Huawei’s Chief Financial Officer, Meng Wanzhou has been arrested in Canada at the request of US authorities who are also seeking Meng’s extradition to the US. Due to a publication ban (instigated by Meng), the details on what has transpired are very light. What has been reported is Meng was detained on December 1 while transiting through Canada and the charges are understood to be in relation to alleged violations of US trade sanctions against Iran.
In addition to Meng being a high ranking Huawei executive there’s also a personal element that seems to be in play here as Meng’s father, Ren Zhengfei also happens to be the founder of Huawei. Therefore, this arrest not only cuts to the political heights of the company, but also the personal. Besides the details of the arrest, the only other semi-confirmed information is a bail hearing is due to take place on Friday.
From AT&T to the Canadian judicial system
Huawei and the US have not been on the best of terms in 2018 and it seems unavoidable that their colorful history is now playing a role in this. Huawei has seen immense pressure from US authorities over the past few months and to the point where 2018 has seen the company’s stance in the eyes of US consumers completely disintegrate. Barely one year ago Huawei was preparing to announce a partnership with AT&T which would see the company’s smartphone products become available to US consumers at the carrier level. A move which would have marked a significant step in gaining a foothold in the lucrative US smartphone market for the company.
However, that was not to be the case as just before the announcement was due to be made, AT&T reportedly pulled out and not necessarily because of any issues with the actual deal, but due to a building in pressure from the US. This was only the start of the company's 2018 troubles with a chain of events that followed included various US agencies make their feeling’s public on Huawei’s products and its alleged close relationship with the Chinese government (something Huawei strongly denies), and Best Buy ending its relationship with the company by no longer stocking or selling its products. The latter of which was much bigger than it initially seemed considering Best Buy was one of the primary ways in which US consumers could pick up a Huawei smartphone - one of the reasons why the Chinese manufacturer was looking to strengthen its relationship with the likes of AT&T in the first place.
Not a one-way attack
Although much of the heavy punching has been by those on the US side of the argument, this has been a two-way political battle carried out in public with various Huawei executives taking various opportunities to add fuel to the fire. The most recent of which came through only last week when the company’s Rotating Chairman, Xu Zhijun said in no uncertain terms the race to 5G dominance will not be won by the US due to the government’s insistence on keeping Huawei and its related technologies out of its telecoms infrastructure - something the US has repeatedly cited as necessary based on national security concerns.
In general, Huawei has been very vocal in its defense, often immediately and forcefully disputing many of the suggestions and allegations that have be made by others, ranging in everything from acting as a spy tool for the Chinese government, to inflating benchmarks, to even fabricating user reviews for some of its products. The latter was something that unlikely helped its public persona in the US or its relationship with Best Buy considering it was the US retailer’s site where the ‘fake reviews’ most notably surfaced. As an example of Huawei’s continued defensive stance, while it did admit the reviews were not actual independent reviews, the company did not actively take responsibility for what happened and instead opted to blame the issue on a technical problem.
A new line crossed
While it is clear the relationship between the US and Huawei has been a frosty one in recent months, the arrest of Meng can only be seen as a clear escalation between the two. In many ways a definitive line has now been crossed and will be crossed even further if the extradition request is satisfied. This also could not come at a worse time as the US is also in the midst of trying to re-establish a less fragile relationship with China in general. President Trump and President Xi have in the past few days been looking to rebuild some of the bridges that had been affected by the ongoing trade war that has in recent months seen tariffs applied to products on both sides.
According to reports those talks had been going well, although it would seem this latest development is unlikely to make the continuation of those talks any easier to digest from China’s side, who are now expected to want to see a swift end to the Meng saga.
ZTE not a cautionary tale for Huawei
On the surface ZTE and Huawei's situations share common ground considering some of the same charges have been leveled at both companies, but the two situations are very far from being the same. Like this arrest, the US did implement an aggressive tactic with ZTE by effectively banning the company from doing business with US companies. A move which in a matter of months almost brought ZTE to its knees financially. This in turn, along with an intervention with President Xi resulted in an agreement between ZTE and US agencies which has now seen the Chinese company return to somewhat normal operations - albeit after suffering huge financial losses including new and substantial penalties paid to the US.
With Huawei, however, the situation is vastly different as in spite of the continued escalation in pressure from the US, Huawei has managed to enjoy financial success outside of the US to the point where although access to the US market stops the company from growing in the US market, it has not stopped it from growing in general. At the smartphone level, for example, recent indications show the Chinese company has continued to see massive gains in the worldwide sales segment with sales for the third quarter alone placing the company ahead of Apple and second only to Samsung - with the gap between Samsung and Huawei smaller than it has even been before.