Trading in the shares of ZTE Corp on both the mainland and in Hong Kong was suspended Monday following media reports that the US Commerce Department is set to impose export restrictions on the Chinese telecom equipment and smartphone maker for allegedly violating US export controls on Iran.

ZTE said on Sunday it's working closely with relevant US government departments on the matter.

The company "will continue with its normal operations while conducting comprehensive assessments and will be actively communicating with its stakeholders", according to its official statement.

"China is firmly opposed to the US' citing domestic laws to impose sanctions on Chinese enterprises," Foreign Ministry spokesman Hong Lei told a regular press conference on Monday. "We urge the US not to take such erroneous action and avoid damaging bilateral economic and trade cooperation and relations."

According to the Reuters report on Saturday, the restrictions will come into effect on Tuesday. Export licenses will be required for suppliers to ship any US-made products to ZTE, but the license applications will generally be denied, Reuters said.

The curbs apply to any firm worldwide that wants to provide US-made products to the Shenzhen-based company, the report said.

"The restrictions, if imposed, will affect ZTE's business considerably," said James Yan, research director at industry consultancy Counterpoint Technology Market Research.

"Production of ZTE's medium- and high-end smartphones relies on chips made by Qualcomm, which are advanced in technology, and it's hard to find any substitution right now. Although ZTE also makes chips itself, they cannot be applied on a large scale because they are not stable enough."

ZTE's smartphone business has expanded considerably in the US. According to data from market research firm IDC, ZTE took up 7.5 percent of the US smartphone market in the third quarter of 2015 - up 10 percent year-on-year, becoming the country's fourth-biggest smartphone maker following Apple, Samsung and LG.

"In most countries, governments would set up rules to regulate businesses, and foreign companies need to follow those rules in order to do business," said Jason Low, an analyst from market intelligence firm Canalys.

"Depending on the political environment, some rules can be challenging to comply. Any violation of such rules will impact the chances of doing business in that country or make things even harder for them in the future."

ZTE's share price added 3.51 percent to close at HK$14.16 in Hong Kong on Friday.

sally@chinadailyhk.com

Visitors try out smartphones at ZTE's stand during the Mobile World Congress in Barcelona in 2016. Due to ZTE's heavy reliance on US-made smartphone chips, the reported US export restrictions on the Chinese telecom equipment and smartphone maker would dent its smartphone business. Asia News Photo

(HK Edition 03/08/2016 page9)