Company ceases sales and workers take naps after US bans American firms from selling hardware and software to the telecom equipment maker
Thu 10 May 2018 01.34 EDT Last modified on Thu 10 May 2018 03.09 EDT
ZTE, one of the world’s largest telecom equipment makers, may be the first major casualty of a trade war brewing between China and the US.
The Shenzhen-based company said it had ceased “major operating activities”, in a filing late on Wednesday to the Hong Kong stock exchange. The announcement comes less than a month after the US banned American firms from selling hardware and software to ZTE for seven years, effectively cutting off the company’s supply chain.
ZTE said in its filing it maintains “sufficient cash” and is “actively communicating” with the US for a modification or reversal of the order, issued by the US commerce department over violations of a previous settlement regarding illegal sales of ZTE phones and equipment to Iran.
ZTE, known in China as Zhongxing, or “China prospers”, operates in Africa, the Middle East and the US, where it is the fourth-largest smartphone maker after Apple, Samsung and LG. It depends on US parts: chips made from California-based Qualcomm account for more than half of its phones shipped globally and almost all of its phones in the US, according to Counterpoint.
“The impact is huge. Without US providers, they cannot actually produce their phones,” said Flora Tang, a research analyst at Counterpoint Research in Hong Kong. Tang said ZTE could move to other suppliers, but redesigning its phones and doing the necessary product testing would take time and investment.
On Thursday, online ZTE stores on its website and major e-commerce platforms were “under construction”. The company’s official channel on Tmall, owned by Alibaba, carried a photo of shirtless men rowing a dragon boat and the phrase “Spring is used for struggle”, a slogan Chinese president Xi Jinping once used in a speech in 2013.
According to reports, workers at the company’s headquarters in Shenzhen are reporting to work but “with not much to do”. Factory workers told the New York Times manufacturing had been shuttered. Instead, workers have been attending training sessions, napping, or hanging out in their dormitories.
ZTE products were still on sale on smaller e-commerce platforms such as JD.com, and in offline retail stores.
The ban on ZTE, one of China’s first telecom companies to succeed internationally, is also a sign of how deeply entrenched frictions between the US and China are amid an ongoing trade dispute. China’s ministry of commerce said officials made “solemn representations” on behalf of ZTE during trade talks in Beijing last week with a visiting US delegation but they yielded few results.
“It could be a national-level problem … we expected the Chinese government would be able to help ZTE, so it’s a surprise,” said Tang.