US, China reach $1.4bn sanctions deal over ZTE

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The Chinese telecommunications giant ZTE has reportedly struck a preliminary agreement with the U.S. Commerce Department, so it can move towards getting back into business after a ban on purchasing American components and software.

Amidst the white-hot trade tension brewing between the worlds two most powerful superpowers, U.S. President Donald Trump surprisingly announced his intention to help the beleaguered Chinese company which we covered here last month. The decision amounted to a death sentence to ZTE, which relies on USA parts and which announced that it was halting operations.

U.S. Secretary of Commerce Wilbur Ross announced that ZTE will pay a $1 billion fine for its recent violations.

"We think this settlement, which brought the company - a $17 billion company - it its knees, more or less put them out of business, now they're accepting having the compliance team come in, whole new management, whole new board, should serve as a very strong deterrent not only for them but for other potential for bad actors", Ross said.

Critics like senator Marco Rubio have criticized the Trump administration's willingness to cut a deal with ZTE, saying it undercuts USA national security.

"At about 6 a.m. this morning, we executed a definitive agreement with ZTE". The resolution of the ZTE case may clear the way for the U.S.to make progress in its high-stakes trade talks with China. FBI Director Chris Wray said the proliferation of ZTE phones in the US provides "the capacity to maliciously modify or steal information".

There was no immediate comment from the Chinese government on the ZTE agreement. It paid $890 million in fines. They must also post calculations of the usage of US -made components on a public website.

Earlier, Wilbur Ross stated that the USA was looking at alternatives to the debilitating sanctions threatening the survival of ZTE.

"ZTE is essentially on probation", said Amanda DeBusk, chair of the worldwide trade and government regulation practice at Dechert LLP and a former commerce official. Overall this an unprecedented agreement with the BIS in both the size of the fines and the overall scope of the compliance monitoring.

Reviving ZTE has been a personal focus for President Trump, whose government is in the middle of broader trade negotiations with the Chinese government.

US companies Qualcomm (QCOM) and Intel (INTC) account for 43 percent of the materials used in ZTE's Chinese-made handsets and networking equipment, according to tech research firm IDC. "China is willing to increase imports from the U.S.", Commerce Ministry spokesman Gao Feng told a weekly news conference. Building and maintaining a 5G network in the USA may create 3 million jobs and provide a $500 billion boost to GDP, according to a 2016 Accenture report.

"The hope is accommodating China's concerns on ZTE will open the door to favorable decisions on Qualcomm and other deals", said Altbach.

Acacia rose as much as 4.5% intraday, but ended the session down 1% to 33.53.

Oclaro shares are up 1.1%.

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