ZTE looks like being the first victim of a brewing trade war between the United States and China. In a filing to the Hong Kong Stock Exchange, one of the world’s largest telecom groups announced it was shutting down “major operating activities.”
The news on Wednesday came just weeks after the US Commerce Department banned the Chinese tech giant from buying US-made components, such as semiconductors, for seven years, wrecking its supply chain.
Problems started to pile up for ZTE as soon as the US ruling highlighted how the company had violated a sanctions settlement involving illegal exports to Iran.
Earlier, ZTE had pleaded guilty to the original charges and agreed to pay US$892 million in fines.
“As a result of the Denial Order, major operating activities have ceased,” the company stated in the exchange filing. “As of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject in compliance with laws and regulations.”
Reports later surfaced that employees at ZTE’s headquarters in Shenzhen were reporting for duty but had nothing “much to do.” Plant workers also told the New York Times that manufacturing had been halted.
With more than 75,000 staff, the company operates in over 160 countries, while its telecom equipment runs through the “digital backbone of a great swath of the developing world.”
Yet the incredible rise and fall of one of China’s leading tech corporations illustrates the Cold War-style trade tensions that have engulfed the world’s two largest economies.
At last week’s talks in Beijing between delegations from the US and China, officials from the Ministry of Commerce made a “solemn representation” on behalf of ZTE.
In the end, it failed to make an impact with the two-day summit wrapping up with few tangible results apart from a commitment to continue talks.
“If the US is truly going to make an example out of ZTE, the name itself is now toxic and cannot be used going forward,” Earl Lum, the President of EJL Wireless Research, a consultancy and research firm based in the US, said.
“But to just shut the company down due to senior level management mistakes doesn’t make sense nor help the global telecom market,” he added.
Still, what is striking about the decision is that ZTE is not your ordinary telecom company.
The major shareholder is Shenzhen Zhongxingxin Telecommunications Equipment, which is connected to the state-owned China Aerospace Science & Industry Corporation, the country’s major space and defense contractor.
These links came under scrutiny during the Iran exports investigation, which resulted in the US ban. For now, ZTE has been placed on life support since up to a third of its components originally came from American companies, such as Qualcomm and Intel.
With its fate hanging in the balance, Global Times, the Chinese state-owned newspaper, disclosed that “consumers were unable” to buy tech products on the company’s official website or its flagship online store.
There were also reports that it might sell-off its successful smartphone business, according to the online site AAStocks Financial News with potential buyers including domestic rivals Huawei, Oppo and Xiaomi.
“If ZTE is considering selling its mobile handset business, then the potential end for the company is near,” Lum at EJL Wireless Research said.
At this rate, the group looks just one click away from extinction.