INSUBCONTINENT EXCLUSIVE:
It not every day you see a company that employs 75,000 and once had a market cap of $20 billion facing instant doom on an hour-by-hour
basis.
But that the situation that Chinese telecom firm ZTE finds itself in right now
Following revelations that the company sold equipment with U.S
technology to Iran and North Korea in violation of U.S
sanctions, President Trump decided to kill the company
Then he decided not to kill it
Now, this week, Congress is deciding whether to kill it or not, much to the chagrin of the White House, who thought the matter closed
Senators like Tom Cotton (R-AK) this week have said they believe that the &Death penalty is right penalty for ZTE behavior.&
Before we go
further, let step back for a moment and just muse about what is happening here
Congress and the White House are politicking back and forth over the fate of one of China crown jewel tech companies, with tens of billions
of dollars and tens of thousands of jobs at stake
If that isn&t the definition of hegemonic power, I don&t know what is
And remember that both branches of government are run nominally by the same party.
China has been leveraging its long-awaited approval of
Qualcomm acquisition of NXP Semiconductors to push the Trump administration to concede to ZTE survival
The Trump administration has gotten that message loudly and clearly, which is among many reasons why it ended up selecting a $1 billion fine
as the penalty and trying to move on.
Congress, though, knows no such logic
It can&t handle the sort of multistep logic that connects Qualcomm success on NXP to U.S
dominance in 5G to ZTE survival
That three steps, and that probably three steps too much for the collective wisdom of Congress to comprehend.
ZTE execution has now taken on
its own political momentum
Worse for ZTE, the momentum is bipartisan, with perhaps even more aggression on the Democratic side than the Republican one
Senator Chris Van Hollen (D-MD) was quoted by The Hill saying that saving ZTE &… would send a bad signal to anybody around the world
watching that you can violate U.S
sanctions law with impunity and we shouldn&t be doing that.&
For Democrats, hitting Trump hard on trade, National Security and China is a
very powerful political weapon in an election year
Since the administration has come to an agreement with ZTE, its position is now fixed, allowing the senators free rein to be tougher than
Trump on the issue.
Ironically — and to be clear on this view, I am not getting this from sources, but rather pointing out a unique
strategy vector here — it might well be Qualcomm that uses its DC policy shop to try to save ZTE
Those lobbyists protected Qualcomm from a takeover by Broadcom earlier this year, and it could try to make the case to Congress that it will
be irreparably damaged if legislators don&t back off their threats.
The irony of course is that the renewed trade jingoism in Congress is a
function of Qualcomm fight against nominally Singapore-based Broadcom
Qualcomm got the deal blocked on national security grounds, and now has to face those same national security concerns hitting it on the
closure of its most important corporate transaction
That classic short-term political thinking earlier this year will make moving forward for the company very difficult here.
ZTE cards are few
outside of Beijing direct interventions
First, it is applying for loans that might reach as much as $10.7 billion from two banks in China,according to the Financial Times
It also adding a slate of new directors to its board, to match its agreement with the Trump administration
That smart, since the more the deal seems to accomplish, the less impetus Congress has to act to kill the company.
ZTE has other cards it
One would be to push for a massive expansion into the U.S
That, of course, contradicts its past history as well as its telco brother, Huawei, which has been mostly barred from entering the U.S
Nonetheless, given the priorities of this administration, I am surprised there haven&t been more attempts by ZTE to move jobs and
soil as a peace offering, while gaining the vital support of at least some senators who see jobs springing up in their backyards.
Another
option for ZTE would be to increase its corporate transparency
Again, like Huawei, ZTE leadership remains relatively opaque, with Communist Party links that have never been fully explained
ZTE is a valuable asset for the Chinese government and economy, and there is a way of potentially blunting some of the momentum in Congress
if it was willing to come forth with more info and commit to future work on its transparency.
I don&t expect ZTE to use any of these cards
I am not even sure the Chinese government wants to prevent the company death
An execution ordered by Congress is about the clearest sign the CCP leadership could send to its population that economic development must
Li Yuan in The New York Times called this China Sputnik Moment, and I think that is apt
If Congress kills ZTE, it won&t be the death of a major Chinese company, but rather the death of open economies and the birth of a renewed
nationalism around trade.
