Trump Tweetplomacy Could Backfire

A Trump tweet has offered a lifeline to embattled ZTE and reset the course of US-China economic negotiations -- but it may also have played into China's hands.

President Trump said in a tweet Sunday that he was working with President Xi to get the Chinese vendor "back in business." (See Trump Tweets on ZTE… & Gives the Chinese Vendor a Lifeline!.)

That followed the announcement last week that ZTE was closing down "major operations" after the US Department of Commerce blocked exports of US components to the Chinese vendor. (See ZTE Ceases Business Operations After US Ban.)

US officials ruled last month that ZTE had breached commitments it made a year ago when in settled a case over sanctions-breaching exports to Iran. (See US Govt. Bans Domestic Component Sales to ZTE and ZTE in Existential Crisis as It Slams 'Unfair' US Ban, Considers 'Judicial Measures'.)

A China Foreign Ministry spokesperson Monday said China "appreciated the positive attitude" of the US.

A Chinese negotiating team led by Vice Premier Liu He has arrived in Washington and is due to continue trade talks with the US from Tuesday.

But an Economist Intelligence Unit analyst, Nick Marro, warned that Trump's unprompted concession had reinforced the Beijing view that the penalty on ZTE was a political act.

"Even the Chinese government appeared to buy the US Commerce department line that the ZTE case was a violation of US export law," he said. Now Trump is "telling China that US law is flexible to commercial negotiations, undermining US credibility." And that could come back to haunt Trump and his administration.

China picked up Trump's cue today by letting it be known it had restarted its stalled review of the Qualcomm-NXP merger, Bloomberg reported. (See Qualcomm Cuts Jobs as It Seeks Chinese Approval for NXP M&A.)

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But while ZTE appears to have at least averted a shutdown, it faces a fresh threat with a report that it had allegedly paid nearly US$13 million in bribes to win two network contracts in the African nation of Benin.

The alleged events took place more than a decade ago, but according to documents seen by Australia's Fairfax Media, the kickbacks were "meticulously recorded" and approved by multiple executives, including senior management in Shenzhen.

This follows the same pattern as the illicit equipment exports to Iran, which were likewise well-documented and supported at very senior levels.

The revelation comes just as Telstra is about to call tenders for 5G contracts. ZTE, along with Huawei, is one of five shortlisted bidders.

ZTE and Huawei are also competing for a A$120 million (US$90.7 million) contract to supply the communications for a new metro network in Perth.

Australia, which has banned Huawei from supplying equipment to its national broadband network (NBN), is under pressure from the NSA and the Department of Homeland Security to not issue 5G contracts to either Chinese firm, Australian Financial Review has reported.

ZTE declined to comment on the Fairfax report.

— Robert Clark, contributing editor, special to Light Reading

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