The ZTE Debacle Has Exposed A U.S.-China Rift — Here’s What It Means For Global Business

Forbes, Asia, May 22, 2018, Alex Capri, Contributor

Washington and Beijing recently concluded days of fraught negotiations and have announced that there will be no “trade war.” This is no surprise. The real news, however, is what the negotiators failed to mention. Conspicuously absent from official news briefings were any references to ZTE, China’s largest manufacturer of telecommunications devices—which, as it turns out,  represents a microcosm of the bigger challenges confronting U.S.-China relations.

ZTE a symbol of China Inc.

ZTE has benefited hugely from China’s economic policies. As a tech company, ZTE has been on the receiving end of generous funding via Beijing’s “Made in China 2025” master plan, which has become a major stumbling block for U.S.-Sino relations. The plan, which is dedicated to subsidizing Chinese innovation in ten key technology sectors, including AI, robotics and telecommunications, has incited a backlash within the U.S. political establishment and resulted in a flurry of countermeasures, including U.S. sanctions, blocked acquisitions and export controls.

The ZTE story is now well documented. So far, the company has paid U.S. governmental agencies $890 million dollars in penalties—out of a $1.19 billion assessment—for violating U.S. sanctions and export control laws. Recently, after ZTE failed to meet the conditions of its negotiated settlement, the U.S. Bureau of Industry and Security (“BIS”) announced a seven-year ban on the sale of U.S. parts and components to ZTE.

ZTE is now on the verge of collapse. But Liu He, the lead Chinese negotiator and chief economic adviser to president Xi Jinping, appears to have left Washington with no resolution to the debacle.

Lessons for global business

There are both general and very specific lessons to be learned from ZTE’s predicament.

In general, U.S. sanctions are an economic weapon of mass destruction: they detonate suddenly and spread collateral damage quickly to the farthest reaches of a business ecosystem, impacting suppliers and manufacturers, logistics companies and many other third parties. Given the complexity and interdependence of global value chains in the tech sector, this makes regulatory compliance a matter of life or death.

More specifically, the ZTE case highlights three important issues for global business: First, the importance of corporate good governance; second, the need for end-to-end supply chain traceability, and, third, an awareness that global supply chains are being re-shaped by divergent U.S.-China business practices and policies.

The importance of corporate governance

ZTE’s predicament can be tied to a massive failure of good governance and ethics. Chinese firms are notoriously opaque, which promotes a culture of secrecy, distrust and managerial uncertainty. After negotiating with the U.S. government to reinstate its business license in 2017, ZTE agreed to discipline 39 employees that had actively engaged in the destruction of evidence and the obstruction of justice. Instead, it was learned that none of these employees were disciplined and some were actually rewarded with bonuses. The ZTE sales ban swiftly followed.

If Chinese firms are to become bona fide global players, they will need to adopt better governance practices.

Supply chain traceability

U.S. law requires that if any foreign made item—fabricated by any foreign company—uses more than 10% (by value) U.S. “controlled items” or technology, the entire product is subject to U.S. laws. That means that a product that is 90% Chinese origin still needs to be traced all the way to its end user, and can’t be sold to any “denied parties” if there is U.S. technology inside. The problem is that there are thousands of denied parties on export control lists, and new names are added every day.

Managing this process is a daily nightmare. Imagine trying to track hundreds of thousands of sub-components and partially assembled gadgets as they are move around a global supply chain and end up in finished products around the world.

Technology will eventually solve this problem. The next generation of smart digital tracking devices will rely on the internet of things (IoT) and the cloud will enable tracking of even the tiniest components—including where they originate, who had contact with them and where they end up.

Re-organization of global value chains

In order to ring-fence business operations that are subject to export controls, new ecosystems will emerge that include firms that have been vetted for transparency, traceability and good internal controls. According to Greg Nichols, a principal at Tradewin Asia–a global supply chain advisory firm–many of the world’s top multinationals are reevaluating how to move critical operations into safer environments. “Multinationals are actively looking for ways to reduce over-exposure to high-risk business environments with poorly enforced corporate governance standards.” said Nichols.

Global supply chains that have taken decades to evolve are now fragmenting and re-organizing around new clusters of firms, increasing the likelihood of some Chinese companies being left out in the cold or forced to form their own ecosystems.


Alex Capri is a senior fellow at the National University of Singapore, where he teaches in the business school and in the Lee Kuan Yew School of Public Policy.

Thomas D’Innocenzi is an Independent Consultant located in Asia and                       the United States.  Contact me today to increase your global market.

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China June trade data buoyed by robust demand

BEIJING — China’s overseas shipments rose from a year earlier as global demand held up and trade tensions with the US were kept in check amid ongoing talks. At home, resilient demand led to a rise in imports.

Key Points

Exports rose 11.3% in June in dollar terms, the customs administration said Thursday, more than the estimate of 8.9% in a Bloomberg survey

Imports increased 17.2% in dollar terms, leaving a trade surplus of $42.8 billion

Demand for Chinese products has proven resilient this year as global demand holds up. Tensions with the country’s largest trading partner also appear to be easing after 100-day trade talks due to end on July 16 have signalled some progress toward addressing the deficit run by the US, which last year reached $347 billion.

At the same time, the stronger-than-expected import reading bodes well for second-quarter gross domestic product growth, due for release Monday, as it may signal that domestic demand hasn’t succumbed to greater curbs this year on lending or the property market.

Economist takeaways

“Today’s upbeat figures point to still-strong foreign demand for Chinese goods, as well as fairly resilient domestic demand,” said Julian Evans-Pritchard, China economist at Capital Economics Ltd. in Singapore. “We are skeptical that the current pace of imports can be sustained for much longer given the increasing headwinds to China’s economy from policy tightening.”

“We still expect export growth to slow in the second half 2017 on stronger renminbi so far this year, and uncertainties in external demand,” Zhao Yang, Nomura Holdings Inc’s chief China economist, wrote in a note. “The cooling property market leads to slower domestic investment growth, which may weigh on import growth as well.”

“The better-than-expected export growth indicates a resilient trade outlook,” said Betty Wang, senior China economist at Australia & New Zealand Banking Group Ltd in Hong Kong.

“The strength of Chinese exports is a positive sign for global demand,” said Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings Inc. in Singapore, adding that shipments are largely comprised of finished goods that show genuine end-demand. “Imports point to strong Chinese demand, raising the chance that second-quarter growth is stable to higher than the first.”

The Details

• In the first half, exports in yuan terms rose 15% compared with the same period a year earlier, to 7.21 trillion yuan

• First-half imports rose 25.7% to 5.93 trillion yuan, customs administration data released earlier showed

• January to June iron imports rose 9.3% year-on-year; crude imports rose 13.8% for the same period.


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Asia growth outlook brightens on strong exports – ADB

MANILA — The Asian Development Bank raised its 2017 and 2018 growth forecasts for the region, reflecting rising exports as manufacturers of smartphones to cars to other consumer goods benefited from improving global demand.

Developing Asia – made up of 45 countries in the Asia-Pacific region – is expected to grow 5.9% and 5.8% this year and next, the Manila-based ADB said in the update of its Asian Development Outlook on Thursday.

They are a step up from April forecasts of 5.7% for both years. An upturn in global demand since late last year has given trade-dependent Asian economies much needed momentum, with the United States and Europe also showing improving growth.

The update of the Development Outlook raised China’s 2017 and 2018 growth forecasts to 6.7% and 6.4%, respectively, from 6.5% and 6.2%, driven by strong consumption and improving shipments.

China’s economy beat expectations with 6.9% growth in the second quarter, in part driven by firmer exports and production, which could heighten trade tensions as the United States and Beijing begin economic talks on Wednesday.

“Despite lingering uncertainties surrounding the strength of the global recovery, we feel that the region’s economies are well-placed to face potential shocks to the outlook,” Yasuyuki Sawada, ADB’s chief economist, said in a statement.

Inflation across the region is expected to remain under control, helped by well-behaved food and fuel prices, the ADB said. It cut this year’s inflation projection to 2.6% from 3.0%, and next year’s forecast to 3.0% from 3.2%.



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Leading Edge Textile Development

As I continue to work with companies to develop apparel and textile solutions to address a large range of uses in many climates, I keep up with the latest on textile development.  I am now working with several Asia-based textile OEM/ODM experts who are leading the pack in real, sustainable advanced apparel.  Contact me at: to learn more!

Check out this article on “Smart Textile:  Cool Clothing”

Smart Textile: Cool Clothing

The climate of the world is going to increase every year. As per experts, over past fifty years, the average global temperature is going upward at its fastest rate. And still experts are predicting that the trend is continuously accelerating. So, keeping in view, the recent climate situation, every sector of the life is striving their best to develop something productive to help the human being and environment. The contribution of smart textile toward technology that offer the wearer increase functionality is slow but gradual. And the usage of smart textile products is really high especially in military and defense and health care sector (see our other article “Wearable Technology & E-Textile”). Now, the smart textile is also striving to contribute something in clothing which offers cool-clothing to overcome the heat feeling.

Cooling Material Theme:

As described earlier, the research and development department of textile industry is continuously finding for the betterment of this industry. Moreover, they are not only seeking for better options but they are also focusing on cost effectiveness of the solution. The research and development department of Stanford University is right now focusing on climate issue. And they are extensively working on such plastic material which cools the wearer. The motive of such cost effective solution is to save the energy. And as per the R&D people they are formulating such clothing material which has the feature to keep the wearer cool in the hot climate. As per the Yi Cui (associate professor Stanford), If you can cool the person rather than the building where they work or live that will save energy.”

Plastic Clothing:

As per the R&D team, the plastic material enables the wearer body to discharge the heat in various way. And this discharge will cause to reduce the temperature up to 04 degree Fahrenheit. So, the wearer will experience the coolant feeling as compare to cotton clothing. The integration of nanotechnology, chemistry and photonics which provides polythene properties of the clingy plastic which is normally use as kitchen wraps. Moreover, this solid (but see through) material also allows thermal radiation, water and air to pass through. Since it has the features of polyethylene food wrap, so the infrared radiation also goes through from it easily. The whole process of this development is really challenging and difficult. But the research team is tackling each and every step very effectively and diligently.

At start of this research work, the researchers revealed an alternative of polyethylene that is normally used in batteries. The said material (specific nanostructure) has the same characteristics like dense to light and transparent to infrared radiation which allow heat escape from body. Moreover, the treatment with bengin chemicals has modified the polyethylene with added features to let water vapor molecules that evaporate through the nanopores in the plastic. The initial experiment output was the development of single-sheet material that complied with the three standard criteria for cooling fabric. The research team is continuously working on this theme and trying to make it more versatile. And the versatility in material will be like adding more colors options, texture and other cloth characteristics in the material.




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