Tensions Rising Over Huawei CFO's Arrest, China Pressures US Envoy

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The already tense relations between the United States and China are now deteriorating even further following the recent arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada based on a request from the stateside Department of Justice. About a week after the original story of the event broke, the communist government summoned U.S. ambassador to China, Terry Branstad, voicing its displeasure over the development and threatening action against Washington. The summon happened on Saturday and was largely a formality, according to recent reports, with the happening not amounting to much in terms of political consequences. China remains adamant that the arrest of Ms. Meng is baseless and an act of bad faith against its people, having already demanded the industry veteran and daughter of Huawei founder Ren Zhengfei be released immediately.

All Quiet on the Eastern Front – kind of

Despite the fact that the Chinese government's decision to summon Mr. Branstad to complain about Ms. Meng's arrest is its most high-profile disapproval of the recent events to date, the act itself is standard practice for Beijing when it comes to any kind of international disputes. The U.S. envoy is understood to have largely reiterated Washington's already outlined comment on the matter during his Saturday meeting with China's Foreign Ministry officials, which is that the case itself is an ongoing affair that will be cleared up in the near future. The Justice Department is presently trying to have Ms. Meng extradited in order to hold a trial on U.S. soil but before that can happen, it needs to win a legal battle in Canada, i.e. the Canadian government needs to do so on Washington's behalf.

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But things are getting heated in the West

That's exactly what started happening on Friday when a Vancouver court was expected to reach a decision on whether to allow bail for the Huawei CFO, though no such ruling was ultimately made and the 46-year-old spent a weekend in jail, waiting for her trial to resume today. It's currently unclear whether there's a possibility that the bail decision will be further postponed but such a turn of events would out of the ordinary in the context of the Canadian judicial system. Ms. Meng previously won a publication ban, limiting the media's ability to report on the details of the case. What's currently known based on the Friday hearing is that the U.S. Justice Department believes she established and maintained hidden ties between Huawei and Skycom, a company operating in Iran, with the goal of circumventing stateside trade sanctions imposed on the Middle Eastern country. The episode is said to have involved an illegal banking scheme, among other things.

If proven, such a transgression would constitute a fraud under U.S. law, punishable by up to 30 years in federal prison. The Canadian government's representatives in the case are still pushing against Ms. Meng's bail, claiming Huawei's top executive is a flight risk that has every incentive to flee the country if an opportunity arises, a notion that's already been dismissed by the CFO's legal team last week. Huawei itself condemned the arrest and the secretive manner in which it was conducted on Saturday, December 1, maintaining it's not aware of any kind of wrongdoing on the executive's part and demanding to see some evidence of the thereof.

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The Chinese media and select government officials already accused the U.S. of foul play in regards to the Vancouver arrest, alleging the move is nothing short of an illegitimate attempt at destabilizing the world's number one telecom equipment manufacturer and the largest privately owned firm in the Far Eastern country in terms of headcounts. The same argument was previously used by Huawei itself to attack the legitimacy of the U.S. efforts to stifle its stateside ambitions which last materialized in the form of a provision of this year's spending bill which specifically forbade the federal government from purchasing or licensing technologies manufactured or otherwise associated with Huawei or ZTE, another Shenzhen-based company, albeit one that's directly controlled by Beijing, being majority-owned by a state-sponsored entity.

What Huawei can deduce from ZTE's 2018 scandal

ZTE itself is no stranger to disputes with the American government in regards to trade sanction violations. It was accused of several such transgressions some two years back, specifically in regards to embargoes imposed on North Korea and Iran, with the manufacturer then breaking its original 2017 settlement which almost pushed it into bankruptcy after the Department of Commerce hit it with a denial order preventing it from acquiring American technologies such as Qualcomm's Snapdragon chips and contemporary versions of the Android operating system with Google's apps. That ordeal also caused significant friction between the U.S. and China, especially as it arose amid heightening tensions in regards to trade which resulted in a full-blown trade war involving heavy tariffs on tens of billions of dollars of goods.

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A 90-day truce was agreed at a G20 summit in Argentina just ten days ago which was happening as Ms. Weng was being arrested in Canada on behest of the U.S. The helms of the Trump and Trudeau administrations claimed ignorance in regards to the episode, stating the arrest wasn't politically motivated and was organized by their law enforcement agencies independently based on collected evidence. Regardless, as the case revolves around supposedly broken trade sanctions, the precedent set by the U.S. government with ZTE shows that Huawei can't count on being too big of a fish to get caught in a massive legal storm if the said allegations are proven in the court of law.

How all of that will immediately affect the already heavily deteriorated relations between the U.S. and China remains to be seen but the tensions are unlikely to drop anytime soon seeing how the extradition process the Justice Department is currently trying to see through is expected to last up to several months. In the meantime, Huawei's shares and its suppliers' stocks are all down due to the uncertainty introduced by Ms. Meng's arrest, adding yet another chapter to the company's long history of issues with the U.S. government.