Chinese telecoms equipment-maker ZTE is once again learning how much it can hurt to be dependent on American technology imports, after the US Commerce Department announced it was barring sales of critical components to the firm.
The move is in response to allegations that ZTE violated a more than US$1 billion settlement agreement made after the company was found to have circumvented sanctions on Iran and North Korea. China’s Ministry of Commerce said in response to the latest punishment that they will “take necessary measures to ensure the legal rights of Chinese companies.”
Some analysts say that another settlement would likely come within the next six months, while ZTE has about one to two months of inventory, according to a Bloomberg report.
Whatever the timeline, it is a brutal blow, which comes as wireless carriers across the globe prepare to roll out 5G technology, and ZTE will likely lose ground to domestic competitor Huawei.
As analyst of brokerage CICC, Qian Kai, said per the Bloomberg report, “even if this doesn’t kill them, ZTE will be half-dead.”
It is also certain to add to the growing US-China trade tensions, and fuel Beijing’s desire to become completely self-sufficient in critical high-tech industries.
Long-time pundit of Chinese politics, Bill Bishop, whose newsletter is well-read among Washington China policy circles, wrote on Tuesday:
“The ability of the US government to decimate a major Chinese tech firm by cutting off access to US components is another reminder to China, as the Snowden revelations were, that China cannot ensure information security until it completely de-Americanizes its information technology infrastructure and replaces it with indigenous products.”
Nonetheless, it is little consolation for ZTE in the medium term. Despite the fact that Huawei, ZTE and others are pouring money into developing their own chip technology, “at least for the next five to ten years, ZTE can’t exist without American companies,” according to Nomura analysts Joel Ying who was quoted in a Bloomberg newsletter Tuesday.