“Tonight Old Hu and Global Times staff are all ZTE people!” wrote Hu Xijin, editor-in-chief of both the Chinese (环球时报) and English versions of the Global Times, on Sina Weibo via his iPhone 7. In light of the US Department of Commerce putting a seven year ban on US companies selling components to State-owned ZTE, China is questioning its dependence on the US and what will become of China’s progress in 5G.
ZTE makes equipment for China Mobile and Telefonica and is dependent on US suppliers such as chip maker Qualcomm. As the ban also includes licenses, there is the possibility that Google could no longer supply Android, the operating system used by all ZTE-made smartphones, according to Bloomberg.
April 16: US export ban
On April 16 (US time), the US Department of Commerce imposed a seven-year ban after it was found that ZTE had not kept to an agreement it reached with a US court. The US had determined that ZTE had gone against US sanctions by selling products to Iran. The agreement included ZTE firing four top executives and not paying bonuses to 35 others and that failure to do so would result in a seven-year ban. ZTE acknowledged in March that it had in fact paid the bonuses.
April 17: Beijing’s response, UK warning, leaked ZTE memo, trading suspension
Against a background of ongoing trade tensions between China and the US, China’s own Ministry of Commerce responded on April 17 by saying that it hopes the US can deal with this situations in a legal way, and that it will be prepared to take action in the interests of ZTE.
The UK’s National Cyber Security Centre (NCSC) announced the same day its blacklisting of ZTE. The agency wrote to UK telecom companies warning them that using the Chinese firms’ equipment and services could pose a national security risk, according to the BBC. The decision appears to be based on the fact that the UK already has equipment from Huawei which has to be rigorously checked by UK security agencies and adding another supplier would present too much strain on resources. ZTE already has a research agreement with British Telecom (BT).
Trading of ZTE shares was suspended in Hong Kong and Shenzhen.
The export ban will hit ZTE hard. The South China Morning Post saw an internal memo from ZTE’s chairman Yin Yimin the same day to its 80,000 employees explaining how the company had set up a team with all division to come up with measures to deal with the “crisis”:
“We need the combined strength of ZTE’s 80,000-strong staff in this tough time. I would like to appeal to all employees to maintain a state of calm, to man one’s post and do one’s job well. The company is actively communicating and giving its all to resolve this crisis.”
Later on April 17 came Global Times editor Hu Xijin’s message that the move by an “afraid and desperate” US is an attempt to derail China’s 5G progress. “Chinese society must support ZTE and Huawei. The more oppressed it is, the more brave ZTE should be, the harder it should work [for the country], and it must not fall. We must pay tribute to the 80,000 employees of ZTE.” Hu also uploaded videos to the Chinese and English Global Times sites.
April 18: Calls for reflection, questions over Android
Chinese media are now calling upon ZTE and Chinese companies in general to reflect on their dependency on US suppliers for chips, components, operating systems and software. Industry experts said ZTE should be more self-sufficient, according to Xinhua (in Chinese), and that 20-30% of ZTE’s components are sourced from US suppliers. China imports $260 billion of semi conductors from the US per year.
The China International Capital Corporation (CICC), a leading State-owned investment bank, told Xinhua that if there isn’t an agreement in two months, the ban will affect ZTE’s manufacturing and sales, but will also affect China’s telecoms operators and their push with 5G.
ZTE lawyers have been meeting with Google to discuss the issue of the Android operating system being included in the ban. All ZTE-made smartphones currently use versions of Android.