Smart stuff: A man checks ZTE’s Axon7 device at the 2017 Mobile World Congress in Barcelona, Spain. The Chinese company and the US have struck a deal that will put ZTE back in business, but with strict conditions imposed by the US. Picture: REUTERS
Smart stuff: A man checks ZTE’s Axon7 device at the 2017 Mobile World Congress in Barcelona, Spain. The Chinese company and the US have struck a deal that will put ZTE back in business, but with strict conditions imposed by the US. Picture: REUTERS

Washington — The Trump administration has told legislators the US government has reached a deal to put Chinese telecommunications company ZTE back in business after it pays a fine and makes management changes, a senior congressional aide says.

President Donald Trump appeared to confirm the deal in a tweet late on Friday. "I closed it down, then let it reopen with high-level security guarantees, change of management and board, must purchase US parts and pay a $1.3bn fine."

The reported deal involving China’s second-largest telecommunications equipment maker ran into immediate resistance in the US Congress, where Democrats and Trump’s fellow Republicans accused him of bending to pressure from Beijing to ease up on a firm that US intelligence officials have suggested posed a significant risk to US national security.

ZTE was banned in April from buying US technology components for seven years for breaking an agreement reached after it violated US sanctions against Iran and North Korea.

After ZTE makes a series of changes it would be allowed to resume business with US companies, including chip maker Qualcomm. The deal, earlier communicated to officials on Capitol Hill by the US commerce department, requires ZTE to pay a substantial fine, place US compliance officers at the company and change its management team, the congressional aide said.

The commerce department would then lift an order issued in April preventing ZTE from buying US products. ZTE shut down most of its production after the ruling was announced.

Fox News said that Trump said on Thursday that he had negotiated the $1.3bn fine with Chinese President Xi Jinping in a phone call.

ZTE, which is publicly traded but whose largest shareholder is a Chinese state-owned enterprise, agreed in 2017 to pay a nearly $900m penalty and open its books to a US monitor. The penalty stemmed from breaking an agreement after it was caught illegally shipping US goods to Iran and North Korea, in an investigation dating to the Obama administration.

The company has lost over $3bn since the April 15th ban on doing business with US suppliers, according to a source familiar with the matter.

Trump on Tuesday floated a plan to fine ZTE up to $1.3bn and shake up its management as his administration considered rolling back more severe penalties that have crippled the firm.

Responding to news of the administration’s deal with ZTE, Republican senator Marco Rubio tweeted that "it is a great deal" for ZTE and China. China "crushes US companies with no mercy" and used "these telecom companies to spy" and steal from the US, he said.

Rubio, as well as Democratic senators Chuck Schumer and Chris van Hollen, said Congress should act to stop Trump from letting ZTE get back into business. "If the administration goes through with this reported deal, President Trump would be helping make China great again," Schumer tweeted on Friday.

Huge victory

It would "be a huge victory for President Xi" and a dramatic retreat for Trump.

"Both parties in Congress should come together to stop this deal in its tracks."

US intelligence and US law enforcement agencies have serious concerns that ZTE and other Chinese telecoms firms use their equipment to gather intelligence on US citizens.

The US defence department has also stopped selling ZTE’s mobile phones and modems in stores on its military bases, citing potential security risks.

William Evanina, acting director of the national counterintelligence and security centre, said at his May 15 confirmation hearing that he would not use a ZTE phone nor recommend that anyone in a sensitive position in government use one.

Chinese officials sought a pullback on ZTE as part of any broader deal to prevent a trade war between the world’s two biggest economies. US commerce secretary Wilbur Ross is scheduled to visit China for another round of talks.

White House legislative director Marc Short said on Friday that Ross "would be making that announcement" of a resolution of the ZTE issue.

ZTE needs US components for its mobile phones and network equipment.

US companies provide an estimated 25% to 30% of parts in ZTE’s equipment.

As part of the agreements ZTE made in 2017 it dismissed four senior employees.

The share prices of ZTE’s US suppliers were higher on Friday. Optical networking equipment maker Acacia Communications, which got 30% of 2017 revenue from ZTE, rose 4.4%. Optical component company Oclaro, which received 18% of its 2017 revenue from ZTE, rose 2.7%.

Reuters reported early last week that a proposed trade deal with China would lift the ZTE ban. In return, China would eliminate tariffs on US agriculture.

Reuters