Ongoing criminal investigations by the FBI and the Commerce Dept. into Chinese telecom firm ZTE (Shenzhen: 000063.SZ) and its Texas subsidiary ZTE U.S.A. have, not unexpectedly, caused something of an international drama as China's Ministry of Commerce appears to be wading into the fracas.
The two federal agencies are looking into allegations that the giant telecom equipment maker and its subsidiary shipped hardware and software components described in an earlier Reuters report as "a powerful surveillance system capable of monitoring landline, mobile and Internet communications" to Iran in violation of federal laws that ban "the sale, export or re-export of goods or services to Iran."
The charges are serious enough—they threaten "criminal prosecution" and "civil penalties"—to draw the attention of the Ministry of Commerce, which, through spokesman Shen Danyang sought "objective, just and proper treatment from the United States."
Shen, at a Tuesday press conference in Beijing, said "China has kept normal, open and transparent economic and trade relations with Iran, not violating any UN Security Council resolution, and should not have to endure groundless criticisms."
It's possible that those criticisms to which Shen was referring also include what The Smoking Gun reported as ZTE's alleged "ongoing attempt to corruptly obstruct and impede" the Commerce investigation.
Whatever the case, the investigations and an overall sluggish market are taking their toll on ZTE and, to be fair, other Chinese telecom equipment vendors like Huawei. In ZTE's case, the stock dropped 16.3 percent and closed at HKD 10.46 (USD 1.35), marking its largest decline since October 27, 2008. Even worse—since the stock is falling—trading was "nearly seven times that of its 30-day average," Reuters reported.
Even without the investigation, ZTE precipitated the fall by announcing that its first half profit could be off as much as 80 percent.
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