Commentary

Arrest Of Huawei CFO Could Have Long-Term Repercussions For Tech

Tensions between the U.S. and China continue to frazzle over the arrest and detainment of Huawei CFO Meng Wanzhou in Vancouver, Canada, last week at the behest of U.S. authorities. They want her extradited to face charges of allowing Skycom, a purported Hong Kong-based subsidiary, to sell American electronics components to Iran in violation of U.S. sanctions against that country.

At a bail hearing that started on Friday and is expected to conclude today, Canadian prosecutors have revealed they believe the daughter of Huawei founder Ren Zhengfei — and his rumored heir — had “direct involvement” in a scheme to use Skycom to evade sanctions between 2009 and 2014.

They argued that Meng committed fraud in 2013 by telling financial institutions that Huawei had no connection to Skycom. “Meng’s lawyers denied the charges, saying Huawei sold Skycom in 2009,” Emily Rauhala writes for the Washington Post.

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“The judge on Monday rolled the proceedings over to Tuesday because he wanted to hear more from both sides about the issue of surety -- who will take responsibility for Meng’s actions if she were released,” writes Reuter’s Julie Gordon. “Intent on getting Meng out of detention and into one of her two luxury homes in the city, defense lawyer Martin is offering up high-tech surveillance devices and a 24-hour security detail to ensure his client does not flee.”

Pointing to her seven passports, two of which they have seized, Canadian prosecutors argue that she is indeed a flight risk. She is facing up to 30 years in prison, after all, if she’s extradited to the U.S. and convicted, Brandon Johnson reports for Quartz.

“China, for its part, has also been trying to repatriate Meng. Over the weekend, vice foreign minister Le Yucheng summoned the U.S. ambassador to China to lodge a ‘strong protest,’ after having warned Canada’s China envoy of ‘grave consequences’ if it didn’t release Meng from custody,” Johnson writes.

Huawei passed Apple this year to become the second-biggest smartphone maker in the world after Samsung. But  little is known about the company in the U.S. because it has been unable to forge a partnership with a major carrier here. 

“The company was on the brink of announcing a partnership with AT&T in January 2018, but the deal fell through amid U.S. government pressure for AT&T to drop the partnership. Supposedly, U.S. politicians saw Huawei devices as a threat to U.S. national security because of Huawei's business ties to the Chinese government,” writes  Antonio Villas-Boas for Business Insider.

Indeed, a group of lawmakers wrote a letter to the Federal Communication Commission last December “expressing misgivings” about a pending deal between Huawei and an unnamed U.S. telecommunications firm, Paul Mozur reported for the New York Times. It specifically stated that Congress had “long been concerned about Chinese espionage in general, and Huawei’s role in that espionage in particular.”

Meanwhile, Toronto-based Canada Goose, which makes luxury down jackets, is unwittingly caught up in the diplomatic row. A Chinese state-run tabloid has said a boycott of Canada Goose -- which has become a status symbol in China -- was “likely,” Jacky Wong reports for the Wall Street Journal. That company’s shares have dropped 18% since Wednesday as a result, she continues, while Hong Kong-listed down-jacket maker Bosideng have risen 13%.

“For many companies, China is the goose that lays golden eggs. When things turn, the country can also give you goosebumps,” Wong writes in her lede. Not to mention the fact that your goose can be cooked without it. About Apple 20% of Apple’s total sales are to Chinese consumers, for example, and Chinese media are harping on that point.

“‘Washington's move to stifle Huawei will undermine itself,' reads a headline. ‘Banning Chinese companies like Huawei will isolate U.S. from digital economy of the future,’ reads another,” reports the BBC’s Dave Lee. 

“It’s that second headline, the threat of isolation, that should give U.S. technology companies considerable pause as we head into Ms. Meng’s 12th day of detainment in a Canadian jail. The fallout from her arrest will surely mean, at the very least, an even more difficult relationship for the handful of U.S. tech giants that have found great fortune in China,” Lee adds.

“Whether Huawei itself faces legal trouble remains to be seen, though there's speculation that the company could receive an export ban due to sanctions violations like the one imposed on ZTE” last April for evading sanctions on Iran and North Korea, as Julia Horowitz observes in an analysis for CNN Business. “Formally penalizing Huawei could have serious consequences for how the U.S.-China tech fight plays out down the line,” she writes.

“They'll accelerate their efforts to become independent, and they'll look for ways they can ding us,” James Andrew Lewis, director of the Technology Policy Program at the Center for Strategic and International Studies in Washington, writes in a report cited by Horowitz, “noting that China could reduce orders of Boeing airplanes, or target U.S. companies for violations of Chinese law.”

“Their hope is that in 10 years, they won't need us anymore,” Lewis says.

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