Published: Wed, June 13, 2018
Worldwide | By Jermaine Blake

ZTE stock falls after USA penalties over Iran, North Korea

ZTE stock falls after USA penalties over Iran, North Korea

The fear among United States 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.

In April, the White House announced a seven-year ban on the company buying USA parts after it said the company violated US sanctions on trade with Tehran and Pyongyang.

It would also ban USA government agencies from purchasing any devices or services from ZTE or Huawei, another major Chinese telecom firm, or using government loans to subsidize any subsidiaries or affiliates of the two companies.

The ban, which has prevented ZTE from buying the US components it relies on to make smartphones and other devices, will not be lifted until ZTE pays a fine and places $400-million more in an escrow account in a USA -approved bank.

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Senators in support of the original deal also think that it is unrealistic for USA officials to police ZTE's future actions, as the Chinese company could still conduct improper business even under a watchful eye.

A separate monitor was appointed to a three-year term by a USA federal court in Texas last year. Under the agreement, the Chinese company will have to pay a fine of $1 billion, set aside another $400 million, completely overhaul its senior management and bring on board an American monitoring team. "The new governance structure will pose challenges for the company's management in the future", Zhongtai Securities said in a note. Its Shenzhen shares fell by their 10 per cent limit to 28.18 yuan after it confirmed details of the agreement publicized by the USA government on Monday. On Wednesday in Hong Kong, they nosedived 40% to their lowest level in more than a year.

Also Tuesday, ZTE shares on mainland China's second stock exchange in Shenzhen fell by the maximum 10 percent margin allowed before trading was automatically suspended for the day.

ZTE said Tuesday it will resume operating activities affected by the ban "as soon as practicable". This issue has become one of the key problems in a trade war between the two countries. He stressed that lawmakers must "remain clear-eyed and unified on the threat China poses to US interests and national security", even if the president wasn't. North Korea is largely dependent on economic ties with China, where leaders had claimed that absent a ZTE deal, the telecom giant would collapse.

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