Thursday , February 21 2019

ZTE loses $7bn of value as lawmakers fight US deal


ZTE Corp. dived 27 percent after American lawmakers passed a bill to restore severe penalties on China’s second-largest telecoms gear-maker, potentially up-ending a deal struck with President Donald Trump to allow it to get back in business.
The company has lost $7.2 billion of market capitalisation in the past week, as its Hong Kong shares slid to their lowest in a year on Tuesday and the Shenzhen stock plunged the 10-percent daily limit for the fourth straight day. ZTE has struggled to end a seven-year ban on American technology purchases that has crippled its business.
The selloff ensued after the US Senate passed legislation that would restore penalties on the company, complicating Trump’s efforts to ease sanctions on ZTE after it pays a record fine and reshuffles management. A settlement on the issue is also deemed pivotal to tense US-Chinese negotiations over trade. But the wrangling over the firm produced a rare instance of Republicans allying with Democrats to defy Trump.
“This is the first time Congress has really stood up to him on a trade issue, and it’s clear they are angry,” said Bill Reinsch, a senior adviser at the
Center for Strategic and International Studies in Washington. “There will be a lot of congressional resistance to weakening the ZTE amendment, but I would not be surprised to see a compromise.”
Reinstating a ban would cut off ZTE’s access to the chips and components it needs to build smartphones and networking equipment — essentially a death sentence. The bipartisan Senate measure, part of a defense bill, passed 85-10 and came two days before Trump was to host Republican members of Congress to discuss ways to allow ZTE to get back into business.
Trump’s agreement with ZTE was struck after the US in April blocked its access to US suppliers, saying it had broken a sanctions settlement and then lied about it. That prompted the company to declare its operations were grinding to a halt just weeks later. A settlement was deemed a key Chinese demand as the world’s two largest economies try to avoid a trade war and negotiate the denuclearisation of North Korea. After a personal plea from Chinese President Xi Jinping, Trump instructed the Commerce Department to find a solution to save ZTE.
The Trump administration wants legislators to modify the Senate language on ZTE in the defense bill, once the House and Senate begin work to merge their versions of the legislation. Lawmakers hope to wrap up negotiations by July. Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin have tried to persuade lawmakers of the administration’s approach to ZTE, but legislators said the deal failed to address their national-security concerns.

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