China hits back at US over restrictions on ZTE

The headquarters of ZTE's North America business in Dallas, Texas. [Photo/Xinhua]

Company says it is working toward a resolution of the issue

Chinese officials on Tuesday hit back at the United States over its decision to impose restrictions on telecom equipment maker ZTE Corp for allegedly selling products to Iran in violation of sanctions.

Calling the restrictions "not a correct way" to handle economic disputes, Foreign Minister Wang Yi told reporters the approach "only hurts others without necessarily benefiting oneself".

The US Commerce Department on Monday banned US suppliers from selling components to Guangdong-based ZTE. It claimed the company "illicitly exported" controlled items to Iran and its suppliers in the US will need to apply for a hard-to-get permit before selling products to ZTE again.

ZTE said the company is "fully committed" to compliance with the laws and regulations in the jurisdictions in which it operates.

"ZTE has been cooperating, will continue to cooperate and communicate with all US agencies as required. The company is working expeditiously toward a resolution of this issue," it said in a statement.

ZTE, whose 2015 revenue exceeded 100 billion yuan ($15 billion), has suspended trading in its stocks on the Shenzhen and Hong Kong exchanges since Monday.

The Ministry of Commerce also criticized the US restrictions on the country's second-largest telecom equipment maker.

"The US move will severely impair the normal commercial activities of the Chinese firm. China will continue to engage with the US side on the issue," the ministry said in a statement.

James Yan, research director at consultancy Counterpoint Technology Market Research, said the hardest-hit area will be chip supply.

ZTE relies heavily on San Diego, California-based semiconductor firm Qualcomm Inc for mobile chips. The company's other major US suppliers include programmable logic devices makers Xilinx Inc and Altera Corp.

"I believe ZTE will team up with the Ministry of Commerce and its major partners in the US, including Qualcomm, to negotiate with the US authorities," said Yan.

Qualcomm and other suppliers have yet to comment on the case.

Because of robust sales of its inexpensive prepaid devices, ZTE is the fourth-largest smartphone vendor in the United States by shipment, taking about a 7 percent market share, according to research firm International Data Corp. Its sales channels include major telecom carriers such as AT&T Inc, T-Mobile US Inc and Sprint Corp.

However, ZTE's presence in the world's most profitable handset market lags far behind the front runners Apple Inc and Samsung Electronics Co Ltd.

It is not the first time ZTE has faced tough scrutiny in the US.

In 2013, the House of Representatives Intelligence Committee conducted a hearing on ZTE and Huawei Technologies Co Ltd to see if their US operations were a risk to information security. Huawei and ZTE were bidding on a number of telecom infrastructure projects in the US at the time.

Both companies have since been unable to clinch major telecom construction deals in the country.

ZTE is focusing on telecom network construction projects in China, the Middle East and Europe as well as global smartphone sales for its profits.

The company reported a net profit of almost 3.78 billion yuan last year, a 43 percent jump year-on-year. The Chinese company attributed the growth to 4G network expansion in China and handset sales around the globe.