FORUM Financial WARS

Jan 18 2019

The conflict between the United States and China through the prism of the surrender of the Chinese state corporation

In my last article, I cited the financial and economic data on the Chinese economy that were unfamiliar to the general public. . 

Today, I’ll continue to justify my position not from the global economic figures, but from one specific episode – the introduction of American sanctions against the Chinese state corporation ZTE (51.8% of the company belongs to the state). This story began in 2010 and actually continues today: 

According to the US Department of Commerce, ZTE has been selling US products to Iran from 2010 to 2016. The equipment and software were used to deploy the country’s telecommunications infrastructure. In addition, ZTE conducted a total of 283 deliveries of American technology, in particular, servers and routers, to North Korea. 
The Ministry reports that during the 5-year investigation, ZTE officers repeatedly reported false information to the investigation and deliberately misled it. 

That is, this investigation hung a sword of Damocles over the company and when it was required by the United States, it “shot” in the perspective that the Americans chose: 

On April 17, the US Department of Commerce prohibited American technology companies from cooperating with a Chinese manufacturer. If the conditions do not change, ZTE will not be able to purchase Qualcomm and Intel products, the key chipset manufacturers for various electronic devices, for seven years. The media also mention the suppliers of optical elements Acacia Communications and Lumentum Holdings. 
<…> If we consider that 70 percent of smartphones manufactured by ZTE use Qualcomm chipsets, a ban on the supply of US electronic components can lead to serious financial problems
On May 9, ZTE published a statement for the Hong Kong stock exchange with information about the suspension of its “core business”. 

In this news, it is noteworthy that no matter how much they talked about the ‘de-industrialization’ of America, they did not withdraw the production of critical technological equipment from the territory of their country. And this allows them to speak from a position of strength with many large foreign manufacturers. 

And how did the Chinese state corporation, one of the world’s largest manufacturers of telecommunications equipment, behave? We read: 

Under the terms of the agreement, ZTE will change the board of directors and managers for 30 days (changed everyone – my comment), pay a fine of $ 1 billion, put $ 400 million in a deposit, keep the US-selected group of observers (at their enterprises – . mine), <…> and will increase purchases of components and equipment from the United States. 
At the same time, it is noted that the US Department of Commerce plans to credit off 361 million dollars paid by a Chinese company in 2017 as part of the settlement of the case on the supply of equipment to Iran and North Korea, bypassing the US trade embargo.

The deposit in question will be an additional guarantee that the Chinese state corporation will fulfill the American requirements for the next 10 years. In the event that the United States considers that ZTE violates the requirements, then this deposit automatically goes to the Americans. And they will follow very closely: 

Under the terms of the settlement, the company is monitored by the court and the US Department of Commerce. And for the trade department was set a ten-year monitoring period and deeper than that of the court, access to information about ZTE operations. According to the current ruling of the judge, the court now has the same level of access to the Chinese company data as the US Department of Commerce. 

In order to get out of the pit, ZTE had to resort to government lending in the amount of 10.7 billion dollars. To understand the scale of borrowing: the corporation’s revenue in 2017 amounted to $ 17.3 billion, and its profit never exceeded $ 1 billion. 

To sum up the above, we get a very unpleasant picture for China: despite all its bluster, the Chinese state-owned company was forced to surrender to the United States. But how else is it called the payment of all required fines, the dismissal of the entire management of the company and admission to its operating activities of representatives of a foreign court and a foreign government agency. 

We get one more such vivid illustration to my statement that we should not underestimate the United States in its economic confrontation with China and already today write them to the losers.

USA News. American News.

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