Chinese telecom equipment giant ZTE Corp. was hit with trade sanctions from the U.S. Department of Commerce last month for allegedly violating laws restricting exports of American-made technology to Iran and other nations.
Trading of ZTE’s shares was suspended for a month on the Shenzhen Stock Exchange, and is down more than 3 percent since April 7 when trading finally resumed.
The sanctions were temporarily lifted until June 30, assuming ZTE continues to cooperate with U.S. authorities. The increased scrutiny will likely expose other Chinese firms to similar bans, potentially introducing volatility and downward pressure on Chinese stocks—with the Shanghai Composite already down 13 percent year-to-date.
The U.S. government has been investigating ZTE’s activities dating back to 2012. The company allegedly created shell entities to sell software and telecom equipment containing components made in the United States to Iran, which is in violation of U.S. economic sanctions.
On March 7, the U.S. government barred manufacturers from selling U.S.-made electronic components to ZTE. The sanction was a major setback to ZTE’s global operations. The company delayed releasing its 2015 financial statements by around two weeks to assess its bottom line impact, and three top executives left the firm. Shi Lirong, CEO since 2010, and two executive vice presidents stepped down from their posts on April 5.
The case is ongoing and ZTE isn’t in the clear yet. “The investigations are still in progress and may result in criminal and civil liabilities under U.S. laws,” the company announced April 6 when it released its 2015 earnings.
A Critical Case
