China said it would cut the import duty on passenger cars just as Washington and Beijing neared a deal to save Chinese telecoms group ZTE from US sanctions, as the rival superpowers traded concessions to avoid a trade war.
China’s State Council said on Tuesday that the tariffs on cars would be cut from 25 per cent to 15 per cent on July 1, according to the official Xinhua news service. The duty is still high by international standards. US negotiators had been seeking a reduction to the US level of 2.5 per cent.
A person briefed on the potential deal over ZTE said the US Department of Commerce would allow the Chinese equipment maker to resume sourcing of American components in return for wholesale senior management changes and payment of another large fine.
The White House’s attempt to rescue ZTE, just weeks after US sanctions nearly destroyed the company, comes as part of a broader move by the Trump administration to de-escalate trade tensions with Beijing after threatening tariffs on $150 billion (€127 billion) in Chinese imports.
But the abrupt move towards detente has angered hardliners in the US, with Republican senator Marco Rubio tweeting on Tuesday: “If this is true, then administration has surrendered to #China on #ZTE Making changes to their board & a fine won’t stop them from spying & stealing from us. But this is too important to be over. We will begin working on vetoproof congressional action.”
Even within the Trump administration, several officials have assailed moderates for seeking a quick deal to cut the US trade deficit at the expense of yielding too much ground to Beijing over intellectual property and strategic technology.
Last year, the Chinese telecoms group agreed to pay $1.2bn to settle US charges related to its business operations in Iran and North Korea, a case brought by the Obama administration. It was later accused of violating the terms of the deal by the Trump administration, which imposed sanctions that crippled the company. ZTE did not immediately respond to a request for comment.
Chinese trade experts see the about-face as a reflection of the importance of ZTE as a key customer for Qualcomm, the US chip manufacturer. China recently approved a Qualcomm joint venture with state-owned Datang Telecom, as part of commitments to open market access since the Trump administration hardened its trade rhetoric.
Overall, China spends an estimated $150 billionn a year on tech-related parts and goods from US companies, said Edison Lee, analyst at Jefferies.
The potential settlement is the latest in a series of corporate developments for ZTE, which declared on May 10 that it would have to go out of business following a suspension of share trading the month before, when Washington imposed a seven-year moratorium on it sourcing US components.
The White House made a U-turn soon after, with Mr Trump tweeting on May 14 that he would work with Chinese President Xi Jinping to grant the company a reprieve.
Chinese officials and analysts do not accept the Trump administration’s argument that the sourcing ban, imposed in April by Wilbur Ross, the US commerce secretary, was a “legal enforcement matter” unrelated to the trade negotiations. “ZTE did not deserve the death penalty for its mistakes,” said Lu Xiang at the Chinese Academy of Social Sciences. “It was used as a tool in the trade dispute.”
Yesterday, US Treasury secretary Steven Mnuchin told CNBC that Mr Xi had requested that Mr Trump support ZTE — a request he said was no different than an American president lobbying on behalf of US companies. ZTE’s largest shareholder is a state-owned group linked to a contractor to China’s space and missile programmes.
“ZTE has long been seen as a national champion of Chinese telecoms,” said Duncan Clark, chairman of BDA China, a tech consultancy. “It’s a major employer. They weren’t going to roll over and let it die.”
The company, which has nearly two-fifths of its staff in research and development, submitted more than 4,000 patents in 2016, trumping rival Huawei and all other companies globally. “There’s a lot of intellectual property in this company,” Mr Lee said.
During a visit last week to ZTE’s headquarters in a Shenzhen high-tech office park, employees milled about for hours while insisting it was business as usual inside. Managerial staff, software engineers, and higher level technical support personnel have remained employed, said ZTE employees, ostensibly to service existing contracts.
Foot traffic has been nearly halved in the area, said local restaurants, who rely on ZTE employees for business.
The Shenzhen production facilities, which manufacture everything from ZTE’s trademark routers to mobile phone parts, closed in April and lower-level workers were let go, according to ZTE employees.
– Copyright The Financial Times Limited 2018