ZTE chief demands cost cuts but promises not to reduce salaries in short term as full lifting of US ban nears

ZTE shares surged over 20 per cent in Hong Kong trading on Thursday morning on news that the company is on the verge of achieving a complete lifting of the US ban

PUBLISHED : Thursday, 12 July, 2018, 12:35pm
UPDATED : Thursday, 12 July, 2018, 11:23pm

ZTE Corp, which is on track for the full lifting of a US export ban, will adopt stringent cost-cutting measures as part of efforts to get the business back on its feet but promised not to reduce the salary of its 80,000 employees in the short term, according to a speech by newly-appointed CEO Xu Ziyang.

ZTE and its subsidiaries should keep costs carefully under control and prohibit unnecessary travel and expenses during this time as the company has suffered huge losses from the US export ban, Xu said during a meeting with the company’s executives on Wednesday, according to internal meeting notes obtained by the South China Morning Post.

Xu also asked department heads to draw up plans for resource needs once China’s second-largest telecoms equipment maker resumes operations, dubbed internally as “T0”.

“The company will not make salary reductions at present and the payment of bonuses will not be affected,” Xu said during the meeting, according to the notes. Xu also asked the company’s human resources department to fend off talent poaching from the outside, saying that “key staff are the most valuable asset of the company”.

ZTE Corp on Wednesday signed an agreement with the US that will allow the Shenzhen-based company to deposit US$400 million in an escrow account, the final step required before the US Commerce Department lifts a crippling ban of nearly three months. “Once ZTE has completed the $400 million escrow deposit,” the Commerce Department said in a statement, the agency will “issue a notice lifting the denial order.”

ZTE and US sign agreement to lift ban in near future

ZTE shares surged over 20 per cent in Hong Kong trading on Thursday morning on news that the company is on the verge of achieving a complete lifting of the US ban. Its shares also rose by the 10 per cent daily limit in Shenzhen.

However, the Chinese company is in a “very tight cash flow situation, which might even affect its capacity to pay future salaries on time, and unless it can return to full operations soon,” said people familiar with the matter who declined to be named as the information is not public.

According to several employees ZTE paid the June salaries of its mainland China staff in full on July 10 even though the company – which has been allowed to receive shipments from its American suppliers since last Tuesday – has yet to resume any operations to date.

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“ZTE is only able to be loaned more money after T0 – it is hardly possible to raise more money in its current status,” said one of the people familiar.

ZTE declined to comment on the matter.

The company, which had revenue of 108.8 billion yuan (US$16.7 billion) last year, has faced losses of several million yuan per day as a result of the US ban, excluding miscellaneous penalties due to breach of contract with some clients.

It appointed its new CEO, three executive vice presidents and 17 senior vice presidents last week to head the company’s key businesses, including carrier networks, telecoms equipment and smartphone sales.