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Companies

China's ZTE has kept US barking for years

Parts procurement ban is only the latest setback

ZTE's headquarters in Shenzhen. The company is an influential player in global communications, with operations ranging from base stations to power systems and cloud services.   © AP

TOKYO -- Chinese companies are being forced to rethink their global strategies as the U.S. government puts up roadblocks in the name of national security. ZTE, for one, is no stranger to American pressure.

The telecom equipment maker has just been barred from the U.S. components market for seven years, over violations of restrictions on exports to Iran and North Korea. Though President Donald Trump's protectionist trade policies may be prompting closer scrutiny, the company has repeatedly drawn the attention of Washington.

In March 2017, the U.S. hit ZTE with a nearly $1.2 billion fine over the same export issue. The Department of Commerce decided to impose the fresh ban on parts purchases, which had been suspended, after finding that ZTE "paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand."

But this is not the first time ZTE has raised the eyebrows of U.S. regulators.

Back in 2012, the House Intelligence Committee urged U.S. companies in a report to stop using equipment from ZTE, as well as its compatriot, Huawei Technologies. U.S. officials worry that Chinese telecom products could be conduits for information leaks. The report pointed out that ZTE "has current and historical ties to the Chinese government and key military research institutes."

In the same year, Reuters reported that ZTE sold Iran's largest telecom company a powerful surveillance system capable of monitoring telephone and internet communications.

After Monday's penalty, ZTE said it "is assessing the full range of potential implications that this event has on the company and is communicating with relevant parties proactively in order to respond accordingly."

ZTE was established by Hou Weigui in 1985. He had visited the U.S. earlier that decade and was stunned by the technology he saw. When the tiny start-up grew and went public with A-shares in 1997, Hou is said to have made a fortune of 154 million yuan ($24.5 million).

Today, ZTE is an influential player in global communications, with operations ranging from base stations to power systems and cloud services. It rose into the top tier of the international patent rankings in the early 2010s and plays a major role in China's infrastructure exports. It built a mobile network in Ethiopia, for example.

Last year, the company's operating revenue reached about $17 billion.

The stronger Chinese telecom players become, the more the U.S. fortifies its defenses. Huawei, like ZTE, is under the microscope. Earlier this year, Huawei abandoned a plan to sell its smartphones through U.S. carrier AT&T. The reason was not confirmed, but reports suggested U.S. government concerns about data theft were a factor.

Trading in ZTE shares was suspended at the company's request on the Hong Kong and Shenzhen stock exchanges after news broke of the U.S. government ban.

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