The Chinese media accused the United States of foul play following a controversial arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada. The industry veteran was arrested by Canadian authorities at the request of the Trump administration on Saturday, December 1, with the warrant for her apprehension stemming from a reported investigation into an international banking scheme devised with the goal of violating U.S. trade sanctions imposed on Iran. State-backed Chinese media is presently reporting that no details on the arrest were official and the grounds for the act remain unclear and highly suspicious, speculating that Washington moved to apprehend one of Huawei’s top executives in yet another attempt to “stifle” the Shenzhen-based technology juggernaut.
By dealing such a major blow to Huawei, the U.S. administration is hoping to hurt the company’s chances of staying competitive in the global tech market, the state-owned China Daily proclaimed in a Friday editorial, mere hours after Ms. Meng’s arrest was made public. The Chinese government also called for an immediate release of the 46-year-old executive, with Beijing’s Foreign Ministry demanding Canada and the U.S. explain the circumstances that led to her arrest. The U.S. and Canada’s political leaders already said they weren’t involved in the episode, stating that the thereof was entirely orchestrated by law enforcement agencies.
Following in her father’s footsteps
Ms. Meng, the daughter of Huawei founder Ren Zhengfei who currently also fills the position of the conglomerate’s vice chairwoman previously held by her father, was detained in Vancouver on Saturday, which plummeted the firm’s stock and added yet another layer of friction to the already tense relationship between the U.S. and China. The world’s two largest economies are presently amid a full-blown trade war which already prompted heavy tariffs on tens of billions of dollars of various goods and has been suspended only last week after President Donald Trump and President Xi Jinping agreed to a 90-day truce during the latest G20 summit in Argentina. Ms. Meng’s father is a former engineer and officer of the People’s Liberation Army, which is one of the many reasons why the West remains distrustful of Huawei, citing its close ties to Beijing. She’s been following in her father’s footsteps from a young age, having joined Huawei when she was in her early 20s and the company itself was just a startup, back in 1993. She started out as a secretary and rose up to the role of the firm’s chief of international accounting before being appointed as the conglomerate’s CFO earlier this year.
Huawei remains the largest privately held company in China with some 180,000 employees, though Western intelligence agencies remain skeptical about its true ownership. While the firm insists it’s owned by its employees, its shares aren’t freely transferable and are only valid for the duration of the owner’s employment. That opaque structure caused significant concerns in the West, especially given how major corporate decisions aren’t freely voted on by the entirety of Huawei’s official ownership.
A mountain of suspicion
Huawei’s issues with the U.S. and its allies date back from the turn of the century and are only becoming more numerous with time. The company has often been accused of posing a national security risk to the American government and its people, with similar allegations also emerging from other parts of the world such as South Korea, Australia, and the United Kingdom. The firm has occasionally been involved in patent disputes as well, facing accusations of corporate espionage. The suspicions leading to the arrest of its CFO and potential heir apparent still aren’t official but an allegation of a conspiracy to violate trade sanctions would be a relatively new addition to Huawei’s lengthy file. In recent times, the most common accusations against Huawei had to do with Beijing’s legal ability to force the company into spying on its customers, including Americans. The conglomerate often argued it’s no more prone to being controlled by Beijing than American companies are likely to be influenced by Washington. This April, the Pentagon issued an international ban on Huawei and ZTE devices from stores in and around American military bases, citing security risks.
ZTE, another Chinese telecom company, recently found itself under similar duress and was almost put out of business after the Commerce Department hit it with a denial order preventing it from purchasing American tech due to violations of stateside trade sanctions placed on North Korea and – Iran. The firm pleaded guilty to that transgression in 2017 but ended up violating its subsequent settlement this year, which was followed by a third agreement that placed a significant strain on its operations. That particular episode was also painted as an attack against China’s economy by the media in the Far Eastern country, though ZTE is presently trying to put things to rest and move on.
An exercise in finger-pointing
Even as the U.S. and Canada are adamant that the arrest of Ms. Meng wasn’t politically motivated, Beijing and its media empire continue pushing that theory into the public’s eye, arguing the episode was meant to hurt the country’s largest private company on no reasonable grounds. That exercise in finger-pointing is unlikely to lead to anything substantial in the near future as a lengthy legal battle appears to be on the horizon. Backed by one of the world’s largest corporate legal teams, Ms. Meng is expected to put up a fight against Ottawa’s attempt to extradite her to the U.S.
While the latest development is plummeting Huawei‘s stock, it’s also hurting shares of its major domestic suppliers such as BYD Electronic International Co and AAC Technologies, both of whom were down close to ten points this morning. The global technology supply chain is hence threatened by the episode which has the potential to slow down operations and device shipments, consequently lowering the demand for its products. Still, in the long term, Huawei’s overall strategy is unlikely to be affected by the arrest of its CFO as the company continues pushing toward the title of the world’s largest smartphone maker after already establishing dominance in the telecom equipment segment.