The arrest of of Huawei CFO Wanzhou Meng on December 1 in Vancouver on a US extradition request is a major geopolitical and news event. Reuters reports Meng was intercepted while changing flights.
So much for Xi and Trump trying to a reset so as to prevent the imposition of US tariffs on Chinese goods. Mr. Market is not happy at all. S&P futures are down 1.4% as of this writing. As an aside, it’s odd that word of the arrest has gotten out only now. It took place the last day of the G20 summit. Was actual or US anticipated wrangling over the arrest one of the reasons for the apparent confusion over what Xi and Trump had agreed?
Meng has a bail hearing set for Friday.
We are in the “nobody knows much” phase of this story, and are likely to remain there for a while, although the Chinese government is having hissy fits over the arrest.
The US has been investigating Huawei since 2016 over suspected transfers of US technology to Iran in violation of US sanctions. Bloomberg reports that the Department of Justice launched a new probe in April on whether Huawei had been selling equipment to Iran in violation of US sanctions.
The fact that Canada, which is not on the best of terms with the Trump Administration and where there is no political upside to playing ball, arrested Meng and extradited her suggests that there is some meat to the allegations.
As readers likely know well, the US has been trying to restrict Huawei sales in the US and Western countries, particularly of its smartphones and routers alleging that they have backdoors that allow for data to be passed to the Chinese government. While entirely plausible, this also smacks of the pot calling the kettle black. From the Financial Times:
US telecoms networks are banned from using Huawei equipment. Australia and New Zealand — members of the Five Eyes intelligence sharing network with the US, UK and Canada — have blocked Huawei and other Chinese suppliers on security grounds..
Huawei said Ms Meng — also known as Sabrina Meng — was detained by Canadian authorities on behalf of the US, which sought her extradition over “unspecified charges” in the Eastern District of New York.
The arrest took place shortly on the heels of intelligence service noisemaking about Huawei. Again from the Financial Times:
Western security chiefs have been unusually vocal in recent days to highlight concerns over Chinese technology groups. David Vigneault, head of the Canadian Security Intelligence Service, warned that his agency had seen a “trend of state-sponsored espionage” targeting Canada’s advanced technology, including 5G networks.
His remarks came a day after Alex Younger, head of MI6, the British intelligence service, said the UK faced a tough decision over whether to allow Huawei to supply technology for its 5G network.
The Wall Street Journal has a tidbit from a single source, so take this with a fistful of salt:
In 2007, Ms. Meng served as a board secretary for a Huawei holding company that owned Skycom Tech, a Hong Kong-based firm with business in Iran and employees who said they worked for “Huawei-Skycom,” according to a person familiar with the matter. She became a director at Skycom Tech in February 2008, Hong Kong corporate records show, before resigning in April of the following year.
That role is now the under scrutiny by American authorities.
While this may be part of the basis for charging her, Meng is the Huawei deputy chairman as well as its CFO, and therefore could be depicted for purposes of prosecution as being broadly knowledgeable about and involved in the company’s affairs.
From China, the arrest looks like a US effort to hamstring a national champion. From Bloomberg:
Huawei’s ambitions now range from artificial intelligence and chipmaking to fifth-generation wireless. That last effort, a massive push into the future of mobile and internet communications, has raised hackles in the U.S. and become a focal point for American attempts to contain China’s ascendancy…
In targeting Huawei, the U.S. is threatening one of the companies at the heart of Xi’s long-term campaign to wrest the lead in future technologies and wean China off a reliance on foreign technology.
Once a purveyor of unremarkable telecommunications equipment, Huawei’s now No. 2 in smartphone shipments and is shooting for the lead in fifth-generation wireless networks while preparing to take on some of America’s biggest chipmakers. It’s already by some reckonings the world’s largest provider of networking equipment to wireless carriers, outstripping the likes of Ericsson AB with growing sales in Europe. It’s declared its intention to surpass Samsung Electronics Co. in phones as well. The company is targeting record sales of $102.2 billion this year…
It’s unclear whether Meng’s arrest could trigger the same sort of sanctions that ZTE incurred. Such a move would be far more significant given Huawei’s heft.
In August, Trump signed a bill banning the government’s use of Huawei technology based on the security concerns and U.S. allies are either imposing or considering bans…
“This is what you call playing hard ball,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “China is already asking for her release, as can be expected, but if the charges are serious, don’t expect the US to blink.”
Jia Wenshan, a professor at Chapman University in California, said the arrest was part of a broader geo-political strategy from the Trump administration to counter China and it “runs a huge risk of derailing the U.S.-China trade talks”.
Mei Xinyu, a researcher at a think tank run by the Ministry of Commerce, wrote in an article on the official People’s Daily Overseas Edition’s WeChat account that the arrest was a warning that the Trump administration might abandon its deal with China….
While Meng’s arrest comes at a delicate time in U.S.-China relations, it was not clear if the timing was coincidental.
Needless to say, this is an developing situation. Huawei will presumably present some additional information after the Friday hearing even if it is closed to the public.