China’s ZTE sets sights on growth after removal from US trade blacklist

ZTE Corp, the world’s fourth largest telecommunications equipment supplier by revenue, emerged on Wednesday from US sanctions purgatory after Washington removed the company from its trade blacklist.

In a regulatory filing in Hong Kong, ZTE chairman Yin Yimin said the company was taken off the US government’s so-called Entity List upon recommendation of the Bureau of Industry and Security (BIS), which is under the US Department of Commerce.

That followed the Shenzhen-based company’s agreement earlier this month to pay record-high civil and criminal penalties totaling US$1.2 billion to the BIS, the US Department of Justice and the Office of Foreign Assets Control under the US Department of the Treasury.

Of that amount, a US$300 million penalty payable to the BIS was suspended for a probationary period of seven years.

“Today, ZTE is turning the page on a challenging chapter in our past,” ZTE president Zhao Xianming said in a statement on Wednesday.

“By acknowledging the mistakes we made, taking responsibility for them ... we are committed to a ZTE that is fully compliant, healthy and trustworthy.”

The company’s shares were down 2.81 per cent to HK$14.52 in early afternoon trading in Hong Kong.

The BIS slapped ZTE with export restrictions on March 7 last year, which barred suppliers from shipping any US-made hardware and software components to the Chinese company, following a five-year investigation over violations of longstanding trade sanctions on Iran and North Korea.

While Washington granted the company five consecutive reprieves from those export curbs, a severe supply chain disruption hung over ZTE’s operations last year. It was estimated that the company imports about US$2.6 billion worth of hardware and software components from US suppliers each year, accounting for up to 30 per cent of its total annual bill of materials.

ZTE’s US$1.2 billion settlement represented the largest fine and forfeiture ever levied by the US government in an export control case, according to US Secretary of Commerce Wilbur Ross.

After setting aside a hefty sum for the fine, ZTE reported its first annual loss since 2012. It posted a 2.3 billion yuan (US$334 million) net loss for 2016, compared with a 3.2 billion yuan profit in 2015.

“With this settlement behind us – and coupled with recent efforts to streamline operations and grow ZTE’s innovative leadership around 5G – we anticipate continued growth and business expansion over the next several years, as we continue to work with our partners in the US and around the world,” Zhao said.

Over the next five years, ZTE is expected to benefit from an aggressive fixed-line broadband and 5G mobile networks in China, according to Jefferies equity analyst Edison Lee. “This will drive ZTE’s margin and market share improvement,” he said.