China is outraged as the US government plans to punish its largest telecom equipment maker ZTE Corps for alleged violations of sanctions on Iran.
China and Iran have close diplomatic, economic, trade and energy ties. Beijing played a key role in a nuclear agreement which came into effect in January and lifted sanctions on the Islamic Republic.
The US, however, contends that the deal involves “secondary sanctions” related to Iran’s nuclear program and “primary sanctions” linked to terrorism and human rights accusations are still in place.
The US Commerce Department is set to place export restrictions on ZTE, effective on Tuesday and applying to any company worldwide that ships American-made products to the Chinese company.
The announcement forced ZTE to suspend its shares in Hong Kong and Shenzhen on Monday.
The company is accused of having signed contracts in 2012 to ship millions of dollars worth of hardware and software to Iran's largest telecoms carrier, Telecommunication Co of Iran (TCI).
China's Foreign Ministry expressed anger at the action, saying it is “opposed to the US citing domestic laws to place sanctions on Chinese enterprises."
"We hope the US stops this erroneous action and avoids damaging Sino-US trade cooperation and bilateral relations," Foreign Ministry spokesman Hong Lei told a daily news briefing in Beijing.
Experts say the move is set to further strain relations between China and the US. Beijing, they say, is likely to retaliate against American companies by tightening market access or regulatory control over US companies in China.
The US move comes as China is trying to make its companies global leaders in next generation IT.
ZTE is already the fourth-largest provider of smart phones to the US market and expanding in Europe. According to its website, the company has operations in 160 countries.
Under the US restrictions, ZTE’s suppliers will need to apply for an export license before selling US equipment or parts to the Chinese company anywhere in the world.
The US restrictions will reportedly also apply to two of ZTE affiliates in China as well as Iran’s ZTE Parsian.