ZTE gets temporary reprieve

US Commerce Department grants firm breathing space from July 2 to Aug 1

ZTE Corp has been allowed to temporarily resume business activities as the Chinese smartphone and telecom company works hard to secure the lifting of a seven-year US supplier ban.

The US Commerce Department said in an order on Tuesday that ZTE would be allowed to continue operating existing networks and equipment, and provide handset customer support for contracts signed before April 15.

The permission is effective from July 2 to Aug 1.

On Wednesday, ZTE shares in Shenzhen surged more than 8 percent at midday before the rise narrowed to 2.6 percent, reaching 13.8 yuan ($2.1) at the close of trading. Its Hong Kong shares rose by 5 percent before going down by 3.4 percent at the close of trading.

The Shenzhen-based company ceased most of its operations in April, after the US government imposed a seven-year-ban on its purchase of crucial US technologies, including chips, allegedly for violating sanctions to export goods to Iran.

The US order came after ZTE inked a new settlement with the US government, under which it agreed to pay a $1 billion fine, overhaul its executive team and hire US compliance officers.

Xiang Ligang, founder of telecom industry website cctime.com, said the authorization allows ZTE to restart some activities, signaling that a permanent lifting of the ban is on the way.

"It will give ZTE room to resume its business as soon as possible. That is of crucial importance, given that the final sprint toward the commercialization of fifth-generation mobile communication technology has already kicked off," Xiang said.

Edison Lee, a telecom analyst at investment bank Jefferies, said in a research note that the temporary reprieve was "a very positive indication that ZTE is on track to a full lifting of the export ban".

To meet the US government's requirements, ZTE has already overhauled its management personnel, with 14 of its board members, including chairman Yin Yimin, resigning with immediate effect. Li Zixue was appointed as the new chairman.

Shen Meng, director of boutique investment bank Chanson & Co, said the seemingly mixed stock response in Hong Kong and Shenzhen, in fact, showed an optimistic attitude toward ZTE.

"Its shares in Hong Kong already surged on Tuesday. Despite the slight downturn on Wednesday, it still shows that investors were encouraged by the temporary lifting of the ban," Shen said.

The ZTE incident came as Chinese tech companies encounter a string of obstacles in the US. Huawei Technologies Co Ltd, another Chinese telecom giant, said a proposed US ban on selling its gear to some US mobile providers is not lawful, challenging assertions that it poses a risk to US national security, according to a statement published on Tuesday.

The company's presence "has been artificially restricted by unfounded allegations and suspicions based solely on misperceptions" about its relationship with the Chinese government, Huawei said in a filing with the US Federal Communications Commission.