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China’s ZTE will live, thanks to a deal with the U.S. government

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China's ZTE said it ceased major operations last month due to the ban

Reuters says that the deal will include ZTE paying a $1 billion fine for violating United States sanctions, as well as putting additional funds in escrow in case of any future violations. In addition, ZTE will make changes to management, and put a further $400 million in escrow to cover possible future fines.

Resolution of the ZTE case may clear the way for progress in those trade talks.

ZTE ceased major operations in April, and a seven-year ban was imposed on the company for breaking a 2017 agreement by illegally shipping goods to Iran and North Korea.

ZTE supplier Oclaro Inc OCLR.O rose nearly 1 per cent while Acacia Communications Inc ACIA.O was down 1.5 per cent. Oclaro got 18 per cent of its business from ZTE a year ago, while 30 per cent of Acacia's total revenue was from ZTE.

ZTE and Huawei have been linked by USA intelligence agencies to electronic spying by Beijing, the Free Beacon reports.

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Following the ban on selling USA -made hardware (and potentially software) to ZTE earlier this year, it appears that the company may have reached a compromise with the US government, according to Reuters. FBI Director Chris Wray said the proliferation of ZTE phones in the USA provides "the capacity to maliciously modify or steal information".

The US government has agreed a deal with Chinese smartphone and telecommunications network equipment manufacturer ZTE that will allow it to continue to trade with American firms. "ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation", said Secretary Ross at the time. For the U.S.to shut down one of China's largest companies is a very dramatic type of move.

"By letting ZTE off the hook, the president who roared like a lion is governing like a lamb when it comes to China", US Senate Democratic leader Chuck Schumer said in a statement in response to Reuters' report of the preliminary agreement. ZTE will have to welcome a team of "special compliance coordinators" for a period of 10 years to ensure that it is adhering to the terms of the new agreement. A big part of its business is in smartphones, and it relies on US companies, such as Qualcomm, for the parts inside those phones.

However, last month, Trump tweeted that "too many jobs in China" were being lost because of the USA action and that he had instructed the Commerce Department to find a solution.

The announcement boosted shares in United States component makers including Acacia Communications, Oclaro and Lumentum Holdings.

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