ZTE shares spike after it is let off another US naughty step

Chinese kit vendor ZTE has been on some kind of probation ever since it was caught violating US trade sanctions five years ago, but not anymore.

In an investor announcement ZTE said the Court for Northern District Texas has decided not to extend this probation, which was imposed to ensure ZTE stuck to the compliance promises it made as part of its settlement with the US. The main purpose of the probation seems to have been for the US to keep a close eye ZTE to ensure it didn’t lapse into is errant ways.

“On 22 March 2022 (U.S. time), the Company received an order from the Court declining to revoke probation or impose any penalties upon ZTE, and confirming that the term of probation and the term of the Monitor will end as scheduled on 22 March 2022 (U.S. time),” said the ZTE announcement.

“The Company is committed to building a world-class compliance enterprise, making compliance the cornerstone of its strategic development and the bottom line of operations, complying with the applicable laws and regulations of the countries in which it operates, and building a comprehensive compliance system. The Company has full confidence in the effective operation and continuous improvement of the compliance management system, and will, as always, fulfil its responsibilities to global customers, employees, shareholders and partners, and actively promote the innovation and sustainable development of the global ICT industry.”

On the surface the end of the probationary period would appear to be a fairly trivial bureaucratic matter, but try telling investors that. ZTE suspended trading of its shares on the Hong Kong stock exchange ahead of the announcement and, according to multiplereports, its share price shot up by as much as 60% upon resumption of trading, as trading hit predetermined volume limits.

So clearly the probation imposed significant commercial constraints, although we’re struggling to identify what they were. ZTE is still subject to many of the restrictions faced by its compatriot Huawei regarding the perceived security threat posed by allowing kit from Chinese vendors in many national 5G networks. But investors clearly think this development is a very positive step for ZTE and who are we to question the instincts of people whose livelihood depends on getting these things right?

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