What's going on?
On Friday, the US Department of Commerce said Chinese telecoms company ZTE would be allowed to do business with US suppliers again – helping its stock jump.
What does this mean?
In April, ZTE was banned for violating sanctions on Iran and North Korea. The company was accused of shipping goods from the US to the two countries, which it pleaded guilty to in 2017 – and according to the commerce department, ZTE subsequently lied about disciplining the employees involved. ZTE relies on US components to make its products like smartphones, so it was effectively dead in the water after the ban.
Now, ZTE can play ball with the US again after flagellating around for the last few months – good news for the company, despite the $1 billion dollar fine it’s had to pay and the $400 million deposit it’s had to put into an escrow account in the US (for 10 years, which the US government can take if it breaks the rules again) as part of the settlement.
Why should I care?
For markets: A win-win for investors in ZTE and its US suppliers.
ZTE’s Hong-Kong listed stock rose by 24% on Thursday as initial news broke that both sides were nearing an agreement. Its Chinese-listed stock rose too, by 10% (the most a Chinese stock is allowed to move in one day). On Friday, stocks of US companies that ZTE has done business with also rose – ZTE spent over $2.3 billion with US companies in 2017, so investors in these companies are likely hoping that ZTE’ll be a return customer now.
The bigger picture: Turbulent times between the world’s biggest economies.
American microchip maker Micron Technology was recently banned from selling some of its products in China, and Chinese telecoms company and smartphone maker Huawei has been threatened with a ban on US companies buying from it, not to mention all the tariffs. Maybe the US letting ZTE back in is the first breath of some calm air between the two countries.