Chinese tech giant ZTE ceases operations after ban on using U.S. components
nytimes.comConsidering how much of their sales were in the U.S., and knowing the kind of threats the U.S. government had already made to Huawei, it was pretty dumb of them to ignore U.S. government warnings and investigations over what must have been piddly sales by volume (though probably with quite a profit margin, since no one else was selling to Iran). Now it's totally blown up in their face.
If its' a "war between China and the US" then dissolving and reforming a company doesn't seem like that big of a deal.
Rightly so. At this point seems China has all the condition but a necessary kick in the butt.
The Chinese government would likely gladly subsidize the company just to screw the US.
This would mean inconsistently treating Iran and North Korea in different ways.
I'm completely baffled by the US stance towards Iran. I understand they want to eliminate Israel, but given that they suffered US meddling of a democratic election, capitulated to the reduction of their nuclear program and inspections, and otherwise cooperative with US demands, what is the reason for continued sanctions? Is it due to the sheer inertia of legacy policies, the Israeli lobby?
I can understand if it's the sheer inertia of legacy policies, since we managed to sanction Cuba for no good reason. The people that end up getting hurt from these policies set by average people thousands of miles away are just average citizens.
For some reason, you didn't mention all of the terrorist activities Iran engages in. Or hundreds of US soldiers killed by Iran. Learning about them might reduce your level of bafflement.
> Or hundreds of US soldiers killed by Iran.
The USA sends military forces half way around the globe to interfere in Iran's backyard and then accuses Iran of being belligerent?
Kinda ironic that "terrorism" is so a big deal regarding Iran when there is no problem the impact a country like Saudi Arabia has. I'm not going to beat that dead horse that a lot of 9/11 terrorist were SA. But if you would follow the money of most European Mosques where they preach extremism (and produce terrorists) you will see the money seems to come from one country and here is a hint...it's not Iran. And that is still going one today.
Then again according to Trump Iran also is a big supporter of Al Qaeda where it doesn't make any ideological sense (shia versus...) only if you take the all the muslims/brown people are the same approach.
Don't get me wrong Iran don't have nice leaders but this whole situation really stinks and does nothing to improve the security of us all.
Can you provide sources? I'm going off of reports like the View News report on Iran (HBO episode). They just showed normal teenagers who had to make skateboards out of iron because they couldn't buy any real skateboards.
Seeing as how there was Iran deal on the table that Obama pushed for, then that means reducing/removing sanctions is not as crazy as you are proposing.
The Iranian people are ok. It's their present government that leaves something to be desired. There's a long and messy history partly kicked off by us Brits and the CIA overthrowing their democratic government to grab their oil https://en.wikipedia.org/wiki/1953_Iranian_coup_d%27%C3%A9ta...
I am not surprised to hear HBO take on Iran. Skateboards, pretty damning stuff.
But it's not just skateboards: https://en.wikipedia.org/wiki/Iran_and_state-sponsored_terro...
https://en.wikipedia.org/wiki/LGBT_rights_in_Iran#Capital_pu...
I am aware that they probably fund terrorism as part of their Death to America stance. But the continued US sanctions are not going to help if we refuse to reward them for correct behavior. They agree to deal, inspections, winding down nuclear facilities, and we respond with erratic behavior. I wouldn’t be suprised now they will increase their support of enemies of the US since we are forcing them to be our enemy. And the US has never imposed sanctions on countries with poor LGBT rights (having itself only recently accepted LGBT people). We impose sanctions to get what we want, not protect human rights. We deposed their democratically elected leaders for less than noble reasons.
Yeah, Iran probably (but who can say for sure) funds terrorism with that whole Death to America thing. And gay marriage was only legal in the US in 2013 or whenever. So not much difference between that and hanging people. Putting it that way, I can see your bafflement.
I think if you believe the US is sanctioning Iran because of their gay rights record then that would be pretty naive. It's all about power and politics. We didn't depose their democratically elected leaders for their benefit, that's for sure.
Iran is sitting on enormous oil reserves, development of which could seriously depress the prices.
Chipmaking may go inhouse within national borders, but how many companies make Semiconductor Capital Equipment? That's an even more concentrated industry than the chip industry itself. The top 10 companies in the industry represent 90% of the market share by revenue, and 9 out of 10 are based in the US or Japan. (1 is Dutch) The trend would dictate further export controls upstream.
https://seekingalpha.com/article/4053221-top-10-semiconducto...
What is "Semiconductor Capital Equipment"? I looked at your link but there didn't seem to be a reference to that term.
The industrial machines and tooling for manufacturing semiconductors. Some is generic but a lot of that equipment is very specialized.
Somebody help me understand: does the US really try to enforce its export controls not just on our own country, but on foreign countries? Many countries trade with Iran---do we really expect to keep all our goods from making it there by way of third-parties?
This is absolutely the point of sanctions, its the modern day equivalent of siege warfare. Using some arbitrary method, choke the flow of resources into a nation-state and then the economy takes care of the rest. The nation-state gives in to the demands if it is not strong enough. Anyone who attempts to get around the methods imposed is basically trying to break through the siege.
Yes. That is how sanctions work. And since US companies supply so much hi tech equipment and Financial instruments, banning a country from any trade with US companies is basically an indirect way of shutting them down.
They're called secondary sanctions.
https://www.exportcompliancematters.com/2016/07/25/secondary...
Yup. There are all kinds of entities you are not allowed to do busines with. In fact you usually need to know who the end-user is, etc.
However, this gets most important with ITAR and EAR which are items with military or "dual use" applications...
https://en.wikipedia.org/wiki/International_Traffic_in_Arms_... https://en.wikipedia.org/wiki/Export_Administration_Regulati...
Yes and for a good reason. A good, maybe extreme, example is of A.Q. Khan. It is suspected that US supported Pakistan with nuclear technology. Then Khan's company ERL helped Libya, North Korea, Iran and China develop their own nuclear weapons program.
https://en.wikipedia.org/wiki/Abdul_Qadeer_Khan#Proliferatio...
> does the US really try to enforce its export controls not just on our own country, but on foreign countries?
Yes. We run the international world order. Our sanctions are pretty much an international edict that all nations/companies have to adhere to. It's a perk of being the sole economic and military superpower and being the leader of the international world order since ww2.
> do we really expect to keep all our goods from making it there by way of third-parties?
Yes. Not only that, our national interests trump foreign countries'/companies' interests. We blocked a german company from selling itself to a chinese company.
http://www.scmp.com/news/china/economy/article/2051421/obama...
ZTE pretty much admitted the denial order is their end. From the denial order:
note that in its response to BIS 's notice of proposed activation of suspended sanctions and in making its case for leniency, ZTE acknowledged that it had submitted false statements, but argued that it would have been irrational for ZTE to knowingly or intentionally mislead the U.S. Government in light of the seriousness ofthe suspended sanctions. The heart ofits argument is the question, posed by the company in rhetorical fashion, asking " why would ZTEC risk paying another $300 million suspended fine and placement on the denied parties list, which would effectively destroy the Company, to avoid sending out employee letters of reprimand and deducting portions of employee bonuses?" ZTE argued that BIS should not act until the company completed an internal investigation so that ZTE could answer such questions.
Combine this sort of thing with China's increasingly aggressive military stance, and in the long term, maybe medium or short term, world trade is going to be completely reshaped.
Reliance on other countries now looks risky. If you manufacture in China, you're crazy if you don't have a backup plan for your operations being shut down as an outcome of government action on one side or the other.
No, they were repeatedly warned to not violate sanctions but kept ignoring those warnings. If you break the law you have to deal with the consequences.
As released by the the Department of Commerce, ZTE has a document detailing:
1. how they evaded the sanction against Iran (destroying documents, re-export through a third country, deliberately removing logos from cargos, etc)
2. rewarding, rather than disciplining, staff involved in the evasion of sanction, an outright violation of the agreement they signed with Doc for a probationary punishment instead of a full-blown one
3. the resumption of sanction-evasive behaviors, while fully aware they are under active investigation
Did I mention ZTE had prepared another document detailing exactly how their competitor Huiwei does the same?
Seems to be only for Chinese companies then... https://www.newyorker.com/news/news-desk/the-iran-business-t...
You really must be extremely naive to think that this has pure to do with not following the rules after all the different arguments Americans/British have produced why companies like Huwaei/ZTE/... (because America is so trustworthy) are bad. I have the feeling that they just found a stick to beat the dog.
"For my friends everything, for my enemies the law" - Óscar R. Benavides
Trade agreements limit the size of import tariffs that can be imposed and this bypasses those limits nicely. (Not that ZTE weren't stupid to do this in the first place).
On the other hand if it suits the right company they can do what they want. For example massive amounts of vanadium were shipped from the Congo to the US during sanctions for use by the US aircraft industry.
My wife works in global trade and when the original violations were discovered she was surprised they were even given a 2nd chance.
Their leaders are basically negligent at this point.
That is where India can come into picture.
Given that this is about Iran/N. Korea sanctions, why does it get conflated with "tech cold war"?
The violations relate to technology.
You think if Apple, IBM, Amazon, or another American giant got caught doing this kind of stuff they would get sanctioned nearly as hard by the Trump administration?
Perhaps you are right --- Amazon would not be punished in this way.
But likely you are right for different reasons than you think?
US government can put US executives in jail. I'm sure it would put them in jail. You have to remember what happened here: ZTE was caught, paid penalty and promised to be nice, then they reneged on their promise, lied about it, and got caught again.
Feds in fact just recently put VW executive in jail for even lesser offense. US government has no such jail-time leverage with Chinese companies, there is no extradition agreement, so the only leverage US has, it used.
I do wonder if Oliver Schmidt got that jail sentence in part because he and his company are non-American, leading to harsher treatment.
US companies operate under US jurisdiction, which means US can charge and convict the specific people involved in the illegal activity in US courts (instead of shutting down the company). Since US courts don’t have Jurisdiction over China, one has to rely on harsher but indirect methods like these.
I belive Xi would do the same.
Exactly, imagine a US company supporting Tibet/Dalai Lama or Falun Gong etc. China would most definitely ban them from doing business in China.
Do you have an example for that? I looked around a bit and only found China not buying from weapon manufacturers anymore who also supplied Taiwan. When it comes to pressure on topics like Tibet they seem to mostly pressure countries instead of companies.
Is China trying to enforce any kind of similar ban? I got the impression that trying to enforce unilaterally imposed global sanctions is a US thing. The next best thing coming to mind are UN embargos
Long term, this will backfire on the US.
China will probably just develop more stuff locally, further reducing US influence.
This makes no sense. China was always going to develop more stuff locally and the US influence in the IT space was always going to decline. It's just a fact when you have a country as big as China rising in prominence and strength you will see declines elsewhere.
But when it comes to consumer products the US still has an innate understanding of how to build products for the world. And China may be great at building and duplicating but they haven't yet demonstrated how to do this from scratch.
Every successful industrialized nation after the first one (the UK) started by copying the products of other nations. Germany was a notable early case of this. So was Japan.
China did the same thing, and now Chinese industry is advanced enough that we will see innovation coming from China. They are already there in software -- WeChat/WePay is a really big deal and it outcompetes payment systems from American tech companies. I suspect we will soon see successful Chinese innovations in AI, semiconductors, and automobiles.
> now Chinese industry is advanced enough that we will see innovation coming from China
People have been saying this forever and we're still waiting for any sign of it. People love to over-simplify economics and make the big assumption that the historical progress seen in the west in previous eras is a repeatable system on a simple arc trajectory of advancement. But I personally believe it is as much a product of the local (work) culture, politics, and economic systems... not simply just a side-effect of the creation of a middle class.
Just look at Japan. They had a great period of innovation within a particular period of chaos where the old cultural rules weren't being imposed and whole new industries were developed. Which later became crippled by a variety of forces, including most notably culture and how 'elders'/successful companies are treated like gods, while upstarts became marginalized as the larger firms became politically entrenched. Now that the systems are in place the creative class has largely been stamped out.
That had little to do with Japan's particular position on some growth model but a variety of distinct local forces.
This type of thing is also not just a product of industry but also academically, which we've also seen a lack of larger sweeping innovations coming out of China, instead mostly just narrower progress within existing western thought. It's entirely possible that what China is best at is these type of things, mastering these individual existing categories, optimizing them, and working harder than anyone else at them. Rather than developing the more creative innovations which bring together disparate pieces from other areas into new ones.
That too seems to be a result of cultural and economic system... not simply their position within some predicable growth model which worked in the west.
> People have been saying this forever and we're still waiting for any sign of it
If you are into AI you can looks up recent papers. Most of the authors are Chinese.
And yes most of the authors are studying in the US, but Trump administration are making them very difficult to work in the US, so they will all gradually return to China someday.
> but Trump administration are making them very difficult to work in the US
Is there any evidence this is true yet? I thought they were only going after 'chain migration' which has nothing to do with skilled workers? Or do you mean the rumblings about cracking down on those H1b mill companies gaming the system?
It may be simplistic, but political freedom may influence technological and scientific freedom, necessary for innovation. If you routinely self-censor in one area, it transfers.
For this reason, I think we'll see some relaxation of control in China, as there has been previously.
But I guess the real challenge is having a culture of risk tolerance, and investment infrastructure etc to support it.
Unfortunately it seems the Chinese government has figured out how to get high growth, investment, and scientific/technological progress without increasing political freedoms. I'd like to be wrong about that, but it seems pretty clear that it's the case.
I used to think that as more Chinese people entered the middle class, they would demand more political rights. It's generally the bourgeoisie that does this -- they aren't poor anymore and they want respect, they resent being looked down on and the monopoly on political power held by the entrenched aristocracy (which in China would be the powerful families in the party), and so on. But that hasn't happened as far as I can tell. Maybe it's because the people in a position to successfully demand political reform aren't staying in China.
The key point of the comment I replied to is that "scientific/technological progress" has only been incremental, not leaps of creativity.
I can't speak to the factual accuracy, and it can be difficult to separate revolutionary from evolutionary, since even the greatest of leaps have antecedents and stood on the shoulders of giants (e.g. Newton)... but with such a huge population, a large proportion educated, there would be many extremely smart people capable of great work. But the only such Chinese people I know of are not in China (one famous e.g. https://wikipedia.org/wiki/Terence_Tao). So, maybe, as you say, there's a brain-drain.
And maybe I just don't hear about the ones in China (and maybe the very best work on sensitive commercial and government/military projects - e.g. CPU designers).
Not sure if that is the case. If you create IP, is the Chinese government going to defend your ownership of it? I would think smart people and people who invest in smart people are going to create things in systems where you are rewarded for it.
China has a patent system. I don't know about copyright, but that's less significant for tech progress (and trademarks not at all).
I would guess foreign owned patents would not fare well, because it's not in China's interest (USA did the same thing some time ago), but that reasoning doesn't apply to domestically owned patents.
Apparently, in 2014 patent owners won about 80% of their cases BUT the damages granted are "maddeningly" low. The article isn't clear if that's also true for domestically owned patents. http://maxhamfirm.com/patent-litigation-china/
One mechanism is that it's harder to prove damages under Chinese Law, though people say it's changing. Though none of the cases are about real technological progress, more design/trademark like designs (I guess it's the same in the west though too) https://www.limegreenipnews.com/2018/03/calculating-larger-p...
>Rather than developing the more creative innovations which bring together disparate pieces from other areas into new ones.
Go buy a copy of the Three-Body trilogy by Liu Cixin.
> it outcompetes payment systems from American tech companies
Does it? I think American payment systems are winning outside of China/USA. Of course it won the Chinese market because China makes it extremely difficult for foreign tech companies to compete.
I don't know why you're being down voted.
It's a forgone conclusion that China was always going to push to accelerate their local semi-conductor industry irrespective of what happened to ZTE or not. Not enforcing violations of US sanctions (and the subsequent plea agreement) would have just shown China that you can piss all over any deals made with the US commerce department (further reducing their respect) -- it would not have detracted in the slightest from China's mandate to replace their dependency on foreign technology at all!
They can learn how to manufacture high quality products for the global market easier than the US can grow a billion people. Food for thought.
US can grow to a billion+ people easily, it's just standard of living would be abysmal.
It just occurred to me that under extreme circumstances the US could force a worldwide brain drain overnight by relaxing immigration standards to allow anyone with a college degree on a fast track to a green card.
If our political system were run by cold-blooded technocrats that would be an interesting way of competing with China.
China has a single minded focus on that. What US does is going to be irrelevant in that sense.
Very true. There is a very good article[1] in The Economist about this. Their conclusion:
"These are all things that China is working on.
America’s use of its new weapons simultaneously demonstrates its power and will hasten its relative decline."
[1]https://www.economist.com/news/business/21741556-there-are-a...
Yep, this isn't a card we can keep up our sleeve until it's useful. We play it now, in the near future, or never.
Not probably, explicitly. That's basically the thrust of Made in China 2025.
It’s a company created by the Chinese government. They’ll just create another one to replace it.
Even with China's scale, you don't rebuild a 75,000-person tech company from scratch. Brand awareness is quite important in the consumer electronics sector, and it would take a lot of effort and investment to retake that #4 cellphone vendor position with a new brand.
No, it really wouldn't.
They already have all the staff and the tech. They just need to rebrand, and since the new company won't be ZTE, they'll just start buying American components again.
Replace all ZTE ads with ads for the new company, and never explicitly say that this is the rebirth of ZTE, while still making it very obvious to the consumer.
This will all be a blip on the radar.
For those who remember the TechTV/G4 merger - remember when The Screen Savers was "cancelled" and then a "new show" called Attack of the Show started airing in the exact same timeslot, with the exact same people, on the exact same set - but the branding was different?
That's what the Chinese government is going to do to ZTE and all its assets.
No need to bring up such horrible historical events such as the destruction of TechTV.
Seems like a lot of work to maintain a presence in the North Korean and Iranian market. What if they do all of the rebranding and the US government says, "Sorry its the same company".
Can't they just pull a General Motors?
ZTE is a public company. It's considered "state controlled" not state owned because majority of stock is owned by private investors.
If ZTE is liquidated and Chinese government controlled companies buy its assets and start production again, private investors lose billions.
Perhaps Huawei will buy them. (speculating here)
Semiconductor industry is a strategic industry.
Even if China is not isolated from the global trade the same way as Soviet Union once was, it must duplicate several industries if it want's to act independently from the global order.
This is mostly going to be a restructuring. Chinese companies will continue to help (and according to me they should) Iran and North Korea. Now they are going to split US only and non-US entity.
I didn't see it mentioned in the article - what is the cost to the US companies losing ZTE's business?
I don't know the exact numbers, but I imagining it is substantial in the short-term.
Also, this motivates China to produce more components domestically, which will permanently sway Chinese companies away from US suppliers, so in the long-term, this could do tens of billions of dollars in damage to the US.
Perhaps the assumption is that ZTE's competitors sourcing similar US components will make up the difference in increased sales when ZTE's business falters.
ZTE order lots of electronic parts from US. The supply chain would suffer. Also the are some small carriers which relies on cheap Chinese Huawei/ZTE phones and cell towers.
I guess this has just become a relic:
(ZTE Firefox Phone. Still works too, I powered it up the other weekend... Might have to put a SIM in it - I bet nobody's targeting _that_ with zerodays...)
Curious if this will start a trend for more and more manufacturers to take as much in house as they can if they're dependent on the US market for components. Huawei and Xiaomi are already getting rolling with it.
Absolutely. As the article mentions, this is a big policy goal of Xi Jinping.
Totally -- but policy goals and actually getting the gears of the corporatosaurus moving are often not quite in lockstep.
> According to the United States government, the company used an elaborate system to sell American-made goods there, and then lied and deleted emails when the Commerce Department began to investigate. It even made plans to resume shipments to Iran while the investigation was ongoing, according to the Commerce Department.
Unfortunately the truth doesn't make good headlines like "TRUMP STARTING TRADE WAR", but I think this best sums up what's happening and why.
I wonder what the retaliation will be.
To me it seems we are finally starting to play the same game as the Chinese, they strategically use companies on a national scale to gain and keep trade advantages. I think in some cases such as metal refining they are able to coordinate on a national scale with the strategy of their government and outmanuver independent companies. I consider this recent move the US government waking up and starting to really fight the Chinese in key economic areas.
God, I hope not. That leads to far more serious consequences, like out-and-out war. Trade has its downsides, but one positive consequence is that it does help reduce the likelihood that two sides will get into military conflict with each other.
The Chinese have basically no proven offensive capability outside their immediate sphere of influence compared to the US. Compare the Navies and Air Forces of each country and also the experience fighting foreign wars with complicated logistics and such. From a geopolitical standpoint there is probably close to zero chance of them initiating a war anywhere near north america.
They have however been fighting a trade war and somewhat of a cold war for years against the US.
Rebranding.
Should ban Apple in response. Would be hilarious
I'm sure Foxconn wouldn't agree.
Foxconn is Taiwanese, albeit with a lot of mainland employees.
This will foment a lot of anger.
It does look to me that the US is really at its best here in applying the rule of law, and following the contract it had with ZTE to the letter.
But others will find it hard to believe, especially with Trump at the helm.
I can't stand Trump, and I personally find it hard to believe. There's a reason they got banned from military bases.
Why is the NY Times spinning this as a "tech Cold War"? ZTE got caught violating US sanctions against North Korean and Iran, and repeatedly lied to US officials about it.
https://www.commerce.gov/news/press-releases/2018/04/secreta...
The NYT has easily the best journalists and in my opinion the best written articles but post 2016, the constant Anti-American stance is entwined in every article regardless of the subject. For subjects I have in depth knowledge of, it's honestly pathetic how they subtlety spin everything into anti-America by deliberately omitting key pieces of info.
Bloomberg for whatever reason has started having more and more misleading headlines and articles, ironically right as they head to a subscription model. The WSJ I still subscribe too, mainly because it's more business and less politics related though the comment section unfortunately resembles only a slightly more dignified version of a Breitbart commenter.
Because these sanctions campaigns are themselves remnants of the original cold war?
Sensationalism sells.