China's ZTE sees heavy losses in H1 due to USA penalty

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Today, Secretary of Commerce Wilbur Ross announced that Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China ("ZTE Corporation") and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China ("ZTE Kangxun") (collectively, "ZTE") has placed $400 million in escrow at a USA bank.

Republican and Democratic US senators said on Thursday they want the government to reinstate penalties on ZTE Corp, despite a Trump administration agreement paving the way for an end of a ban on the Chinese telecommunications company.

ZTE will be able to resume activity in full when the export ban is lifted, but, according to Bloomberg, the company is facing around $3 billion in losses from the moratorium it has been subjected to, which saw them lose access to the chips and other components the company needed in order to continue manufacturing networking gear and smartphones.

Shen Meng, director of boutique investment bank Chanson & Co, said the overwhelming response from the stock market reflects the optimism that ZTE is on the way back to business.

The $1 billion penalty was sent to the U.S. Treasury last month.

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ZTE Corp. paid a $1 billion lump sum and put $400 million in escrow to pay a US sanctions penalty.

Shares of US suppliers Acacia Communications and Lumentum Holdings rose more than 3 percent on the news before ending less than 1 percent higher. It recently named a new CEO and replaced its entire board to meet United States demands.

Lawmakers have expressed concern that removing the company's seven-year restriction on receiving parts from USA suppliers could pose national security risks. The current ban could have lasted seven years.

In a statement this week, Senator Mark Warner of Virginia, the senior Democrat on the Select Committee on Intelligence, lambasted the reversal, saying the USA military and spy agencies had branded ZTE an "ongoing threat" to United States national security.

Led by Senator Marco Rubio, the letter strongly urges the committee to include the "Cotton-Van Hollen-Schumer-Rubio Amendment" in the final version of the NDAA bill, which would undo the lenient and forgiving deal the Trump made with China to protect the telecom giant, reportedly as a direct favor to Xi Jinping. It also broke news of the ban in April.

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