China’s Furious Reaction to the Arrest of a Top Huawei Executive Suggests a Tough Road Ahead in Trade Talks

  • Huawei Finance Chief Meng Wanzhou has been arrested in Canada at the request of the United States. Canadian authorities said late Wednesday, Dec. 5, 2018 that Wanzhou had been arrested in Vancouver and that the United States is seeking her extradition. (Mfc/Ropi via ZUMA Press/TNS)

Los Angeles Times
Thursday, December 06, 2018

Beijing — China’s sharp response to the arrest in Canada of a top executive of one of its most successful global brands, Huawei, suggests that big hurdles remain as the U.S. and China strive for a trade deal before March 1.

Meng Wanzhou, deputy chairwoman and chief financial officer of Huawei, was arrested during a transit stop at a Vancouver airport on Saturday, and could face possible extradition to the U.S. and an appearance in federal court in New York.

China demanded the immediate release of Meng, who is among the cream of China’s corporate elite. She is the daughter of tech billionaire Ren Zhengfei, Huawei’s founder and CEO and a former engineer in the People’s Liberation Army.

Chinese officials said she had not broken any laws, accused the United States and Canada of violating her rights and demanded an explanation on why she was arrested.

U.S. officials have not confirmed the reasons for her arrest, which various news reports have indicated concern alleged violations of U.S. sanctions on Iran.

The tensions over Meng’s arrest come with U.S.-China relations balanced on a knife edge after President Donald Trump and Chinese President Xi Jinping agreed on Saturday to suspend planned tariff hikes for 90 days to allow negotiations on a trade deal to end the trade conflict.

Meng’s arrest complicates the coming negotiations to resolve the trade conflict, already on a tight timeline because of holidays in the United States and China. She was arrested in Canada on the same day that the leaders met.

But in a sign that China wants to push for a deal despite anger over her arrest, officials said on Thursday that trade talks would go ahead.

Commerce ministry spokesman Gao Feng confirmed for the first time on Thursday that China would implement the “preliminary consensus” reached between the two leaders on agricultural products, automobiles and energy, without offering further details.

Meng’s arrest, significant because of her elite connections and prominent corporate position, triggered shock in China. The arrest is doubly sensitive because it threatens the rise of one of China’s top cutting-edge brands, now the world’s second largest smartphone company, surpassing Apple in sales this year.

The state-owned Global Times reflected Chinese outrage over her arrest in an editorial accusing Washington of “resorting to a despicable rogue approach” in a bid to hurt the company.

The paper also tweeted on Thursday that China should be ready for an escalation of the trade war, warning that Meng’s arrest was vivid evidence that Washington would not soften its stance against Beijing.

Trump and Xi said they reached agreement on a truce at a dinner on the sidelines of the G-20 summit in Argentina. According to the White House, Xi agreed to drop 40 percent tariffs on American automobiles and to immediately resume imports of U.S. products. Thursday’s commerce ministry comments were the closest China has come to confirming the arrangement.

Gao, the commerce ministry spokesman, said the Buenos Aires agreement was “a big success” that achieved “important consensus on the trade issue” and expressed confidence in reaching a deal within 90 days.

“In the next step consultation on trade issues in the field of agricultural products, energy, industrial manufactured goods and services will continue,” he said.

“Then, in the next 90 days, we will follow a clear timetable and road map to negotiate on issues such as intellectual property right protection, tech cooperation, market access and trade balance.”

Washington is demanding sweeping changes to China’s industrial policy, in particular its state support for key high-tech industrial firms, forced transfers of technology by American companies doing business in China, and tolerance or tacit encouragement of intellectual property theft.

Saturday’s meeting came with a bruising trade war that threatens global growth as tit-for-tat tariffs mounted in recent months.

This week, as uncertainties over a trade deal continue and news of the arrest surfaced, the U.S. stock market has been hit by sharp declines.

At the heart of the trade conflict is global rivalry between the world’s largest and second-largest economies, with the United States alarmed by China’s plans to be a world leader in key high-tech industries by 2025.

While the U.S. accuses China of getting ahold of high-tech American intellectual property either by bullying companies wanting to trade in China or by stealing trade secrets, China is convinced that Washington’s true objective is to contain its rise as a leading global power.

It remains unclear whether Meng’s arrest relates to her position at Huawei or another company with close Huawei links that she previously was involved in, Skycom Tech of Hong Kong, which attempted to sell Hewlett-Packard equipment to Iran in 2010 in violation of U.S. sanctions, according to a 2013 Reuters report.

Huawei faces mounting barriers globally as the U.S. and allies including Australia, New Zealand and Britain have blocked it from participating in 5G networks for reasons of national security. Britain has announced it also is removing Huawei equipment from 3G and 4G networks. The United States has banned government agencies from using Huawei products, citing national security concerns.

As the U.S. presses its allies to pick sides in a strategic fight for global dominance that could unfold over decades, Canada is also considering whether to bar Huawei from 5G networks.

Another prominent Chinese company, ZTE Corp., faced peril after a punitive U.S. ban on it using American components in its cellphones — parts on which it was heavily reliant — for violating U.S. sanctions against North Korea and Iran. The company’s collapse was narrowly averted when it paid a fine of around $1 billion after Trump intervened earlier this year to save the firm at Xi’s request. White House adviser Peter Navarro said in June that Trump had given ZTE one last chance as a “personal favor” to Xi.

The ZTE case highlights the vulnerabilities Huawei could face if the company ever was hit with similar U.S. action, since it also relies on some American components. Some analysts say the American action against ZTE has only spurred China’s determination to develop its own high-tech components to free itself from any dependence on American inputs.

Huawei said in a statement it was unaware of any wrongdoing by Meng.

The Hong Kong-based South China Morning Post reported on Thursday that Meng told employees during an internal talk in October that there were occasions when the company could weigh the costs of breaking the law and decide the risk was acceptable.

A Global Times editorial called on Chinese citizens to offer “moral support” to Huawei, a statement that raises the specter of a possible Chinese boycott of American cellphones should the pressure on the company continue.

“It is clear that Washington is maliciously finding fault with Huawei and trying to put the company in jeopardy with U.S. laws,” the editorial said.