ZTE shares rise in wake of US finding

Workers assemble smartphones at a ZTE Corp plant in Xi'an, Shaanxi province. YUAN JINGZHI / FOR CHINA DAILY

Chinese telecom equipment company ZTE Corp's shares surged on Tuesday after it indicated that the results of the US government's trade-sanction violation investigation would not be as bad as had been expected.

The Shenzhen-based company said it was in discussions with the US authorities on a settlement, which is likely to "include but is not limited to fines and other related obligations under US law".

The announcement, which analysts said was better than investors' expectations, sent ZTE stocks in Hong Kong up 5.42 percent to HK$12.84 ($1.66) on Tuesday. Shenzhen-traded shares of ZTE closed at 15.51 yuan ($2.25), a rise of 1.57 percent.

ZTE is the second-largest telecom equipment maker in China, after Huawei Technologies Co Ltd.

In March, the US Commerce Department said ZTE resold prohibited products to Iran, violating US laws, and threatened to ban ZTE's US suppliers from selling components to the Chinese company.

Xiang Ligang, a telecom industry expert and CEO of the website cctime.com, said the statement was a positive signal and greatly eased investors' concerns.

"It won't have big negative effect on ZTE's business if the case can be resolved after paying fines," Xiang said.

Xiang said the fine may be at dozens of million dollars, based on previous similar cases, and "this is a relatively small sum for ZTE".

In the third quarter of 2016, ZTE posted 23.8 billion yuan in revenue, up 5.23 percent from a year earlier.

In December, ZTE said it would spend up to $101.3 million to purchase a 48 percent stake in Netas Telekomunikasyon AS, a leading Turkish telecom company, as it ramps up efforts to expand overseas presence.

Fu Liang, an independent analyst who has been following China's telecom sector for two decades, said investors initially expected a very severe penalty from the US government, although ZTE said its operations were in line with the laws in every local market.

"The case highlights that Chinese companies need to step up efforts in the research and development of core components such as chips," Fu said.