x
Regulation

Huawei, ZTE in the Eye of a Trade Storm

Leaked disclosures about a probe into possible Iran transactions by Huawei clearly show that China's big two telecom vendors are in the eye of the US-China trade storm.

A week after ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) was penalised for breaching penalties imposed for sanctions violations, Huawei Technologies Co. Ltd. is now reported to be under investigation by the FBI and two other US government agencies regarding illicit sales to Iran. (See ZTE in Existential Crisis as It Slams 'Unfair' US Ban, Considers 'Judicial Measures'.)

Quoting an unnamed source, Bloomberg said the criminal inquiry by the DoJ grew out of the earlier ZTE sanctions case.

The Treasury Department's sanction unit, Office of Foreign Assets Control (OFAC), and the Department of Commerce are investigating Huawei's transactions. (See US Investigating Huawei for Sanctions Violations – Report.)

The report says the FBI and OFAC investigations have been underway "since at least early 2017."

Huawei appears to be the company referred to in ZTE documents as a rival firm also selling gear to Iran.

If charged with wrongdoing, Huawei could face a hefty financial penalty and most likely other sanctions.

ZTE accepted a $892 million fine in 2017 for repeated breaches of sanctions against Iran.

But the Commerce Department has now banned the firm from importing US components after finding ZTE had failed to take appropriate steps. Among other things, it appears to have promoted executives who were responsible for the illicit sales.

The embargo effectively halts ZTE's production lines, leaving the state-owned vendor in "shock," according to chairman Yin Yimin.

In a statement issued yesterday, ZTE hinted at possible legal action against the Commerce Department, declaring it would "take certain actions available" to it under US law.

But while China's two biggest electronics exporters might be the target of the US agencies, they are not the ultimate objective.

These trade blows are part of a belated attempt by the US to push back against China's state-driven, quasi-protectionist industry policies, where local champions are subsidised and foreign companies are forced to transfer technologies.

Telecom executives point to the still-closed $190 billion services market, a breach of China’s 2001 WTO commitments.

It may be an astute move by Washington to leverage China's reliance on foreign chips. Last year, the country imported $260 billion in semiconductors -- more than it spent on oil -- and exported just $93 billion worth of chips.

The US side may be hoping this all plays out in the same way as its efforts to tame North Korea -- a few wild punches thrown, followed by talks.


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


But the clock is running for the Trump administration, which, unlike Chinese leaders, faces an election at the end of the year. If the embargo on ZTE remains, its suppliers in the US look certain to let the world know as they shutter plants and lay off staff.

The timing of the news about the 16-month-old Huawei probe is also designed to add to the pressure on Beijing negotiators. A Huawei spokesman said there was no confirmation of an investigation.

For all the brave talk in China about building up its own chip sector, Beijing will no doubt be willing to make concessions to ensure ZTE's factories are supplied -- but are they going to change the way they manage their economy?

China has a good deal of leverage of its own: Market access, purchasing power, and its role in the center of the US supply chain. The factories supplying Apple may find themselves closed down for a couple of weeks.

As Tom Holland, an economics commentator for the South China Morning Post, writes: "Washington's attempts to get China to open its markets and adopt international best practices are likely to achieve exactly the opposite. Instead of scrapping subsidies and opening up, Beijing will double down on centrally planned mercantilism."

This is uncertain, uncharted territory for all parties.

— Robert Clark, contributing editor, special to Light Reading

<<   <   Page 2 / 3   >   >>
brooks7 4/26/2018 | 2:35:49 PM
Re: Would that it were, but it ain't  

uh...not to step in on LR on LR violence.

Doesn't LR have US employees who could help with that?

I would do the same with the Limey's if we wanted to talk about the role of the House of Lords.

seven

 

 
mendyk 4/26/2018 | 2:10:08 PM
Re: Would that it were, but it ain't Well, Iain, I suppose this works in our post-factual times. Maybe readers are better off avoiding these pieces altogether.
iainmorris 4/26/2018 | 1:48:31 PM
Re: Would that it were, but it ain't I think this is all getting a bit silly and pedantic. Robert didn't make an especially big deal of it in the story. He said in one sentence there were elections this year that could have implications for the administration, as remote as that seems (or is CNN wrong too?). 

 
mendyk 4/26/2018 | 1:29:32 PM
Re: Would that it were, but it ain't It's sometimes hard to let the facts get in the way of a point. The results of the midterm elections directly affect the legislative branch of the government. There's nothing byzantine about that. Light Reading comes off as a bit uninformed in this story.
mrblobby 4/26/2018 | 1:24:51 PM
No US jobs will be lost over this ... at least at the macro level. There is strong demand for electronic and optical components. In fact there is undercapacity. So at least at a macro level the component manufacturing capacity will be absorbed by other system manufacturers. At the same time ZTE's customers are jumping ship wholesale. So their demand for finished products is also shifting to other system manufacturers, again underscoring that demand for these components will not dry up. Of course there will be a transient mismatch between supply and demand, but this should not last long.
rgrutza600 4/26/2018 | 12:50:48 PM
Re: Would that it were, but it ain't The House doesn't set trade policy.  The executive branch does, so the mid-terms aren't relevant to trade policy.
iainmorris 4/26/2018 | 12:35:51 PM
Re: Would that it were, but it ain't I'm no expert on the byzantine workings of the US "democratic" system (which is perhaps not quite as bonkers as the UK one) but this is from CNN in late 2017: "Top White House aides, lawmakers, donors and political consultants are privately asking whether President Donald Trump realizes that losing the House next year could put his presidency in peril."

Given that, I'm not sure how the midterms can be said to have nothing to do with the administration.  
mendyk 4/26/2018 | 12:17:13 PM
Re: Would that it were, but it ain't The midterm elections are Congressional and have nothing to do with the Trump administration or its trade policy. So the point as it's made in the story is incorrect.
PaulERainford 4/26/2018 | 11:55:42 AM
Re: Would that it were, but it ain't Presumably Robert is referring to the midterm election, which does take place this year, doesn't it? Not the presidential election, but still an election.
mendyk 4/26/2018 | 11:22:53 AM
Would that it were, but it ain't The Trump administration does not face an election at the end of this year. That doesn't happen until 2020.
<<   <   Page 2 / 3   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE