Share prices for ZTE plunged 23% on Monday on reports that the US Justice Department is investigating the Chinese telecommunications company for bribery.

Why it matters:  The free fall in share price signal that investors are panic selling on fears that the US may again sanction the company as it did in 2018.

  • Sanctions announced by the US Department of Commerce in April 2018, which banned US companies from exporting to ZTE for seven years but were later lifted, tanked the company’s market value by billions of dollars.
  • The news about China’s second-largest telecommunications equipment maker comes as the country pushes a so-called “new infrastructure” investment scheme that is expected to inject RMB 25 trillion (around $3.6 trillion) into sectors including telecommunications, transportation, and artificial intelligence.

Details: ZTE share prices on the Hong Kong stock exchange dropped 23% as of publishing on Monday following reports by NBC News and the Wall Street Journal that said the US Justice Department is investigating the company for possible bribery of foreign officials.

  • The company, which is also listed domestically on the Shenzhen Stock Exchange, saw its share price reach the market’s daily limit of 10% downside on Monday.
  • The investigation involves potential violations of the US Foreign Corrupt Practices Act, which bars businesses from paying bribes to foreign government officials, according to the WSJ report. Foreign companies may fall under US jurisdiction if such actions took place within its borders, or if the bribes were wired through the country’s financial system, it said.
  • ZTE said in a statement filed (in Chinese) with the Hong Kong bourse on Monday that it had not yet been notified by the US government of the investigation and that the company is still “in normal operation.”

Context: China’s stock market also tumbled Monday, with the benchmark Shanghai composite index closing 3.4% lower while the Shenzhen composite slipped 5.3%.

  • The US Commerce Department imposed sanctions on ZTE between April and July 2018 because it evaded the country’s sanctions by selling telecom equipment to Iran and North Korea. As a result, the company recorded losses of RMB 7.8 billion in the first six months of that year.

Writing about semiconductors and telecommunications.

Leave a comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.