Economic review

Trump lifeline to lift ZTE fortunes

2018-05-15 08:38:00 (Beijing Time)         China Daily

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U.S. president instructs officials to give firm 'a way to get back into business'

Suppliers of Chinese telecom equipment maker ZTE Corp saw their stocks surge on Monday after U.S. President Donald Trump said that China and the United States are working to give ZTE "a way to get back into business, fast".

MOBI Development, which gets 46 percent of its revenue from ZTE, climbed as much as 32.2 percent in Hong Kong, its biggest rise since 2013. Another supplier, Zhong Fu Tong, jumped to the 10 percent daily limit on the Shenzhen Stock Exchange. Nextronics Engineering, which earns 20 percent of its revenue from ZTE, gained as much as 8.5 percent in Taipei.

The sharp rises came shortly after Trump said in a post on Twitter on Sunday that the two nations are working together to give "massive Chinese phone company, ZTE, a way to get back into business, fast."

The U.S. president has instructed the U.S. Commerce Department "to get it done".

ZTE's shares remain suspended on Monday. The company, which accounts for 10 percent of global telecom equipment manufacturing, said earlier that it had halted all major business activities, after the U.S. Commerce Department prohibited U.S. companies from exporting products to it in mid-April.

The ban signaled a deadly blow to ZTE, which is also the fourth-largest smartphone vendor in the U.S., because the company relies on key U.S. technologies to produce its handsets and telecom equipment. The Shenzhen-based company has around 80,000 employees globally.

Wang Lin, a telecom analyst at China Merchants Securities Co Ltd, said the reversal in Trump's attitude toward ZTE indicates that it is highly possible for the U.S. government to lift the ban on the Shenzhen-based company.

"The final solution has yet to be determined, but ordering ZTE to pay fines is the most likely outcome. Also, we believe that negotiations between China and U.S. will focus on the standards of fifth-generation mobile communication technology and intellectual property, which will affect the high-tech sector in the two nations," Wang said.

At the core of the U.S. ban on ZTE is that the Chinese company was denied access to high-end chips produced by U.S. tech companies such as Qualcomm Inc. The incident highlights that China needs to step up the development of homegrown semiconductor industry, to reduce reliance on foreign technology.

Analysts from Essence Securities said 5G and telecom stocks will continue rebounding after the positive outcome of the ZTE incident.

"China's efforts to promote the development of 5G networks are proceeding as scheduled. Though the ban on ZTE has led to market concern about a severe negative influence on the telecom industry, the real situation turned out better than we had expected," Essence Securities said in a research note.

Also, according to the company, China will roll out more practical policies to support the domestic semiconductor sector. It is a long-term strategy and won't be influenced by the short-term outcome of the ZTE incident.