US, China nearing deal to remove US sales ban against ZTE: sources

Washington and Beijing are nearing a deal that would remove an existing U.S. order banning American companies from supplying Chinese telecommunications equipment maker ZTE Corp, two people briefed on the talks told Reuters.

The people, who declined to be identified because negotiations are confidential, said the deal could include China removing tariffs on imported U.S. agricultural products, as well as buying more American farm goods.

ZTE, hit by a seven-year ban in April which effectively crippled its operations, would gain a reprieve after the world’s two largest economies stepped back from the brink of a full-blown trade war following talks last week.

The company did not immediately reply to requests for comment.

White House advisors have said previously the ban against ZTE is being reexamined, and that the firm would still face “harsh” punishment, including enforced changes of management and at board level.

One person told Reuters there was a “handshake deal” on ZTE between U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He during talks in Washington last week that would remove the ban in exchange for the purchase of more U.S. agricultural products.

The second person said China may also eliminate tariffs on U.S. agriculture products it assessed in response to U.S. steel duties, and that ZTE could still be forced to replace its leadership, among other penalties.

Both sources said the deal, while not yet cemented, was likely to be finalised before or during a planned trip by U.S. Commerce Secretary Wilbur Ross to Beijing next week to help reach a broader trade pact to avert a trade war.

The company, publicly traded but whose largest shareholder is a Chinese state-owned enterprise, had been hit with penalties for breaking a 2017 agreement after it was caught illegally shipping U.S. goods to Iran and North Korea, in an investigation dating to the Obama administration.

Shares in Chinese telecommunications gear firms jumped on the news of the reprieve.

“HOSTAGE ZTE”

The sources said that while U.S. companies that sold products to ZTE would be relieved if a deal was reached, some in the U.S. government as well as the business community have said they opposed what they saw as a clear-cut legal case being used as a bargaining chip in the broader trade conflict.

American companies provide an estimated 25 percent to 30 percent of components in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.

Earlier in May, Trump signaled a stunning reversal on ZTE when he said on Twitter that he would help the company get “back into business, fast”, saying the ban would cost too many jobs in China.

Chinese officials had made the issue a key focus of their demands during negotiations in Beijing earlier in May, threatening to halt talks on broader bilateral trade disputes unless Washington agreed to ease the sanctions, according to sources at the time.

Chinese officials had viewed the U.S. punishment, which prompted the country’s second-largest maker of telecommunications equipment to suspend its main operations, as an attack that exposed China’s dependence on imports of key technologies.

China’s Ministry of Commerce did not respond to a faxed request for comment.

Many experts have said the case will push Beijing to double down on state support for strategic industries, an issue that remains at the heart of U.S.-China trade friction.

“The release of hostage ZTE will be the start of China and the U.S. to implement their trade agreements,” Hu Xijin, editor in chief of Chinese state-backed Global Times tabloid, said on his Twitter account after news of the deal was reported.

Washington and Beijing both claimed victory in trade talks on Monday as the world’s two largest economies stepped back from a global trade war and agreed to hold further talks to boost U.S. exports to China.

Over the weekend, the two sides pledged to keep talking about how China could import more energy and agricultural commodities from the United States so as to narrow the $335 billion annual U.S. goods and services trade deficit with China, although details and a firm timeline were thin.

Chinese Foreign Ministry spokesman Lu Kang told a regular news briefing that following the consensus reached by the two sides over the weekend, the United States would send a high-level delegation to China for detailed discussions - apparently referring to Ross’ visit - and urged people to wait and see the outcome.

Reporting by Michael Martina; Additional reporting by Se Young Lee and Ben Blanchard in BEIJING, and Adam Jourdan in SHANGHAI; Editing by Muralikumar Anantharaman and Christopher Cushing