ZTE ceases ‘major operating activities’ as seven-year ban on selling it US technology shuts down most of its operations

Because almost all parts of ZTE have some dealings with the US, the seven-year ban on selling American technology to the company has meant a shutdown of a majority of its operations, a source said

PUBLISHED : Wednesday, 09 May, 2018, 10:47pm
UPDATED : Thursday, 10 May, 2018, 12:07am

Chinese telecommunications company ZTE Corp has ceased “major operating activities” after US watchdogs slapped it with a ban that prohibits American technology companies from selling it their wares.

The Shenzhen-based company said that it maintains sufficient cash as of now and “strictly adheres to its commercial obligations subject to compliance with laws and regulations”, according to a filing to the Hong Kong stock exchange.

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But a person familiar with the company’s operations told the Post that the public may have underestimated the impact of the US denial order on ZTE’s business.

ZTE and “related parties are actively communicating with the relevant US government departments in order to facilitate the modification or reversal of the Denial Order by the US government and forge a positive outcome in the development of the matters” it said, without specifying who the related parties are.

The company said it will make announcements of “material developments” in relation to the denial order “as soon as practicable” and advised investors to pay attention to further statements.

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The US government activated a suspended export ban last month prohibiting American businesses from selling to ZTE because it breached the terms of a settlement related to its dealings with Iran.

The move plunged the company into disarray, with Chairman Yin Yimin saying that it is in a “state of shock”.

ZTE’s statement confirms a report by the South China Morning Post last Saturday which cited an internal ZTE memo that the company was “proactively communicating with relevant departments of the US government” and was striving to resolve the matter “as soon as possible.”

Because almost all parts of the company’s businesses have some dealings with the US, compliance with the order has meant a shutdown of a majority of its operations, the person familiar with the company operations said, asking not to be named because they were not authorised to discuss such details publicly.

China’s Ministry of Commerce said in a statement last Friday that Chinese officials had made “solemn representations” over the ZTE case to the US delegation.

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In its memo, ZTE said that after learning of the US order on April 16, as a global company growing up in China, it has been acting in line with the government of China, and is taking steps under its guidance to facilitate the resolution of the issue.

The statement on Wednesday also did not specify what the “major operating activities” are. The company derived 59 per cent of its revenue last year from its carrier network business, which includes switching and access systems, optical and data communications and wireless communication systems. 

Another 32 per cent of its revenue comes from its consumer business and 9 per cent from government and corporate business, according to data compiled by Bloomberg.