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    ZTE shares plunge as senators fight to cut Trump’s lifeline
    ZTE shares plunge as senators fight to cut Trump’s lifeline
    BUSINESS

    ZTE shares plunge as senators fight to cut Trump’s lifeline

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    Jodi Xu Klein, US correspondent
    Jodi Xu Klein, US correspondent
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    It’s one piece of bad news after another for ZTE Corp these days.

    Shares in the Chinese telecommunications giant plunged by as much as 41% when they resumed trading in Hong Kong on Wesdnesay after a two-month hiatus, and by as much as the daily limit of 10% on the Shenzhen Stock Exchange.

    The fall wiped almost $3 billion off the market value of the world’s fourth-largest telecoms equipment maker.

    It’s the latest in a long line of blows to ZTE, which is struggling to get back on its feet after the US Commerce Department imposed a seven-year ban on the company from buying any US components – a move which crippled its operations.

    And while last week the Trump administration announced it had negotiated a settlement to reverse the ban and save the Chinese firm, now a bipartisan group of US senators is trying to stop the deal from going ahead, by using an amendment in the annual defense bill.

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    Senate Minority Leader Chuck Schumer (D-NY) is a co-sponsor of the bill.
    Senate Minority Leader Chuck Schumer (D-NY) is a co-sponsor of the bill. Photo: Getty Images via AFP

    The amendment, which is spearheaded by Senator Chris Van Hollen, a Maryland Democrat, and Tom Cotton, an Arkansas Republican, will appear in the 2019 National Defense Authorization Act, which is expected to go to the Senate for a vote this week. The Senate’s bill will have to be reconciled with the US House version of the defense bill that passed in May.

    What was Trump’s deal?

    ZTE was banned in April from purchasing any US components for seven years, after it broke a 2017 penalty agreement that came after it was caught illegally trading with Iran and North Korea.

    Last week, ZTE agreed to pay up to $1.4 billion in penalties to the US government and said it would drastically overhaul its management and open its site to a US-appointed compliance team. It also issued a public apology.

    The settlement included paying a $1 billion fine and putting $400 million into escrow to cover any future violations.

    ZTE is actively trying to speed up the settlement process, having appointed a team to oversee the implementation of the deal, including the replacing of its board of directors and firing of its senior executives.

    It has also applied to open a bank account in the US to deposit the escrow payment, and has rolled out plans for all of its 80,000-plus employees to undergo compliance education.

    Senator Marco Rubio (R-FL) is one of the co-sponsors of the bill.
    Senator Marco Rubio (R-FL) is one of the co-sponsors of the bill. Photo: Reuters/Joshua Roberts

    What does the Senate bill mean?

    “Last night was a bad night for ZTE supporters,” analysts at Veda Partners, an investment advisory firm, wrote in a research report.

    “It appears that there was a massive breakdown in communication between Treasury/Commerce/White House staff and US senators and their staff.”

    Senate staff members “insist they need to be better informed about the how’s and why’s of the ZTE deal.”

    The action adds to the uncertainty over whether the US will move on Friday to implement previously announced $50 billion tariffs on Chinese goods. Trump had said the ZTE deal was a precursor to any broader US-China trade negotiations.

    Lawmakers’ objections to Trump’s softening on ZTE have escalated in recent weeks. A number of senators have taken to Twitter to rebuff Trump’s decision to save the company.

    “It is unclear if the [Trump] administration is keeping their Chinese counterparts up to speed with the nuances of Senate procedure and domestic politics,” Cowen Washington Research Group said in a report.

    “It is possible for last night's action to be undone, but a serious coordinated effort between House Republicans, the pro-Trump faction of the Senate and the departments of Commerce and Treasury is mandatory at this time,” Veda Partner’s analysts wrote in their report.

    ZTE said in filings on Tuesday that it would work to resume operations as soon as possible after the ban is lifted, and would republish its first-quarter results.

    Additional reporting by Li Tao

    JODI XU KLEIN, US CORRESPONDENT
    JODI XU KLEIN, US CORRESPONDENT
    Jodi is a contributor to Inkstone. She is a US correspondent for the South China Morning Post based in New York.

    JODI XU KLEIN, US CORRESPONDENT
    JODI XU KLEIN, US CORRESPONDENT
    Jodi is a contributor to Inkstone. She is a US correspondent for the South China Morning Post based in New York.

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