China Welcomes Trump’s Help on ZTE as Trade Talks Loom

Posted May 14, 2018 11:40 a.m. EDT

As the United States and China spar over trade, both sides are using a beleaguered Chinese telecom company as a pawn in a geopolitical game, a strategy that could yield concessions in talks this week in Washington.

President Donald Trump’s offer to throw a lifeline to the company, ZTE, found a receptive audience in Beijing on Monday, a development that could help him strike deals on thorny issues like trade and North Korea. Liu He, a Chinese vice premier, was due in Washington for negotiations beginning Tuesday aimed at resolving the simmering trade conflict between the two countries. It was not clear whether the offer and the visit were connected, but Chinese officials welcomed Trump’s tweet on Sunday saying he would look for ways to help ZTE.

“We very much appreciate the positive attitude of the U.S. side to the issue of the ZTE Corp., and are maintaining close communication with the U.S. on the implementation of specific details,” Lu Kang, a spokesman for the Chinese Ministry of Foreign Affairs, said at a daily briefing Monday afternoon.

Hu Xijin, chief editor of Global Times, a newspaper owned by the Chinese Communist Party, used his widely followed account on the social media service Weibo to add, “No matter if the previous sanction was a card in Washington’s concerted move for a trade war on China, the newest decision is a good one.”

The U.S. government threatened the continued existence of ZTE as a business last month when the Commerce Department ordered a seven-year halt in U.S. shipments of computer microchips and software that lie at the heart of most of ZTE’s gear.

The Commerce Department’s Bureau of Industry and Security accused ZTE of violating U.S. sanctions by selling to Iran and North Korea and then covering up the exports and rewarding the executives involved. ZTE has acknowledged it violated sanctions, but blamed the actions on poor internal controls rather than a deliberate defiance of the U.S. legal system.

ZTE, a 75,000-employee business that makes smartphones and cellphone tower equipment, began shutting down operations last week after it was unable to find alternative suppliers.

Trump did not say on Sunday what, if anything, the United States might get in return for its offer to help ZTE. But the Chinese reaction underscored the importance that Beijing has placed on ZTE’s survival, and the company’s travails have encapsulated the worries among Chinese leaders that their country depends too much on U.S. technology.

In any case, China has much to offer the United States in exchange for a reprieve for ZTE.

Experts said, for example, that China could eliminate its new restrictions on imports of grain, meat, wine and other agricultural goods, which it implemented to retaliate against steel and aluminum tariffs that Trump imposed in March. Trump’s call for a reconsideration of the penalties on ZTE could also smooth the way for Chinese regulators to allow major deals by U.S. companies to go through, like the plan by the chipmaker Qualcomm to buy NXP Semiconductors of the Netherlands.

While anti-monopoly reviews are not officially linked to the other issues, Qualcomm has been the main U.S. supplier of technology to ZTE.

Trump’s move could also help calm tensions with Beijing before his summit meeting next month in Singapore with North Korean leader Kim Jong Un — Xi has considerable power to help or disrupt a deal, given North Korea’s economic dependence on China.

Still, defending ZTE in a dispute involving Chinese exports to North Korea has been politically awkward for Beijing. Chinese officials believe that their country has been helpful in enforcing international sanctions against North Korea, said one senior Chinese government adviser who spoke on condition of anonymity because of political sensitives.

In the first days after the ZTE penalty was announced last month, Beijing did not try to defend the company’s ties to Iran or North Korea. ZTE was also castigated in social media by the general public for having spent so little on research and development that it was completely dependent on the United States.

Public attitudes appeared to shift in recent days, though, as ZTE shut down most of its operations, idling workers.

“I want to reiterate, Global Times and I stand firmly on the side of ZTE, no matter in the past or currently,” Hu told his 4.8 million Weibo followers on Monday. If Trump strikes deals on ZTE and agricultural trade, it would nevertheless leave unresolved the biggest issue between the two countries: Trump’s threat to impose tariffs on up to $150 billion of Chinese goods. The White House has said it wants China to put limits on its $300 billion industrial policy to build up advanced manufacturing industries, and to narrow its bilateral trade surplus with the United States.

But ZTE makes for a complicated bargaining tool.

The Bureau of Industry and Security, the agency that enforces U.S. export controls, usually operates far from trade disputes and politics. Three experts on export controls said Monday that it was unusual for a president to second-guess decisions made by the bureau, which usually functions with little coordination with other agencies and with virtually no involvement by political leaders.

“BIS did exactly what it was supposed to do under the circumstances — they are an enforcement agency,” said William Reinsch, who ran the bureau as undersecretary of commerce for export administration under former President Bill Clinton and is now a senior adviser at the Center for Strategic and International Studies in Washington.

Permanent bans have also mostly fallen on very small companies, not multinationals quite as big and as dependent on U.S. components as ZTE. The Chinese company is the dominant provider of cellphone tower systems in Africa and has manufactured handsets distributed by various telecommunications service providers around the world, including AT&T.

Chinese experts, however, said the dueling messages from Trump — tough talk on trade, then a surprise offer to help with ZTE — characterized many of his interactions with China.

“Some consolation and even a hug after imposing great pressure has been characteristic of Trump’s approach to dealing with China,” said Shi Yinhong, a professor at Renmin University.

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