Winton Dong
dht620@sina.com
ACCORDING to a recent notice made by the U.S. Department of Commerce, it has removed Shenzhen-based telecommunications equipment maker ZTE Corp. from a trade blacklist after the company agreed to pay a fine of nearly US$900 million.
An earlier statement on the ZTE website in March this year showed that the company had reached final settlements with the U.S. Government by agreeing to pay a criminal and civil penalty of US$892 million and an additional penalty of US$300 million that would be suspended during a seven-year probationary period to deter future violations, setting a record penalty in American history for violating export administration regulations.
ZTE now has about 100,000 employees worldwide. Due to the negative influence of the sanction, the company recorded a net loss of 2.357 billion yuan (US$342 million) in 2016. According to its annual reports, ZTE’s total profit from 2010 to 2016 was 7.3 billion yuan, which means that even if ZTE offered all its gains from the past seven years to the U.S. Government, it would still not be enough to cover the total fine of US$1.192 billion, or about 8.22 billion yuan.
ZTE was severely punished because the U.S. authorities claimed that the company and three affiliated entities (ZTE Kangxun, Beijing 8-Star and ZTE Parsian) had illegally shipped telecommunications equipment to Iran in violation of U.S. regulations. China’s Ministry of Commerce and Ministry of Foreign Affairs voiced strong dissatisfaction and firm objection to the U.S. sanction on ZTE, saying the move will “hurt others without benefiting itself.”
ZTE currently has 14 offices and six research centers in the United States, with 80 percent of the 350 staff members being Americans. The company is also the sponsor of five NBA teams including the Chicago Bulls, Houston Rockets, New York Knicks, Golden State Warriors and Cleveland Cavaliers. ZTE, Huawei and many other Chinese telecom equipment makers have been complaining for many years now about their unfair treatment in outbound investment and cross-border transactions. With Huawei as an example, the company has been stymied several times in its attempts to move into the U.S. market because of some protective policies. As for the U.S. smartphone market, Apple, Samsung, and LG are now holding the top three places, with market shares of 43.5 percent, 28.6 percent, 8.2 percent respectively. ZTE currently holds about 7 percent of the U.S. smartphone market, making it the fourth-largest manufacturer in the country.
Under this circumstance, many Chinese netizens suggested that ZTE should abandon the not so big American market by refusing to pay such a high penalty. So, why did the company insist on reaching reconciliation with the U.S. authorities?
With the resignation of CEO Shi Lirong in February this year, ZTE has recently made major changes to its senior management team. “By acknowledging the mistakes we made, we are committed to a ZTE that is fully compliant, healthy and trustworthy,” said Zhao Xianming, newly appointed chief executive of ZTE, in a statement.
The company has also set up a new compliance committee and strengthened export control compliance training and processes. “Reaching a settlement with U.S. authorities could secure ZTE a solid foundation to acquire more market opportunities,” Zhao said. Actually, being on the Entity Blacklist under the U.S. Export Administration Regulations would make it virtually impossible for ZTE to acquire products such as chips and software from its U.S. suppliers such as Qualcomm, Intel, Broadcom and others, potentially suffocating or even freezing the Chinese handset maker’s supply chain.
In recent years, China has made rapid progress in the telecommunications sector. Huawei and ZTE have both become top producers in the world. Nevertheless, such prosperity in mass production cannot cover the fact that we lack the core technologies for chip making.
Chips really aren’t cheap. On their way to becoming global companies, ZTE and other similar Chinese firms are paying the heavy prices of lessons and patent royalties. A chip, also known as an integrated circuit (IC), is regarded as the blood of the electronics industry. Frankly speaking, the raw material of a chip, silicon dioxide, is not so expensive. However, the high added value and core technologies added to the raw material make it an extremely profitable product. According to a U.S. report, the profit of Linear Technology, a famous chip maker in the country, could reach as high as 90 percent.
As a Chinese saying goes: “While eating persimmons, one will pick up the soft one.” The U.S. Government is wise enough to judge that ZTE dare not fight against its rulings. ZTE is not the first Chinese company that has been punished by the United States. If Chinese enterprises cannot get rid of their reliance on U.S. suppliers in terms of core technologies, it is obvious that ZTE will surely not be the last company to get punished.
(The author is the editor-in-chief of the Shenzhen Daily.)
