Senators Move To Reverse Trump's Deal Lifting Sanctions On China's ZTE

Visitors pass in front of the Chinese telecom giant ZTE booth Feb. 26 at the Mobile World Congress in Barcelona

Visitors pass in front of the Chinese telecom giant ZTE booth Feb. 26 at the Mobile World Congress in Barcelona

The fear among USA intelligence agencies is that Chinese telecom equipment makers such as ZTE and Huawei pose a threat to national security, with even leaders of organisations including the NSA and Federal Bureau of Investigation concerned that ZTE and Huawei could be using their devices and equipment to spy on Americans.

The U.S. slapped sanctions on ZTE in 2016, prohibiting the company from doing business in the U.S. for seven years, when it violated U.S. sanctions against Iran and North Korea.

But after the USA government determined the company lied about its clean-up efforts, the Commerce Department imposed the death sentence, banning US businesses from selling parts to ZTE, effectively kneecapping the company.

The bipartisan amendment would reimpose penalties on ZTE for violating USA sanctions against exporting to Iran and North Korea that the Trump administration sought to lift in exchange for the company paying a $1 billion fine and funding an in-house compliance team of US officials.

Commerce Secretary Wilbur Ross was on Capitol Hill on Monday evening to speak with senators behind closed doors about the details of the ZTE deal, in a meeting that began shortly after the decision to include the amendment blocking the president's deal was announced. It also required ZTE to change its board of directors and executive team within 30 days.

Under orders from Mr. Trump, the Commerce Department last week weakened penalties on ZTE, reducing a near-death sentence to a $1 billion fine and continued oversight.

A separate monitor was appointed to a three-year term by a USA federal court in Texas last year. "The new governance structure will pose challenges for the company's management in the future", Zhongtai Securities said in a note.

During its trading halt, fund managers cut their valuations of ZTE shares, with some lowering valuations of its A-shares to 20.04 yuan per share, or a 36 per cent discount to the closing level on April 16. On Wednesday in Hong Kong, they nosedived 40% to their lowest level in more than a year.

In Shenzhen, the firm's shares were down 10% in early trade, which is the maximum allowed on the mainland.

ZTE also said in filings on Tuesday that it would work to resume operations as soon as possible after the ban gets lifted, and would republish its first-quarter financial results after assessing the impact of the ban and the settlement agreement. After all, a Congressional report from 2012 called ZTE and Huawei threats to USA national security.

ZTE employs 70,000 workers in China and is the fourth-largest vendor of mobile phones in the U.S.

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