On Thursday, the US government announced that the Chinese company, ZTE will quickly clear its last big obstacle to remove a crippling ban. This resulted in ZTE´s shares to soar in price by 25%. ZTE makes telecommunications equipment and smartphones. Since the US Commerce Department blocked American companies from marketing its products in April to the Chinese company, ZTE has been in crisis. This crisis caused ZTE´s operations to almost stop and increase tension between the governments of China and the United States.
Trump administration made an agreement with ZTE to lift the ban and in exchange, the company would change its executives and board of directors, have a team monitor its company, and pay a $1 billion fine; all this punishment was made after Beijing intervened.
The agreement between Trump and ZTE was signed on Wednesday, according to the Commerce Department. Once the money is received for the large fine, then ZTE can start again doing business with American companies. Just last month, ZTE spent large sums of money finding a new Chief Executive Officer and other administrators.
According to an analyst, ZTE´s comeback will be tough and it won´t be easy to return to business as usual.
This punishment handed down by the U.S. government was done so because ZTE violated a previous agreement in which it promised to stop doing business with Iran and North Korea. Although the band was removed, gaining customers’ trust will be a challenge because they have to them they will be around for the long run.
Starting next month, ZTE must present a report on the second and third quarters for its earnings; and according an analyst, this will definitely include several one-off costs. After the ban was first announced in April, ZTE´s shares were suspended in the Hong Kong stock exchange and the shares only have 47% of the value today that they had prior to the ban
Trump´s administration has been challenged and faced harsh criticism from member of Congress. Some of lawmakers want to keep the ban in place, insisting that there are some concerns related to the country’s national security. This situation will not go away just because the administration lifted the ban. Moving forward, those lawmakers opposed to lifting the ban will make sure their voices are heard relative to national security issues.