Experts call for compliance emphasis, self-reliance of core tech
Share prices of China's largest listed telecom equipment maker ZTE Corp surged more than 6 percent in Hong Kong on Wednesday, after it had reached an agreement to pay a criminal and civil penalty of about 2 million to the U.S. government.
ZTE shares in Hong Kong closed 6.1 percent higher at HK$ 12.94 (.67) following a surge of as much as 8.85 percent in early morning trading. The company suspended trading of its shares on the Shenzhen bourse, saying it's still trying to communicate the settlement to investors.
Experts said ZTE's share prices saw a big surge on Wednesday because uncertainties stemmed from the case, which had plagued the company for a year, have been dispersed by the settlement .
"The settlement deal will disperse uncertainty. The company can absorb the damage of the fine. And the U.S. market is still open to the company. That's why the market reacted by sending its shares up," Ma Jihua, a Beijing-based IT expert, told the Global Times Wednesday.
ZTE share prices suffered after the U.S. Department of Commerce placed export restrictions on the company for violations of U.S. export controls to Iran in March 2016.
According to the U.S. commerce department, ZTE violated U.S. sanctions by sending U.S.-origin items, including controlled dual-use goods to Iranian customers.
From March 4, 2016 up until Tuesday, ZTE's share prices in Hong Kong dropped 13.8 percent, from HK.16 to HK.2 per share, while its shares in Shenzhen remained more or less unchanged, rising from 15.06 yuan (.18) to 15.28 yuan per share over the same period.
"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company," ZTE Chairman and CEO Zhao Xianming said in a statement sent to the Global Times Tuesday.
"Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company. We have learned many lessons from this experience and will continue on our path of becoming a model for export compliance and management excellence," the CEO said.
Commenting on the ZTE settlement on Wednesday, Chinese Foreign Minister Wang Yi said at a press conference on the sidelines of the annual legislative session that China always opposes unilateral sanctions imposed by foreign governments on Chinese enterprises.
The minister also noted that China has always asked its businesses to conduct their overseas operations according to the law, adding that Chinese authorities will continue to monitor the situation to see whether its enterprises have been treated fairly.
Telecommunication experts said the event has been a lesson for ZTE and other Chinese firms.
"As an increasing number of Chinese enterprises eye the global market, they need to work harder to deal with uncertainties and head off risks. For instance, ZTE procures a large number of core technologies from U.S. suppliers, which may restrict its further development," said Xiang Ligang, chief executive of telecom industry portal cctime.com.
"There might be some political pressure behind this case, but it is still a lesson for the Chinese company," Xiang said, noting that ZTE uses many chips made by U.S. manufacturers such as Intel and Qualcomm.
"Companies should also follow the local regulations and rules when they make deals overseas. When it came to export controls and sensitive items sourced from the U.S., ZTE should have been more cautious," he said.
The case also highlights the need for Chinese firms to develop core technologies themselves, rather than depend on the U.S.
"Chinese firms have to treat compliance issues very seriously. The other revelation to take from this is the urgency in developing self-reliant technology," Ma said.
Export restrictions on ZTE made it difficult for the company to acquire U.S. products such as chips and software, though it avoided disruptions to its supply chain by applying for a succession of temporary licenses from the U.S. Department of Commerce.
Following the settlement, the U.S. Commerce Department's Bureau of Industry and Security will recommend that restrictions placed on ZTE be removed, the company said in its statement Tuesday.
ZTE released its 2016 performance report on Tuesday, showing yearly revenue topping 101.2 billion yuan. Deducting fines triggered by the U.S.' penalties and other losses, the company still made 5.4 billion yuan of profit in 2016, up 25.82 percent year-on-year.