Asia Pacific / Politics

‘Shocking’ Huawei arrest threatens to upend Trump-Xi trade truce

Bloomberg

On the same day Presidents Donald Trump and Xi Jinping struck a truce in the U.S.-Chinese trade war in Argentina, Canadian authorities made an arrest that now threatens to make the conflict much worse.

The U.S. is seeking the extradition of Meng Wanzhou, chief financial officer of Huawei Technologies Co., after convincing Canada to arrest her on Dec. 1 in connection with violating sanctions against Iran.

China reacted with outrage on Wednesday, demanding that both countries move to free Meng immediately.

It is hard to overstate the significance of her arrest in Beijing: Meng is the daughter of the founder of Huawei, a national champion at the forefront of Xi’s efforts for China to be self-sufficient in strategic technologies. While the U.S. routinely asks allies to extradite drug lords, arms dealers and other criminals, arresting a major Chinese executive like this is rare — if not unprecedented.

“The timing and manner of this is shocking,” Andrew Gilholm, director of North Asia analysis at Control Risks Group, said by phone. “It’s not often the phrase ‘OMG’ appears in our internal email discussions.”

Right now it is unclear what role Trump played in Meng’s arrest, or if he will intervene at some point. The U.S. leader has spent the past few days seeking to convince the world — and skeptical equity investors — that China has agreed to major concessions, including reducing or removing tariffs on U.S. cars. Stocks fell across Asia on Thursday.

Analysts said it is more likely the case proceeded separately from the trade talks as part of Trump’s efforts to step up prosecutions against Chinese companies that conduct economic espionage and violate sanctions. In October the U.S. said Belgium extradited a Chinese intelligence official accused of stealing trade secrets from U.S. companies — an unprecedented development.

Either way, China is almost certain to view Meng’s arrest as a major escalation in the trade war that will foment fears of a wider Cold War between the world’s biggest economies. As part of the talks, Trump has insisted that China stop providing government support to strategic sectors, including artificial intelligence and robotics, as part of its “Made in China 2025” policy.

“It will definitely complicate the negotiations, and they may believe this was done to increase the pressure during this 90-day period,” said Dennis Wilder, a former CIA China analyst and senior director for Asia at the National Security Council under President George W. Bush.

“This is sending a signal that there is a new game,” Wilder said of the recent U.S. arrests. “They are trying to deter Chinese espionage and make it clear that there are real consequences.”

Perhaps no company better personifies the perceived trade threat than Huawei. It has overtaken Apple Inc. in smartphone shipments and declared its intention to surpass Samsung Electronics Co. while targeting record sales of $102.2 billion this year — more than Boeing Co. It is shooting for the lead in fifth-generation wireless networks and preparing to take on some of America’s biggest chipmakers.

That is why Trump’s administration invoked its name in blocking a Qualcomm-Broadcom merger that would have been the largest deal ever, saying it would hand the lead in 5G to China. Huawei has since been blocked from selling its gear in Australia and New Zealand, got frozen out of a South Korean contract and faces U.S.-led competition even in Papua New Guinea.

The latest U.S. action against Huawei may be even more significant. While the company has made advances in developing its own microchips, it still relies on American equipment to make its networking gear and smartphones.

ZTE Corp., another Chinese tech company, nearly collapsed due to U.S. penalties for violating Iran sanctions before Trump rescued it following a request from Xi.

The ZTE case showed China’s leaders that they needed to become independent from the U.S. when it comes to critical technologies like semiconductors and network infrastructure, according to Graham Webster, coordinating editor of DigiChina at the Washington-based think tank New America.

“What makes Huawei important is that it is a leader in developing technologies that will make China less dependent on U.S. or European suppliers,” he said. “Targeting Huawei through seeking the extradition of a top executive is a major move by the U.S. government, whether coordinated or not.”

Also on Wednesday, Britain’s largest mobile provider revealed it was stripping Huawei equipment from its core 4G cellular network after the similar moves by the United States and New Zealand.

BT’s announcement follows a warning from the head of Britain’s MI6 foreign intelligence service about the potential threat Huawei poses to national and corporate security.

MI6 head Alex Younger publicly questioned on Monday whether Huawei should be involved in the 5G platform.

“We need to decide the extent to which we are going to be comfortable with Chinese ownership of these technologies and these platforms in an environment where some of our allies have taken a very definite position,” he said in a rare public address.

BT said it has been in the process of removing Huawei equipment from instrumental parts of its 3G and 4G mobile networks since 2016.

It said in a statement that the decision was made “as part of network architecture principles in place since 2006.”

“We’re applying these same principles to our current RFP (request for proposal) for 5G core infrastructure,” the British group added.

“As a result, Huawei have not been included in vendor selection for our 5G core.”

The Wall Street Journal reported last month that Washington has asked its allies to cut ties with Huawei because its equipment posed strong cybersecurity risks.

For some analysts in China, it shows that the U.S. national security apparatus isn’t interested in cutting a deal, no matter what Trump thinks.

“Their goal is to decouple with China,” said Wang Yong, a professor at the School of International Studies at Peking University. “Negotiations are the wish of Trump and Wall Street.”

Information from AFP-JIJI added