China’s ZTE Under Threat for Survival by US Ban

China’s ZTE Corp said on Friday that a U.S. ban on the sale of parts and software to the company was unfair and threatens its survival.

However, the company vowed to safeguard its interests through all legal means.

The United States this week imposed a ban on sales by American companies to ZTE for seven years, saying the Chinese company had broken a settlement agreement with repeated false statements – a move that threatens to cut off its supply chain.

“It is unacceptable that BIS insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts,” ZTE said in its first response since the ban was announced, referring to the U.S. Commerce Department’s Bureau of Industry and Security.

“The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies,” ZTE said in a statement.

ZTE said it regards compliance as the cornerstone of its strategy, adding it invested $50 million in export control compliance projects in 2017 and plans to invest more this year.

A senior U.S. Commerce Department official told Reuters earlier this week that it is unlikely to lift the ban.

“We’re going to have to see how this unfolds. But there is no provision currently for that to occur,” the official said, who declined to be identified due to the sensitivity of the matter.

The Commerce Department has an appeals process for companies to try to get off the list, but it is unclear whether that would be available to ZTE because the case had been previously subject to a settlement, according to people familiar with the matter.

Even so, ZTE would have little recourse in the near term because appeals would have to pp

A state-backed Chinese trade body said the ZTE case represented a “milestone” for China Inc and highlighted compliance risks its corporate sector is facing.

It urged the Chinese government to speed up implementation of national guidelines on corporate oversight, and go through informal channels and seek leniency with U.S. Congress members to resolve the ZTE case.

TRADE WAR

The ban has ratcheted up tensions between China and the United States at a time when they have already threatened each other with tens of billions of dollars in tariffs, fanning worries of a full-blown trade war.

In China, there has been a patriotic backlash with an outpouring of support for ZTE on social media and most domestic newspapers have chosen to put the lion’s share of the blame for ZTE’s troubles on the country’s heavy reliance on foreign semiconductors.

ZTE chairman Yin Yimin told domestic media on Friday at its Shenzhen headquarters that the firm would increase research and development as “relying on oneself is better than relying on others,” state media Xinhua reported.

E-commerce giant Alibaba Group Holding Ltd (BABA.N) said on Friday it had acquired a Chinese chipmaker that it said underlines its commitment to driving the development of the chip industry.

Meanwhile, the U.S. government is considering using an emergency law to restrict Chinese investments in sensitive U.S. technologies, a senior Treasury official said on Thursday.

Trade in ZTE shares has been suspended since Tuesday. As of Monday’s close, they were worth some $19 billion.