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The storm is over now, but ZTE needs to pay the price

Shares of embattled Chinese phone maker ZTE edged up on Thursday after it took the first key step towards fixing the damages caused by its clash with the US authorities. As the company returns to business, it has put forth a new financing plan of almost $11 billion and has also proposed for a change in the board.

The device maker last week signed an agreement that put an end to the crippling US ban. The US Commerce Department agreed to get ZTE back in business, provided the company pays a penalty of $1 billion and an advance amount of $400 million, in escrow, in case ZTE breaches the rule in future. But if it does violate again, the company will not be a given another opportunity to redeem itself. Once ZTE pays the amount, the ban will be lifted.

As the company returns to business, it has put forth a new financing plan of almost $11 billion and has also proposed for a change in the board.

In order to resume business after two months of inactivity, the telecommunications giant is working towards meeting the conditions laid by Commerce Department. Along with the new $10.7 billion financing plan, the company elected eight new members to serve on its board. These latest developments gave enough reasons for investors to cheer, sending its stock up over 3.7% in Thursday morning trade.

Apart from shuffling its management, the US authorities have demanded that ZTE hires US compliance officers at the company. As a part of the settlement, ZTE will have to replace all the senior executives and employees involved in the export violation. The management overhaul could lead to 40 senior executives being replaced, according to Reuters.

Last year, the company was fined $1.2 billion after it was found guilty of violating US sanctions on shipping US telecom accessories to North Korea and Iran. In April this year, the Department of Commerce enforced a seven-year export ban on ZTE. The Chinese phone maker relies heavily on US firms for components, primarily Qualcomm (QCOM). Due to the ban, it was forced to stall its main business operations in China.

But critics including both Democrats and Republicans are seeking to reimpose the ban, thereby reversing President Trump’s decision. They also criticized him for focusing on jobs in China over the US.

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