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Woes loom for China’s ZTE

AFP WASHINGTON (AFP-Jiji) — With a major Chinese smartphone maker on the rocks following U.S. sanctions, the trade spat between Washington and Beijing appears to be taking a turn for the worse for tech firms in the two global economic powerhouses.

Chinese telecom giant ZTE said in the past week its major operations had “ceased” following last month’s U.S. ban on American sales of critical technology to the company, raising the possibility of its collapse.

ZTE depended on U.S. chips and other components, and is unable to continue operating without key supplies.

U.S. officials imposed the ban last month, saying ZTE failed to abide by an agreement to stop selling to Iran and North Korea.

While the ZTE case has a specific legal basis, the ban comes as U.S.-China trade relations have hit a rough patch, amid an intense rivalry for supremacy in key technology fields such as artificial intelligence and 5G, the next-generation wireless systems in the works.

The U.S. administration has barred military and government employees from using smartphones from ZTE and fellow Chinese maker Huawei.

U.S. President Donald Trump earlier this year blocked a deal that would have allowed a Singapore-based firm to acquire U.S. chipmaker Qualcomm, claiming it would enable Huawei to set the pace of the global rollout of 5G technology.

The trade troubles threaten a technology sector that is increasingly intertwined with major players in the United States and China.

“It’s going to disrupt procurement, supply lines, it will affect a lot of companies in various ways,” said one technology industry executive who asked to remain anonymous. “Nobody’s panicking yet but people are nervous and watching.”

James Lewis, a technology specialist with the Center for Strategic and International Studies, said the tensions are likely to prompt China to step up efforts to disconnect from the U.S. tech sector.

“The biggest impact will be to accelerate China’s desire to have non-American sources of supply,” Lewis said.

“They don’t want to be held hostage” to U.S. tech firms.

Lewis said the technology trade tensions stem from genuine concerns in Washington that critical 5G and related telecom technologies will be dominated by China-based Huawei.

“Huawei is trying to become the telecom company for the world,” Lewis said.

“They are the strongest across the board in 5G ... This is a place where China’s model of capital works better.”

Lewis said that with companies like Huawei and ZTE facing obstacles in the United States, “American companies see the opening to the China market closing more rapidly than they might have thought.”

In the near-term, Lewis said, Chinese firms still depend on some elements of U.S. technology, but they are moving to become more autonomous.

Still, he said Washington has some justified national security concerns about preventing Huawei from becoming too dominant.

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