Packet inspection/traffic management

ZTE: What On Earth Were They Thinking?

The decision to impose export bans on ZTE could be a damaging one for its US and Chinese suppliers, as well as for the vendor itself. But it does raise questions, particularly -- what on earth was ZTE thinking? (See ZTE Faces Trade Restrictions Over Iran Links.)

First, in ZTE's favor, it's worth noting that the timing of the US Commerce Department appears unusual. The probe into ZTE's business with Iran began four years ago and at the time ZTE stated it no longer conducted business in that market. Penalizing ZTE now suggests this is unfinished business the Commerce Dept. wanted to get sorted before Iran sanctions are lifted.

That said, documents released to the Wall Street Journal strongly indicate ZTE's involvement in sanctions-busting not just with Iran, but with Cuba, North Korea, Sudan and Syria as well.

One of those documents, issued by the ZTE legal department, described itself as seeking "long-term, healthy and sustainable development of our company's business in those [five] countries." It details how ZTE can hide its identity behind a series of shell companies.

Significantly, the Chinese Ministry of Commerce (MofCom), despite strong words of condemnation, did not attempt to defend ZTE.

"The Chinese side expresses deep dissatisfaction and its strong opposition" to the US restrictions, it said in a statement issued Monday. It went on to say that as well as the impact on Chinese companies, ZTE had contributed to thousands of US jobs.

While ZTE is an established global exporter and seemed aware of the laws it was breaching, it does come from a very different legal environment.

For one thing, businesspeople tend to behave abroad as they behave at home. US and European executives turn up in Asia or Africa assuming the same rules apply as at home. Chinese tend to think that bonding through karaoke and banqueting is more important than legal contracts.

In China's legal system, laws fall more or less into two categories: those that have to be obeyed, and those that can be ignored. The first are those invoked by the government in, say, outing a corrupt official or taking aim at a foreign business in China. The second are those that are important to have on the books, like environmental laws, but which are only occasionally enforced because of the embarrassment they can cause.

Sometimes it's not clear which category a law might fall into, but in any case the people at ZTE obviously decided US sanctions fell in the latter.

Why ZTE thought it was a good idea to test the laws of one of their biggest markets can only be guessed at, but it is a state-owned company and deserving of sound advice from government agencies such as MofCom, whose job is to take care of these things. It is quite possible no one in Beijing warned ZTE that the US takes its sanctions very seriously.

Another problem is that as a result of the tightly controlled media and the Great Firewall, Chinese don't have much of an idea about how the rest of the world works. The main item in one Chinese telecom news website today, for example, suggests the Obama administration placed bans on ZTE because of the 2016 election.

It's hard not to be influenced also by certain staples in state-dominated media about the China and the west, such as unfair media reporting, the dominance of foreign "monopolies" over tech industries, or that China is being contained.

Formed in this environment, a lot of businesses in China would have no problem in sidestepping US controls that would appear to be aimed specifically at them.

ZTE is likely to appeal this decision. But as long as the US has sanctions, Chinese companies will be willing to find ways to skirt them.

— Robert Clark, contributing editor, special to Light Reading

TV Monitor 3/15/2016 | 5:35:45 PM
Re: There is no rule of law in China kq4ym

Cuba considers whom they buy from a sovereign right and it is indeed true since ZTE is not on the UN sanctions list or anything like that, but it is ZTE that may shy away from doing business in Cuba, Iran, and North Korea due to parts sourcing problems, like being denied access to parts and software from Microsoft, Google, Intel, AMD, Qualcomm, etc.

What the US is trying to do is to make Huawei and ZTE stop doing business in above mentioned three countries, particularly Iran and North Korea.
kq4ym 3/15/2016 | 2:40:15 PM
Re: There is no rule of law in China I'm wondering if the US/Cuba relationship opening up with have any effect on the other ZTE business relationships. Especially as the President makes recent moves pre-visit to appear a bit more friendly. Could China/US relationship equally affect ZTE?
johnjack 3/8/2016 | 6:36:41 PM
Re: There is no rule of law in China Well put.  ZTE are an easy target vs. European companies who were also pretty active.  

The sanctions in quesiton on IT goods were US autonomous to punish regimes, not the UN anti-proliferation ones, so the issue would only relate to the US 3rd party components that might be bundled or needed with the Chinese ZTE gear.  E.g. databases.

ZTE were either stupid in continuing to bundle or are being pinged where others just unbundled and told the customer to acquire via their usual channels - the grey importers in Turkey or Lebanon.

Those US companies must have been aware this was going on, and turned a blind eye...perhaps it was 'too complicated' for them to track..??

So yes, the Chinese have every right to question how fairly these policies are applied.  
bosco_pcs 3/8/2016 | 2:15:46 PM
China will do itself a favor by cleaning this up Perhaps flaunting the law - like corruption - was a cost of doing business; but perhaps it is to China's own advantage to target its own businesses, and not just the Glaxos and Qcoms of the world to flex its regulatory muscles. Why? Look at what happened to Tianjin explosion when the entire complex and its surrounding (residential) areas were decimated. ZTE should consider itself lucky to be caught by the American, its executives could be jailed or worse if it flaunted the Chinese law - unless Chinese authority knew about it all along
mendyk 3/8/2016 | 11:14:43 AM
Re: There is no rule of law in China Characterizing this as a "China" problem lets other multinationals that have engaged in sanctions-dodging off the hook a bit. It's also funny that we rarely question the motives or the logic behind sanctions, or the idea that sanctions are sometimes used as a bullying tactic.
TV Monitor 3/8/2016 | 10:30:57 AM
There is no rule of law in China China is not a country that has the rule of law; there is no law that cannot be bent, even the constitution, and the actual force that rules China is personal connections that exchange favors.

There is nothing wrong with sanctioning ZTE to make an example out of, or otherwise Chinese companies will never learn.
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