Sunday, 16 Dec 2018

The US got Canada to arrest a top Chinese tech executive

The arrest of Huawei’s Sabrina Meng is a “warning shot� in US-China relations.

The arrest of a top executive from Chinese telecommunications company Huawei has added a new layer of tension to the United States’ relations with China.

Meng Wanzhou, the chief financial officer of Huawei who goes by Sabrina Meng, was detained in Vancouver, Canada, on Saturday and is sought for extradition by the United States, Canada’s justice department revealed late Wednesday. The arrest appears to be related to alleged violations of US sanctions against Iran.

The news lands just days after President Donald Trump and Chinese President Xi Jinping reached an agreement on the sidelines of the G20 summit in Buenos Aires to take a pause in their trade spat and try to work things out. It indicates strains between the US and China might be escalating, not fading.

Here’s what happened: Meng, who is the daughter of Huawei’s founder, Ren Zhengfei, was detained by Canadian authorities on behalf of the US when she was changing flights in Canada on what Huawei said in a statement were “unspecified charges� from the Eastern District of New York. The company said it has been provided “very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng.�

At issue appears to be allegations that Huawei violated US sanctions on Iran. The Wall Street Journal reported in April that the Justice Department had launched a criminal probe into Huawei’s dealings with Iran, and both the Commerce and Treasury Departments had issued administrative subpoenas to the company on Iran-related issues.

As the New York Times notes, US officials have had their eye on Huawei for a while, and have tried to persuade other countries to avoid business ventures with the company out of security concerns. The Trump administration is also looking to tighten sanctions on Iran after Trump decided to withdraw the US from the Iran deal in May.

Huawei isn’t the first Chinese firm to come under US scrutiny over its dealings with Iran: In 2017, Chinese telecommunications equipment maker ZTE pleaded guilty in a US sanctions case and agreed to pay almost $900 million to the US. The Commerce Department in April 2018 said ZTE had broken the terms of the deal and banned US companies from selling ZTE components. Trump eventually intervened to strike a deal letting ZTE stay in business in exchange for paying a $1 billion fine and agreeing to monitoring by US regulators.

This is a big deal in context

There are a lot of factors that render the arrest of Weng a pretty big deal.

Huawei has close ties to the Chinese government; a 2012 congressional report flagged Huawei’s relationship with the Chinese Communist Party and “credible evidence� that the company fails to comply with US laws. And the Pentagon this year banned sales of Huawei phones on US military bases.

“Huawei is a great company, makes good stuff, but it acts as an arm of the Chinese intelligence services,� James Lewis, senior vice president at think tank the Center for Strategic and International Studies, said in an email. “This has been true from the start, and one reason why China subsidizes Huawei so heavily.�

He added that the arrest is tied to China’s “willingness to ignore� US and United Nations sanctions and a “warning shot� of potential consequences for doing so. Detaining an executive from a major tech company is a big deal — think Facebook’s Mark Zuckerberg or Twitter’s Jack Dorsey.

“It will be interesting to see how the Chinese retaliate — if I was a US tech executive, I wouldn’t go to China for a while,� Lewis said.

A spokesperson for the Chinese foreign ministry told reporters that Meng’s detention “without any given reason violates a person’s human rights,� according to the BBC. The spokesperson said that China had demanded both the US and Canada “immediately clarify the reasons for the detention, and immediately release the detainee to protect the person’s legal rights.�

Global markets were rattled by news of Weng’s arrest on Thursday and concerns it might increase tensions between the US and China. While investors initially seemed optimistic about Trump’s temporary trade truce with China, as it has come under scrutiny, sentiment has reversed.

“The arrest should weigh on market sentiment as it represents a near-term complicating factor in negotiations between the US and China, but also because it underscores the fundamental factors driving tensions between the two countries,� Isaac Boltansky, an analyst at research firm Compass Point, wrote in a note to clients on Thursday.

The White House has not yet reacted to the news.