Everything You Need to Know About the ZTE Scandal

One of China’s biggest corporations, ZTE, is now embroiled in what is essentially the biggest embarrassment for a Chinese business operating in the United States. (Image:  Kārlis Dambrāns via  flickr  CC BY 2.0 )
One of China’s biggest corporations, ZTE, is now embroiled in what is essentially the biggest embarrassment for a Chinese business operating in the United States. (Image: Kārlis Dambrāns via flickr CC BY 2.0 )

One of China’s biggest corporations, ZTE, is now embroiled in what is essentially the biggest embarrassment for a Chinese business operating in the United States. The telecommunications company has been charged with multiple accounts of fraudulent and unethical business practices.

The crime

ZTE supposedly agreed to U.S. sanctions against Iran and pledged not to export their products to the Islamic nation. However, as if throwing such agreement into the dustbin, ZTE continued to illegally export its products to Iran. It did this by referring to the country as Qatar instead of Iran in transaction documents.

In addition, the company also ensured that its logo was not present on any of its shipments so that it could not be held liable for the exports. Despite taking such intricate steps, ZTE was caught pants down by the U.S. government, breaking the sanctions by selling to Iran.

The deal

The U.S. initially decided to ban ZTE from ever doing business on American soil. Such an action would have effectively caused the company to close shop, throwing more than 75,000 employees in China on the streets.

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

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

However, U.S. president Donald Trump walked back the decision of his Commerce Department and instead of a ban, ZTE was forced to sign a deal with the U.S. in order to resume doing business.

U.S. Commerce Secretary Wilbur Ross said in an interview with CNN that the deal implemented “the most strict compliance that we’ve ever had on any company, American or foreign.”

ZTE was required to pay US$1 billion in fines to the U.S. as punishment for violating the sanctions and fraudulently doing business with Iran.

Moreover, the company has also agreed to host an American monitoring team that will look into the corporation’s activities and ensure that they are following the agreement set up between both of them. In addition, ZTE will also have to make a few changes to their leadership and board positions within 30 days.

The long-term consequences

Though ZTE has avoided being permanently banned from doing business in the U.S. for now, the fiasco will have negative long-term consequences, not only for the company, but also other Chinese businesses.

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

ZTE was required to pay US$1 billion in fines to the U.S. as punishment for violating the sanctions and fraudulently doing business with Iran. (Image: wikimedia / CC0 1.0)

For one, the way the U.S. has handled the ZTE situation has shown that the U.S. is going to be a lot stricter moving forward when it comes to Chinese companies and agreements. As such, corporations like Huawei, which is already embroiled in another investigation, will have a tougher time doing business with the U.S.

But above all, one of the most crucial outcomes is that U.S. companies who deal with Chinese suppliers will themselves start looking for other manufacturers. ZTE’s long-time clients like AT&T, Verizon, and Sprint have been reportedly talking to other businesses in a bid to avoid the Chinese firm as a supplier.

“National security concerns aren’t something that will go away. Carriers are actively looking for suppliers to replace ZTE. This is an ongoing trend that won’t be reversed,” Forbes quoted Nicole Peng, a research analyst at Canalys.

The entire situation seemed to have hit a nerve of even the most avid Party fanatics, as the state-run Xinhua News Agency carried a long article condemning the irresponsible behavior of ZTE.

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