When President Donald Trump vowed to help a Chinese business recoup potentially lost jobs this week he failed to mention an important detail: Members of his own administration had warned U.S. officials not to trust the company controlled by the Chinese government.
ZTE, the telecommunications giant that is the focus of a much talked-about Trump tweet, is more than 30 percent owned by state-owned corporations with five of its board members chosen by state-owned enterprises.
"We're deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don't share our values to gain positions of power inside our telecommunications networks," FBI Director Christopher Wray testified on Capitol Hill in February.
In a 2012 report on ZTE, the House Intelligence Committee said it "cannot trust that it is free of state influence, particularly through its major shareholders and board members."
Just last month, the Trump administration punished ZTE, best known for making cheap smartphones, by forbidding U.S. companies from selling their products to ZTE for seven years after accusing the company of violating U.S. sanctions against Iran and North Korea.
The State-owned Assets Supervision and Administration Commission, which regulates state-owned enterprises in China, blasted ZTE's management in a April 20 report. “Many domestic enterprises are paying a terrible price for ZTE’s short-sightedness and dishonesty," it said. "Our country’s diplomatic layout and image will inevitably be affected."
Yet on Sunday Trump surprised supporters and critics by announcing that he was working with Chinese President Xi Jinping to give ZTE "a way to get back into business, fast" because it is costing “too many jobs in China.”
Trump, who campaigned on saving millions of U.S. jobs, and his aides have spent days trying to explain why he sided with the Chinese company, insisting it is part of broader negotiations. "Nothing has happened with ZTE except as it pertains to the larger trade deal," he tweeted Wednesday, the same day Wray reiterated his warnings on Capitol Hill.
Several critics suggested Trump initially tweeted support for a Chinese company after Chinese banks agreed to finance one of his company's development in Indonesia that includes a Disney-like theme park, a six-star hotel and a golf course.
Trump’s partner, MNC Land, entered into an agreement with a subsidiary of the state-owned Metallurgical Corp. of China this week. It had already been selected to prepare a design for the project, McClatchy reported in December.
MNC said that reports that the Chinese government had signed an agreement to provide $500 million in financing were false. But Chinese Export and Credit Insurance Corporation, which is state-owned, agreed in 2016 to finance 85 percent of the construction of the development, McClatchy reported.
"American citizens are likely to wonder whether they are connected, or certainly would have the right to wonder, and they can never know, and that means that trust that U.S. institutions are eroded.," said Sarah Chayes, a former adviser to Chairman of the Joint Chiefs of Staff Admiral Mike Mullen who has studied Trump foreign projects while a senior fellow in the Democracy and Rule of Law program at the Carnegie Endowment for International Peace.
Trump did not fully separate from his business interests when he was sworn in as president.
He received $154,000 in management fees in 2017 from the Indonesia project, according to his financial disclosure statement released Wednesday.
Trump's daughter, Ivanka — a senior White House adviser — receives a total of $1.5 million annually from three companies affiliated with the Trump Organization that include one that manages the Indonesia project, according to her financial disclosure report filed last year, which outlined her future relationship to the companies. Her 2017 financial disclosure, which was due Tuesday, has not been released by the Office of Government Ethics.
"I think it's awfully suspicious," Rep. Tim Ryan, D-Ohio told MSNBC this week. "And it's happening time and time again where President Trump is...posing to represent the interests of the United States but there is always some kind of business deal going on."
At the February hearing on Capitol Hill, Sen. Tom Cotton, an Arkansas Republican and Trump ally, asked a series of administration officials — Wray, Dan Coats, director of national intelligence; Lt. Gen. Robert Ashley, director of the defense Intelligence agency; Robert Cardillo, director of the National Geospatial-Intelligence Agency, Mike Pompeo, then CIA director and Mike Rogers, then director of national security — to raise their hands if they thought ZTE was a threat to Americans and they shouldn't use the company's products. They all did.
“The focus of my concern today is China, and specifically Chinese telecoms like Huawei and ZTE Corp., that are widely understood to have extraordinary ties to the Chinese government," said Sen. Richard Burr, R-N.C., chairman of the Senate Intelligence Committee at the hearing.
Not all Chinese companies are owned by the government. John Frisbie, president of the US-China Business Council, said the number of state-owned enterprises in China has steadily declined over the years with only a couple hundred at the national level. "There are far more non-state-owned companies in China’s economy these days," he said. Still, he said, state owned enterprises constitute about a third of the total assets in the combined industrial and service sectors, Frisbie said.
ZTE's largest shareholder, Zhongxingxin, a state-owned corporation, held 30.34 percent of its shares, according to its 2017 annual report. Two other state-owned corporations, Central Huijin Asset Management Ltd., and Hunan Nantian (Group) Co., Ltd held 1.25 percent and 0.99 percent, respectively, according to the report.
An investor is determined to be the controlling shareholder of a listed company if it controls more than 30 percent of the share.
"Zhongxingxin, ZTE’s largest shareholder is owned in part by two state-owned enterprises, Xi’an Microelectronics and Aerospace Guangyu, both of which not only have ownership ties to the Chinese government, but also allegedly partake in sensitive technological research and development for the Chinese government and military," according to the House Intelligence Committee report written by Rep. Mike Rogers, then chairman, and Rep. Dutch Ruppersberger, then the top Democrat.
Five of the 18 board members are chosen by state-owned enterprises, with some acknowledged members of the Chinese Communist Party and members of ZTE’s internal Communist Party Committee, according to the report.
In March, the Pentagon ordered retail stores on its bases around the world to stop selling devices made by ZTE as well as Huawei Technologies Co.
Sen. Marco Rubio, R-Fla. has introduced a bill to bar the federal government from purchasing telecommunications equipment or services from Huawei or ZTE.
"This is a company heavily subsidized by the Chinese government, that protects them at home, protects them in China, subsidizes them in China, but then exports them abroad with the hopes that they can help them steal secrets and monitor and be an arm in the tool of intelligence for them," Rubio said.
On Wednesday, Rep. Bennie Thompson, the top Democrat on the Homeland Security Committee, introduced a resolution asking the Department of Homeland Security to provide information about the cybersecurity threats posed ZTE.
Ben Wieder in Washington contributed.