Tighter Standards to Ensue for Chinese Firms After ZTE Woes

Following U.S. ban on supply sales to ZTE Corp., China's trade body urged tighter corporate compliance to minimize risks for Chinese firms.

    Apr 20, 2018 9:03 AM  PT
Tighter Standards to Ensue for Chinese Firms After ZTE Woes
author: Reuters   

Compliance is now a core risk for Chinese firms and the government must speed up the implementation of guidelines on corporate oversight following a U.S. ban on sales to ZTE Corp., said a state-backed Chinese trade body.

U.S. authorities this week banned American companies from sales to ZTE for seven years, saying the Chinese telecom company had broken a settlement agreement with repeated false statements, a move that threatened to cut off ZTE's supply chain.

The ZTE case represents a "milestone" and government leaders should urge the company to boost compliance oversight to ease "disastrous" consequences, the China Council for the Promotion of International Trade (CCPIT) said in a policy proposal.

"We can see compliance risk has become a core risk for Chinese firms that join international competition," the trade body said in the proposal dated April 18.

The authorities should introduce compliance training measures for government officials and business leaders, the body said.

China is set to implement a set of new national standards on compliance management systems on July 1, as the government steps up efforts to monitor companies' overseas operations and strengthen their compliance management to curb risk.

The trade body said the action against ZTE came "at a sensitive moment" in Sino-U.S. trade relations and so it cannot be ruled out that the United States is seeking to exert pressure on China through sanctions against ZTE.

"The most urgent priority is to ease the disastrous impact on ZTE caused by U.S. sanctions through efforts from multiple sides," the CCPIT said, noting that it would be "unrealistic" to ask the United States to remove the order.

Today, ZTE said the ban on the sale of parts and software to the company was unfair and threatens its survival. It said it would safeguard its interests through all legal means.

Curbing Chinese Investments

Intensifying the trade war, the U.S. Treasury is looking for ways to restrict sensitive Chinese investments in the United States by invoking an emergency powers law and bringing forward some security review reforms for corporate acquisitions, a senior Treasury official said on Thursday.

The efforts were being examined as part of the Trump administration's "Section 301" intellectual property remedies, which include China-specific investment restrictions, Assistant Secretary for International Markets and Investment, Heath Tarbert told an Institute of International Finance Forum.

The Treasury may bring forward parts of a bill to modernize security reviews by the Committee on Foreign Investment in the United States and use the International Emergency Economic Powers Act, Tarbert said a special Treasury office devoted to the China restrictions was considering such avenues.

Speaking in Beijing on Friday, Foreign Ministry spokeswoman Hua Chunying said the mooted move was another example of U.S. "hegemonic attitudes."

"On one hand, the U.S. wants us to open our markets further yet. On the other hand, it sets restrictions for Chinese trade and investment in the name of national security," Hua said.

The Treasury investment restrictions are aimed partly at pressuring China to lift requirements for foreign companies to form joint ventures with local firms that lead to technology transfers, a policy the administration deems unfair when the United States has no such restrictions on Chinese firms.