BEIJING — The United States will place export restrictions on Chinese telecom giant ZTE for allegedly selling U.S. technology to Iranprompting an angry response from the Chinese government and causing trading in the company’s shares to be suspended in Hong Kong on Monday.
The move, due to take effect Tuesday, is likely to further strain relations between Washington and Beijing in the information technology sphere and could cause China to retaliate against U.S. companies, experts said.
The Commerce Department began investigating ZTE in 2012 after Reuters reported that the company had signed contracts to ship millions of dollars in hardware and software from leading U.S. tech firms to Iran’s largest telecom carrier, the Telecommunication Company of Iran, and an associated firm.
Now, ZTE’s suppliers — anywhere in the world — will need to apply for an export license before selling U.S. equipment or parts to China’s largest telecom equipment company. If they don’t, they could face punishment.
The U.S. Commerce Department said ZTE planned to use a series of shell companies to “illicitly reexport controlled items to Iran in violation of U.S. export control laws.” It said ZTE acted “contrary to the national security or foreign policy interests of the United States.”
China’s Foreign Ministry protested.
“The Chinese side is firmly opposed to the United States using domestic laws to place sanctions on Chinese companies,” ministry spokesman Hong Lei said Monday at a news conference. “The Chinese side urges the U.S. side to call off the wrong action lest it should jeopardize economic cooperation and relationship between China and the United States.”
Samm Sacks, senior Asia analyst at the Eurasia Group, said the decision was a blow to Beijing’s ambitions to make Chinese companies global leaders in next-
generation IT, putting a “red flag” on the company at a time when it is the fourth-largest provider of smartphones to the U.S. market and expanding in Europe.
In 2012, ZTE responded to the initial Reuters report by announcing that it would “curtail” its business with Iran, not seek new customers and limit business with existing customers.
The company issued a statement late Sunday saying it was “highly concerned” about the latest reports, insisting that it had been cooperating with the U.S. investigation since 2012 and that it “is committed to fully address and resolve any concerns.”
Sacks said the move signaled that the Obama administration was not willing to back down over long-standing concerns about the issue, even at the expense of friction in the relationship with China.
Beijing is unlikely to retaliate immediately, she said, with officials focused on ensuring a smooth visit by President Xi Jinping for the upcoming Nuclear Security Summit in Washington.
But in the medium term, it is likely to counter by tightening market access or regulatory control over U.S. companies in China.
It has been a tough couple of years for American IT companies in China. They have faced significant government mistrust in the aftermath of Edward Snowden’s revelations about a massive U.S. cyberespionage program, and there was anger here after the U.S. government accused China of commercial cyberespionage.