The Truth Behind the ZTE Embargo

ZTE Blade phone. (Image:  John Karakatsanis via  flickr  CC BY-SA 2.0)
ZTE Blade phone. (Image: John Karakatsanis via flickr CC BY-SA 2.0)

China is feeling the shock after ZTE, the second-largest Chinese phone manufacturer, has been banned for 7 years from buying U.S. produced telecommunication parts. This news has even caused a stir in Zhongnanhai, the Chinese National Administration Office in charge of the central government. Chinese President Xi Jingping commented on ZTE’s importance, stating that their “core technology is crucial for our country.”

Where did this ban come from? The United States government prohibits the delivery of devices containing U.S.-made components to North Korea and Iran, which are subject to United Nations sanctions. Ignoring this prohibition, ZTE sold banned items to Iran and then later denied any such deals occurred. Once the United States presented evidence to the contrary, ZTE admitted fault and agreed to pay a fine of US$892 million in 2017, and another $300 million over the next 7 years.

Ignoring this prohibition, ZTE sold banned items to Iran and then later denied any such deals occurred. (Image: wikimedia / CC0 1.0)

Ignoring this prohibition, ZTE sold banned items to Iran and then later denied any such deals occurred. (Image: wikimedia / CC0 1.0)

In addition, ZTE promised to fire four top managers and to penalize the 35 employees most involved in the scandal by cutting their bonuses. However, ZTE did not keep their promise of cutting bonuses and also reported false statements to the United States investigators. In response, the U.S. increased ZTE’s punishment by imposing an export ban against them on April 16, 2018. At this time, U.S. Commerce Secretary Wilbur L. Ross, Jr. said:

Between 20-30 percent of ZTE’s products require chips and software from U.S. companies such as Google, Intel, Micron, Qualcomm, and Broadcom. The day the ban order was issued, most of ZTE’s production lines were suspended. In a press conference held on April 20, ZTE Chairman Yin Yimin said that this U.S. sanction could put ZTE into a state of severity that might jeopardize the jobs of 80,000 employees. It will also impact its suppliers and customers who are forced to shut down related businesses.

There are no quick replacements in place to help ZTE return to full production.

Translated by Jean Chen and edited by Derek Padula

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