ZTE Given Temporary Reprieve From US Government

July 5, 2018 Updated: July 5, 2018    

NEW YORK/HONG KONG—China’s embattled ZTE has received a temporary reprieve from the U.S. government to conduct business needed to maintain existing networks and equipment.

ZTE, which makes smartphones and networking gear, was forced to cease major operations in April after the United States banned U.S. suppliers from providing tech parts to the company, saying it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.

The authorization from the U.S. Commerce Department’s Bureau of Industry and Services runs from July 2 until Aug. 1.

It allows China’s second largest telecoms firm to continue operating existing networks and equipment, in addition to providing handset customer support for contracts signed before April 15. It also permits limited transfer of funds to or from ZTE.

On July 3, ZTE also announced the departure of a senior executive via a stock exchange filing. A source who saw an internal memo told Reuters that seven others were also removed from their positions. As part of its settlement agreement reached in June with U.S. authorities, ZTE had promised to radically overhaul its management.

The company also agreed to pay a $1 billion penalty and put $400 million in an escrow account as part of the deal to resume business with U.S. suppliers, which provide almost a third of the components used in ZTE’s equipment.

ZTE said in exchange filings late on July 3 that Xu Weiyan, a shareholders’ representative supervisor in the company’s supervisory committee, has resigned due to personal commitments and no longer holds any position in the company.

An insider source told Reuters a memo was sent out on July 3 announcing the removal of seven other executives, without providing a reason. They included vice presidents Wang Keyou, Xie Jiepeng, and Ma Jie, who were in charge of the legal, finance, and supply chain departments, respectively.

As part of the deal to lift the supplier ban, ZTE had agreed to remove all members of its leadership at or above the senior vice president level, along with any executives associated with the wrongdoing within 30 days.

It is not immediately clear whether the eight departures on July 2 were related to ZTE’s compliance violation.

ZTE announced a new board last week in a radical management shakeup. Li Zixue was appointed the new chairman while the previous board led by Chairman Yin Yimin resigned.

Despite the agreement reached almost a month ago, the ban is yet to be lifted amid strong opposition among some U.S. lawmakers. ZTE has made the $1 billion payment but has yet to deposit the $400 million in escrow, according to sources.

The uncertainty over the ban amid intensifying U.S.-China trade tensions has hammered ZTE shares, which have cratered around 60 percent since trading resumed last month following a two-month hiatus, wiping out more than $11 billion of the company’s market valuation.

By Karen Freifeld, Anirban Paul, and Sijia Jiang