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ZTE replaces three senior executives

Reporter: Ying Junyi 丨 CCTV.com

04-07-2016 00:18 BJT

Chinese telecommunications-equipment maker ZTE has replaced three of its most senior executives, including its chief executive. Sources say the changes came under pressure from the U.S. Commerce Department, which now has temporarily lifted sanctions levied on the company following allegations it broke a US trade embargo.

ZTE said Tuesday night that it had named current Chief Technology Officer Zhao Xianming to be new chairman of the board replacing the founder of the company. Zhao will also become CEO in a combination of moves in which a total of three senior executives have left the board. The three who stepped down had signed papers released by the US Commerce department, which set up shell companies to trade with Iran in violation of US sanctions.

Wang Yanhui has been in the telecommunication sector in China for more than 2 decades. He says ZTE reshuffles management every three years, and that the changes are in line with that, but that this high-level re-shuffle is directly related to the U.S. export restrictions placed on ZTE.

"After ZTE's founder Hou Weigui's retirement, Shi Lirong was chosen to be the successor. But because of the US sanction on ZTE, Shi Lirong along with the other two, had to step down. This is the price ZTE has to pay. Appointing Zhao Xianming as the CEO was, I think, part of the settlement between ZTE and the US Commerce Department," Wang said.

Sources inside ZTE say that's just what happened. Under the measures announced by the US Commerce Department at the beginning of March, US manufacturers including Qualcomm, Intel and Broadcomm were banned from selling components to ZTE. In addition, foreign manufacturers were prohibited from selling products containing a significant amount of U.S.-made parts to ZTE. Wang says that if the sanctions had been allowed to stay in place longer, it would have been disastrous for the company.

"For example, ZTE's moblie phones would have been unable to use not only Qualcomm chips but also chips from Taiwan's MediaTek and S.Korea's Samsung. The sanctions would have impacted ZTE's core businesses, such as wireless devices, data storage and operating systems. If the US had really implemented these sanctions on ZTE, the company would have been dead in half a year," Wang said.

Sources at ZTE's management level confirmed that US sanctions would have been a disaster for ZTE, because they would have cut the company's global supply chain and created a substantial parts shortage. Announcement of the US restrictions led to the postponement of ZTE's release of its 2015 earnings results, and the suspension of its listed shares.

The Chinese government protested the US sanctions, and ZTE sent a special team of executives to Washington to meet with US officials just two days after the sanctions were announced. As a result the US has now granted temporary licenses for exports to ZTE, to run until June 30. And now that ZTE's senior executives have been replaced, it's believed the export licenses can be extended and the company's business returned to normal.

If that happens, ZTE would resume its place as supplier to over 30% of the global market for wireless communications equipment. Before the sanctions incident occurred, ZTE equipment had entered 80% of the world's markets which have invested in 4G networks.

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