Embattled Chinese telecoms giant ZTE has just had a shot in the arm.
ZTE gets a boost, but China’s chip industry needs a bigger one
Taiwanese chip company MediaTek has reportedly received permission to resume sales to the equipment and smartphone maker.
This comes after the US government banned American companies in April from selling parts to the Chinese telecom equipment and smartphone maker for a period of seven years.
Taiwan’s Ministry of Economic Affairs on Friday granted an export permit to MediaTek, which supplies chipsets for ZTE smartphones, while several other Taiwanese companies are waiting for similar approvals, The Wall Street Journal reported on Monday.
Taiwanese companies, though not directly covered by the US ban, were required to obtain an export permit before selling to ZTE after Taiwan’s Bureau of Foreign Trade classified ZTE and its subsidiary as “controlled export targets.”
“The critical thing is whether Taiwan will ban products shipped to ZTE or other Chinese companies, as requested by the US government,” Roger Sheng, Research VP at IT research firm Gartner, told Inkstone.
He pointed out that the leading vendors of vital elements in the semiconductor supply chain are based in Taiwan, and a ban would hurt all parties.
“If this happens, everyone will lose because China is also the major market for Taiwan semiconductor companies.”
Up to 11 Taiwanese companies are suppliers to the Chinese telecom firm, according to Bloomberg.
Dealing with the ban
The resumption of chip exports to ZTE is likely to give the Chinese smartphone maker a lift after the US imposed a seven-year ban on American companies selling products, services or technologies to it, which sent the company into “a state of shock” according to ZTE’s non-executive chairman Yin Yimin.
The US government slapped the ban on ZTE to punish it for allegedly making false statements about corrective action taken after an investigation into sales of its equipment to Iran.
Intel, Microsoft, Qualcomm and Micron Technology are among the US suppliers selling products to ZTE, according to data compiled by Bloomberg.
The Shenzhen-based telecommunications equipment provider has been “proactively communicating with relevant departments of the US government”, ZTE said in an internal memo to employees on Friday.
It has requested a suspension of the US ban.
The ban has served to highlight China’s dependence on foreign-made components. Close to 90% of the $190 billion in chips used in China originate from foreign owned companies, says research firm International Business Strategies.
That’s why the country is set to announce a new $47 billion fund, the China Integrated Circuit Industry Investment Fund, to spearhead the development of its domestic superconductor industry, the Wall Street Journal reported on Sunday.
Anytime anybody puts that much money into a particular product or sector, there is going to be a significant market effect
“Anytime anybody puts that much money into a particular product or sector, there is going to be a significant market effect,” William Reinsch of the Center for Strategic and International Studies told the Wall Street Journal.
This new fund is likely only to exacerbate tensions between the US and China, and keep any trade deals elusive.