Chinese tech giant collapsing under US-China high-tech cold war
China is certainly making a lot of inroads in technology but it will have more to lose in a high-tech cold war with the U.S. The U.S. has been innovating forever, while China is just starting. Recently the U.S. hit China with trade tariffs, and China retaliated. The U.S. upped the ante, and China followed […]
China is certainly making a lot of inroads in technology but it will have more to lose in a high-tech cold war with the U.S. The U.S. has been innovating forever, while China is just starting.
Recently the U.S. hit China with trade tariffs, and China retaliated. The U.S. upped the ante, and China followed suit. So, who’s going to get hurt the more of the two? Isn’t this a really silly question, as the answer seems quite obvious? There is a casualty already, at least in the high-tech cold war between the two countries, and it is not Apple, Google, Microsoft, or Facebook – which is not even allowed to operate in China. It is ZTE, China’s second largest telecom equipment manufacturer. The company has been forced to cease major operating activities worldwide after the U.S. government banned it last month from using telecom components made in the U.S.
Immediately, manufacturing halted at ZTE’s plant in Shenzhen, China, with factory workers in limbo. (ZTE reportedly employs 75,000 people.) International companies doing business with ZTE such as MTN (Nigeria, South Africa) are reportedly nervous but are assessing contingency plans. An MTN spokesperson was quoted as saying the company “has a lot of exposure to ZTE in our networks.” It has been reported by others that ZTE has laid thousands of miles of fiber optic cable in Ethiopia and it recently signed an agreement with MTN of South Africa to test fifth-generation wireless, or 5G.
Even though ZTE’s problems with the U.S. law makers dates back to the pre-Trump days and certainly before signs of the impending trade wars between the U.S. and China, the company unfortunately seems to be in the eye of the war now. ZTE, which was founded in 1985, started operating in the U.S in 1998 with the name Zhongxing Semiconductor Co. Ltd. It had a name change to Zhongxing Telecommunications Equipment Corporation and eventually to ZTE. (“Zhongxing” in Chinese means “China Prospers.”) ZTE has enjoyed some success in the U.S., sometimes landing the top four or five position after tech behemoths like Apple, Samsung, and LG. The company reportedly operates in 160 countries.
Huawei, a leading Chinese telecom manufacturing company, and now a smartphone manufacturer; has been blacklisted in the U.S. as an agent of the Chinese government for spying. This has severely hampered the ability of the company to make it in the U.S. market. ZTE is often regarded as an example of the few firms that are able to compete beyond Chinese borders. Moreover, until 2016, ZTE did not have as many issues with the U.S. law makers compared to Huawei. But that was then!
ZTE’s current problems in the U.S. are two-fold. First, there is the perception of the company’s ties to, and agent of, the Chinese government; just like Huawei. In February of this year top officials at the U.S. Federal Bureau of Investigation, Central Intelligence Agency, and National Security Agency, jointly warned U.S. companies against buying products from both Huawei and ZTE over concerns regarding remote surveillance by the Chinese government through these companies. The acquisition of equipment from these companies at the U.S. military was subsequently terminated. Secondly, in 2016, the U.S. Department of Commerce (DoC) found ZTE guilty of violating U.S. sanctions against five countries Iran, Sudan, North Korea, Syria and Cuba. ZTE was found guilty of engaging in an elaborate scheme to acquire U.S.-origin items, sending the items to Iran and masking its involvement in those exports; and also repeatedly lying to and misleading federal investigators, its own lawyers and internal investigators. ZTE pleaded guilty and agreed to pay a $1.19 billion fine, along with the stipulation that it would punish senior management for the transgression. Last month, the DoC said that ZTE failed to live up to the latter part of the deal, issuing an even steeper fine as a result. “ZTE misled the Department of Commerce,” the department reportedly told a news outlet. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.” The new punishment bans U.S. component manufacturers from selling to ZTE for seven years. As a result, less than two weeks ago, the company ceased major operating activities worldwide.
U.S. President Trump has not been successful in relieving ZTE of the burden of the sanctions; the attempt of which U.S. law makers find concerning. Why is Trump, who campaigned on “America First” now concerned about loss of jobs at ZTE in China? There are a few theories, including one by U.S. Senator Patrick Leahy of Vermont: “I was concerned that 72 hours after [the] Chinese government pumped half a billion dollars into a theme park in Indonesia that [has] Donald Trump’s name on it, we said we should put those [Chinese] people back to work.” There is criticism of Trump across the aisle. Republican Senator Marco Rubio of Florida is quoted as saying, “#China intends to dominate the key industries of the 21st Century not through out-innovating us, but by stealing our intellectual property and exploiting our open economy while keeping their own closed.” “Why are we helping them achieve this by making a terrible deal on ZTE?”
For now, ZTE is undoubtedly in deep waters, and the ripples may be felt in 160 countries, including Nigeria and many African countries.