China’s ZTE is trade war’s first ‘big casualty'? … Trump now takes on both China and Russia on alleged currency devaluation

How Chinese People View the US-China Trade War
What public opinion in China says about the trade frictions (and what that means for the United States).
By Mu Chunshan
April 16, 2018
Close observers can glean clues about Chinese government policy based on the degree of censorship on discussions of certain topics. For example, I have been following the North Korean issue closely. After the conclusion of the annual sessions of the National People’s Congress and Chinese People’s Political Consultative Conference on March 20, many articles related to North Korea on my WeChat public account were deleted by the network management department, even including those posted back in 2015. At that moment, I predicted that there would soon be some changes in Chinese policy toward North Korea because I criticized North Korea in many of my articles. It turned out that Kim Jong-un visited Beijing shortly after that … for more, go to 

China’s ZTE is trade war’s first ‘big casualty'? … Trump now takes on both China and Russia on alleged currency devaluation

KUALA LUMPUR (April 2018): For those who continue to opine that the ongoing US-China global trade war is just “shadow play” and won’t last, it is time for you to rethink.

The US has just upped the ante to hit China’s No.2 telecommunications gear-maker ZTE Corp.

The US government slapped a seven-year ban on ZTE Corp’s purchase of components from American companies for ignoring promises made in 2017 to resolve a sanctions dispute.

Below are two news reports by Bloomberg and Reuters on ZTE Corp’s woes.

And, if this is not enough to convince pro-US die-hards that the global trade war is set to be a protracted economic “pain” for Americans and the rest of the world, there’s also a Reuters report of President Donald Trump accusing Russia and China of devaluing their currencies.

It sure looks like the tariff-slapping Trump has raised the US-China trade war to a higher level and all eyes will be trained on China and Russia’s response.

I Love China-Malaysia Silk Road reproduces the three news reports for the convenience of our readers:

"US ban risks leaving China's rising tech star ZTE `half dead'
Tuesday, 17 Apr 2018
4:52 PM MYT

A foldable dual-screened ZTE Axon M smartphone stands on display on the ZTE Corp. stand during the opening day of the Mobile World Congress (MWC) in Barcelona, Spain, on Monday, Feb. 26, 2018. At the wireless industry's biggest conference, more than 100,000 people are set to see the latest smartphones, artificial intelligence devices and autonomous drones exhibited by roughly 2,300 companies. - Bloomberg

BEIJING: ZTE Corp. may have just gone from being a serious contender in the high-stakes world of next-generation networking to -- quite possibly -- a mobile industry washout.

China’s No. 2 telecommunications gear-maker was preparing to lead the country’s charge into the era of blazing fast fifth-generation wireless technology, along with local rival Huawei Technologies Co.

Instead, ZTE ran afoul of Washington for the second time in a year, inciting a moratorium on purchases from U.S. suppliers and suffering a devastating blow to its global ambitions.

It couldn’t have happened at a worse time. ZTE finds itself grappling with life-threatening sanctions once more just as major wireless carriers prepare to roll out 5G networks worldwide.

The U.S. government slapped a seven-year ban on its purchase of components from American companies for ignoring promises made in 2017 to resolve a sanctions dispute -- then lying about it.

The moratorium threatens a swathe of components needed to hawk gear to clients like China Mobile Ltd. and Europe’s Telefonica SA.

The Chinese firm relies on suppliers from Qualcomm Inc. and Micron Technology Inc. to Lumentum Holdings Inc. and Acacia Communications Inc. for optical components and chipsets in the equipment and smartphones it sells globally.

“Even if this doesn’t kill them, ZTE will be half-dead,” said Qian Kai, an analyst with brokerage CICC.

ZTE’s best hope may be for swift intervention to resolve the dispute from Beijing -- but that is a long shot given rising tensions between the U.S. and China.

President Donald Trump has threatened tariffs on $150 billion of Chinese imports in retaliation for alleged violations of intellectual property rights, while Beijing has vowed to retaliate on everything from American soybeans to planes.

Following the ZTE ban, China’s Ministry of Commerce on Tuesday said it would take necessary measures to protect the interests of its companies.

And ZTE said it was aware of the sanctions and evaluating their impact. Its shares were suspended from trade in Hong Kong and Shenzhen.

U.S.-made components account for only 10 to 15 percent of ZTE’s production costs, estimates Nomura analyst Joel Ying. “But these are essential parts that aren’t easily replaced,” he said. ZTE’s smartphones, for instance, rely on Qualcomm’s chips.

“At least for the next five to 10 years, ZTE can’t exist without American companies.”

Things seemed to be going well for ZTE. A year ago, it appeared to mollify a U.S. Commerce Department incensed over illegal exports to Iran by agreeing to pay a fine of up to $1.2 billion and punish wayward staff.

ZTE’s market value doubled over the past year, and consumer division chief Cheng Lixin spoke openly about breaking into Apple Inc.’s home turf.

And 5G spending looked like a tremendous boon: Chinese carriers alone are expected to spend 3.38 trillion yuan ($538 billion) on networks from 2018 to 2025, Jefferies estimates.

Then the U.S. issued its ban, charging that instead of punishing employees for violating sanctions ZTE had paid them full bonuses.

U.S. optical suppliers such as Acacia and Lumentum dived, while greater China partners also plummeted.

Analysts delivered a flurry of downgrades on concern ZTE will miss out on future business.

The 5G networks are supposed to usher in artificial intelligence, virtual reality and other bleeding-edge applications.

The ban “will likely cause ZTE to lose market share in both transmission and handsets,” Edison Lee, an analyst with Jefferies, wrote Tuesday.

“Expect another settlement with the U.S. to take 3 to 5 months. But customer confidence outside China will take longer to restore, especially potential 5G customers.”

The ban comes days after President Xi Jinping called on the U.S. to allow Chinese companies to buy more high-tech products from American companies -- whittling away at a ballooning trade surplus.

Now, a potential victim could be Qualcomm: Chinese antitrust regulators are reviewing its proposed NXP Semiconductors acquisition, CICC reminded investors.

ZTE could try sussing out alternatives in Japan, Korea or Taiwan for certain non-essential components. But it depends on the U.S. for top-notch processors such as high-speed analog-to-digital converters and communications chips, according to Roger Sheng, an analyst with Gartner.

CICC analysts Huang Leping and Wang Xinglin estimate ZTE harbors about one to two months of inventory, after which the U.S. sanctions will begin to bite.

But for now, ZTE’s woes represent a boon for larger rival Huawei, which remains unfettered by similar restrictions.

Together, they rank among the world’s largest providers of networking equipment and are active across Europe and Asia -- less so in the U.S., where the government remains suspicious of their alleged government connections. Both have dismissed such accusations.

CICC estimates ZTE commands about a 10 percent share of the global telecoms equipment market, and 30 percent of China.

Huawei could now take advantage of the uncertainty surrounding its competitor.

But the troubles for both companies may not be over. The U.S. Federal Communications Commission on Tuesday plans to consider a ban on networking equipment from companies including ZTE and Huawei.- Bloomberg/The Star Online

US ban on sales to China’s ZTE opens fresh front as tensions escalate


Tuesday, 17 Apr 2018

4:33 PM MYT

by steve stecklow, karen freifeld, and sijia jiang


The US action could be catastrophic for ZTE since American companies are estimated to provide 25% to 30% of the components used in ZTE's equipment, which includes smartphones and gear to build telecommunications networks. — Reuters

LONDON/NEW YORK/HONG KONG: The United States has banned American firms from selling parts to China's ZTE Corp for seven years, a potentially devastating move for the telecoms equipment maker and exacerbating tensions between the world's two largest economies.

The action, first reported by Reuters, comes at a time when the two countries have threatened each other with tens of billions of dollars in tariffs in recent weeks, fanning worries of a full blown trade war that threatens global supply chains as well as business investment plans.

The US Commerce Department imposed the ban after ZTE violated an agreement on punishing employees that was reached after it was caught illegally shipping US goods to Iran.

China responded swiftly, warning it is prepared to take action to protect the interests of Chinese firms and saying it hopes the United States can deal with the issue in accordance with the law.

The US action could be catastrophic for ZTE since American companies are estimated to provide 25% to 30% of the components used in ZTE's equipment, which includes smartphones and gear to build telecommunications networks.

“If the issue cannot be solved smoothly and immediately, we think that ZTE will face tremendous disaster and would be forced to scale back on its smartphone business, not only in the US, but also in other markets,” said Strategy Analytics analyst Woody Oh.

ZTE, whose Hong Kong and Shenzhen shares were suspended from trade on Tuesday, said in a statement it was assessing the implications of the US decision and was communicating with “relevant parties”.

The company has set up a crisis management group in response to the ban, said a ZTE source, declining to be identified as the information was confidential.

Worth some US$20bil (RM77.77bil) as of Monday's close, ZTE is China's second-largest telecom equipment maker after Huawei Technologies Co Ltd and the fourth biggest seller of smartphones in the United States. In 2017, it derived 59% of revenue from its network business and 32% from its consumer business.

“If the company is not able to resolve it, they may very well be put out of business by this. Many banks and companies even outside the US are not going to want to deal with them,” said Eric Hirschhorn, a former US undersecretary of commerce who was heavily involved in the case.

The Chinese company paid US$890mil (RM3.46bil) in fines and penalties after it pleaded guilty last year to conspiring to violate US sanctions by illegally shipping US goods to Iran.

As part of the agreement, Shenzhen-based ZTE promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them, senior US officials told Reuters.

But the Chinese company admitted in March that while it had fired the four senior employees, it had not disciplined or reduced bonuses to the 35 others.

Flashpoint sector

Saying ZTE was likely to miss shipments and lose orders, brokerage Jefferies downgraded its rating on the firm to 'underperform' from 'buy' and slashed its price target to HK$15.72 (RM7.79), nearly 40% below the firm's closing price prior to Tuesday's trading halt.

But Jefferies also said it expected ZTE would be able to settle with US authorities in three to five months.

Under terms of the ban, US companies cannot export prohibited goods, such as chip sets, directly to ZTE or via another country, beginning immediately.

As US concerns about safeguarding its chip technology and cutting its trade deficit grow, the tech sector has become a flashpoint in the broader battle about trade and economic policy, with US President Donald Trump accusing Chinese firms of intellectual property theft for years.

Washington has also deepened its scrutiny of Chinese investment in the US, with the Committee on Foreign Investment in the United States (CFIUS), blocking many proposed acquisitions of US assets by Chinese companies.

Piling further pressure on ZTE, Britain's main cybersecurity agency said on Monday it has written to organisations in the UK's telecommunications sector warning about using services or equipment from ZTE.

The ban on supplying ZTE comes two months after two Republican senators introduced legislation to block the US government from buying or leasing telecommunications equipment from ZTE or Huawei, citing concern the companies would use their access to spy on US officials.

“China does not play by our rules, and we must be vigilant against Chinese threats to both our economic security and national security,” said Republican Representative Robert Pittenger after the Commerce announcement. Pittenger is sponsoring legislation that would strengthen the US national security review process for foreign investments.

Shares of big US ZTE suppliers got caught in the crossfire of the US ban. Optical networking equipment maker Acacia Communications Inc, which gained 30% of its total 2017 revenue from ZTE, tumbled 35%, hitting a near two-year low. Acacia said it was suspending affected transactions and assessing the impact.

Shares of optical component companies including Lumentum Holdings Inc fell 8.9% and Finisar Corp dropped 4.0%. Oclaro Inc, which got 18% of its fiscal 2017 revenue from ZTE, lost 14.1%.

ZTE has sold handset devices to US mobile carriers AT&T Inc, T-Mobile US Inc and Sprint Corp. It has relied on US companies including Qualcomm Inc, Microsoft Corp and Intel Corp for some components. — Reuters

Trump says Russia, China playing 'currency devaluation game'

Tuesday, 17 Apr 2018
4:46 PM MYT

WASHINGTON/BEIJING (Reuters) - U.S. President Donald Trump accused Russia and China on Monday of devaluing their currencies while the United States raises interest rates, prompting China to accuse the United States of sending confusing messages.

"Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!" Trump said in a Twitter post.

Speaking in Beijing on Tuesday, Foreign Ministry spokeswoman Hua Chunying noted that what Trump said seemed to contradict the U.S. Treasury's report that refrained from naming any major trading partners as currency manipulators.

"So it seems like the information being released by the U.S. side is a bit chaotic," she told a daily news briefing.

"No matter what others say we will continue to steadily promote the reform of the renminbi exchange rate mechanism," she added, without elaborating, using the currency's formal name.

Trump's tweet referred to what he sees as unfair trading advantages: If a country's currency is artificially low, its exports are more competitive. Higher U.S. interest rates would generally increase the value of the dollar, making U.S. exports more expensive.

Since Trump took office in January 2017, the dollar has weakened substantially against most currencies, including the Chinese yuan and, until the United States imposed sanctions on Russia in the last few weeks, the rouble.

Against the yuan, the dollar has fallen by 8.6 percent since Jan. 20, 2017, while it has appreciated 4.5 percent against the rouble.

Until the United States announced sanctions on Russian oligarchs this month, however, the dollar had weakened by nearly 4 percent against the Russian currency.

That gain was entirely erased by a two-day drop of 8.4 percent in the rouble on April 9 and 10.

More widely, the U.S. dollar index, which measures the greenback’s value against a basket of major trading partner currencies, has declined by 11.2 percent since Trump became president.

The U.S. Treasury, in a semiannual report on Friday, again refrained from naming any major trading partners as currency manipulators. The report came as the Trump administration pursues potential tariffs, negotiations and other restrictions to try to cut a massive trade deficit with China.

The report did not mention Trump’s recent threats to impose billions of dollars worth of tariffs on Chinese goods over Beijing’s intellectual property practices, or pending Treasury restrictions on Chinese investment in the United States.

White House spokeswoman Sarah Sanders later told reporters aboard Air Force One on a trip by the president to Miami that China is on a U.S. Treasury Department watch list for being potentially labelled a currency manipulator.

(Reporting by Doina Chiacu in Washington, Dan Burns in New York and James Oliphant aboard Air Force One; Writing by Eric Walsh; Editing by Chizu Nomiyama, Frances Kerry and Jonathan Oatis) - The Star Online

Chinese President Xi JInping speaks at the Boao Forum. Photo: Bloomberg
A trade bust-up promises only losers: American consumers, Trump himself and China’s export-oriented economy. But Xi’s Boao Forum speech offers hope of a mutually beneficial way out
15 APR 2018
The goal of a war, be it hot or cold, about trade, territory or anything else, is destruction. And destruction means not only the loss of lives, but the destruction of any assets tangible or intangible, as can be seen in the simmering trade war between the United States and China. The spectre of a full-blown trade war between the world’s two largest economies threatens the worst disruption to, and destruction of, the global economy in modern times. Basic economics suggests any such conflict will incur losses all around. Nevertheless, fears that we are indeed headed for such a scenario are growing, fuelled by continuing tit-for-tat threats between the world’s largest traders. Washington and Beijing have each announced US$50 billion worth of punitive tariffs against each other and the US has raised the prospect of a further tariff of US$100 billion on goods … for more, go to
In theory, Beijing holds a lot of economic firepower that could do great damage to US financial interests, but the dangers of blowback are so great that China would be wise to keep its powder dry
16 APR 2018
As the war of words over US-China trade relations has threatened to escalate into open economic conflict, commentators on both sides have argued that China’s most effective defence against US trade and investment restrictions may not lie in imposing countervailing trade tariffs of its own. Instead, they have suggested that China could deploy its “nuclear option”, either by dumping its vast holdings of US government debt in retaliation or by devaluing the yuan. Both threats sound suitably chilling. But there are problems: the first wouldn’t work and the second would harm China at least as much as the US … for more, go to