ZTE to replace its top management and board, Ross said. The compliance team will report to the company’s new chairman, he added.
The $400 million will be forfeited if ZTE violates the terms.
“I’m very, very happy with this arrangement,” Ross said. “It is the strictest and largest fine that has ever been brought by the Commerce Department.”
ZTE, which employs around 75,000 people worldwide, buys key components from a range of US companies, including chips from Qualcomm and Intel. It said on May 9 that it had halted most of its operations because of the ban.
President Donald Trump announced in mid-May that he was working with Chinese President Xi Jinping to give ZTE “a way to get back into business, fast.” But his remarks unleashed a backlash in Washington that fueled uncertainty over whether the company would ever get a reprieve.
Analysts say the ban is likely to have cost ZTE billions of dollars in lost revenue, tarnished its brand and strained its relationships with customers around the world.
ZTE has repeatedly come under the scrutiny of regulators and officials in the United States, which is wary of its ties to the Chinese government. The company’s controlling shareholder is Shenzhen Zhongxingxin Telecommunications Equipment, a Chinese state-owned corporation.
In 2012, ZTE and Huawei, another huge Chinese tech company, were the subject of a US congressional report that focused on the equipment they make for telecommunications networks.
The report said the companies “cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.” Both companies strongly disputed the report’s findings.
China’s efforts to boost its high-tech industries are a key source of tension between the two countries. And ZTE plays a role in Beijing’s tech ambitions.
It is one of several Chinese tech firms aggressively pursuing the development of 5G, the next generation in wireless network technology. The company boasts government and corporate clients in more than 160 countries and regions.