U.S. Secretary of Commerce Wilbur Ross confirmed to CNBC that the U.S. government has reached an agreement with ZTE to lift the crippling supply ban imposed on April 16. ZTE will have to pay a $1 billion penalty, change its board and executive team within 30 days, and accept to embed a “compliance team” from the U.S. government within its organization.
“We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people but the people will report to the new chairman,” Ross said.
ZTE will also need to place $400 million in escrow to cover any potential future regulation violations. “This should serve as a very good deterrent not only for them but for other potential bad actors,” Ross said.
Reuters reported earlier this week that the two sides were close to reaching a deal that would allow ZTE to resume business as usual. The company shut down manufacturing and other major operations on May 10, idling most of its 75,000-strong workforce.
According to reports out of China, ZTE has been making plans to resume manufacturing within hours from the official lift of the U.S. embargo, which deprived it of crucial U.S.-made components including SoCs, radio chips, and software.
While ZTE is a relatively small player in the smartphone market, it’s extremely important to China’s efforts to attain technological leadership within the next decade. The Chinese authorities’ involvement, on the backdrop of ongoing trade negotiations with the U.S., have saved ZTE from almost-certain death.
It’s not clear yet when the ban will be officially lifted. We’ll keep you posted.