Chinese telecoms equipment-maker ZTE says it has ceased major operations, after the US government blocked its access to American components until 2025.
Is smartphone maker ZTE the first victim of a US-China tech war?
ZTE is China’s second-largest telecommunications company, after Huawei. In the US, ZTE is the no. 4 smartphone brand after Apple, Samsung and LG.
The apparent demise of the company may only be first of more casualties to come as the world’s two economic powerhouses vie for domination of high-tech industries.
In a notice to the Hong Kong stock exchange on Wednesday, the Shenzhen-based firm said it had sufficient cash reserves for the time being, and was working with the US government to modify or reverse the ban.
Manufacturing at ZTE’s factory Shenzhen has stopped, the New York Times reported.
The US implemented the ban on ZTE for breaching a settlement agreement that was struck after the company was caught selling products containing US technology to Iran.
But Chinese commentators have accused the US government of using the breach only as a pretext to punish China’s tech sector in a brewing US-China tech war.
China has not been shy about its technological ambitions.
In 2015, the Chinese government announced its “Made in 2025” plan, which set the goal of becoming a leading tech innovator and manufacturer within a decade.
The US has objected to the Chinese state’s level of involvement in the tech industry, and its lax intellectual property protections, claiming it puts other countries at an unfair disadvantage.
“[China] told the whole world that it’s going to dominate technology and intellectual property as a way of making China prosperous,” Trump’s trade policy adviser Peter Navarro told reporters in late March.
He criticized China’s plans as “a variety of industrial policies, many of which are anathema to a free market global trading system.”
In early April, the Trump administration announced 25% tariffs on some 1,300 industrial technology, transport and medical products from China.
The two countries have been trading threats of tariffs.
Next week, Liu He, President Xi Jinping’s top economic advisor, is set to travel to Washington to meet with US officials and begin second-round talks on how to avert a trade war that risks destabilizing the global economy.
No chips, no business
ZTE is reliant on American suppliers for key parts. Analysts estimate that 70% of ZTE’s smartphones use microchips from US manufacturer Qualcomm.
However, it’s not just ZTE that’s dependent on foreign chip makers. According to a report by consulting firm McKinsey in 2014, China imported more than 90% of its chips.
The punitive measures taken against ZTE have made Beijing anxious to become self-reliant in chip-making and other key technologies.
“Core technology is an important tool for the nation,” said Chinese President Xi Jinping in late April, urging domestic breakthroughs after the US announced its ban on ZTE.
China is set to announce a $47 billion fund to stimulate the development of its semiconductor industry, but it will take time for the country to catch up with other rivals, especially in advanced markets.
“Traditionally, developing a new process technology has taken more than five years, with very few shortcuts available,” Christopher Thomas, a Beijing-based partner at McKinsey, told Inkstone.
That’s looking like five years too late for ZTE.