ZTE Appoints Chairman in Another Step Toward Lifting of U.S. Ban

(Bloomberg) -- ZTE Corp. has appointed a new chairman from a state research outfit that backed its founding decades ago, taking another step toward cleaning house and freeing itself from a ban on American technology purchases.

Shareholders voted in Li Zixue, the 54-year-old deputy director of the Xi’an Microelectronics Technology Institute, as chairman, according to a Shenzhen stock exchange filing. The institute is a research unit of the China Aerospace Science and Technology Corp., a key technology provider to the nation’s space and defense programs. The firm became the earliest investor in ZTE when then-employee Hou Weigui decided to set up a telecommunications equipment company in Shenzhen in 1985.

ZTE, which became a focal point of a U.S.-China trade dispute, also said its former board of 14 resigned as it elected a new board of eight. The company had appointed Tian Dongfang, a former chief of the same institute, as party secretary, Bloomberg News reported last month.

New leadership was one of several conditions in an agreement struck between ZTE and the U.S. to end a seven-year ban on technology purchases that crippled its business. The Chinese company also agreed to pay a steep fine for violating sanctions on exports to Iran and North Korea, then lying about it. ZTE’s lost almost $11 billion of market value since its shares resumed trading on June 13.

Its new management now faces the challenge of rebuilding trust with phone companies and corporate customers. And its settlement with the Commerce Department remains in doubt. It’s been unable to ramp up its factories because lawmakers dispute the agreement and are negotiating a bill with the White House that may effectively reinstate the ban.

“Even if ZTE manages to return to normal operations, ZTE still needs to face headwinds from rebuilding the company’s branding, losing customers, the restructuring change in management team and the introduction of U.S. compliance team,” Guotai Junan Securities analyst Ricky Lai wrote in a memo ahead of the shareholders meeting.

The company is said to be facing at least $3 billion in total losses from the months-long moratorium, which cut off the flow of chips and other components it needed to make its networking gear and smartphones.

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