The arrest of a top Huawei executive is ‘a shot into the heart’ of China’s tech ambitions, analysts say

Reporting from Beijing —  The arrest of a top executive at one of the most successful Chinese global companies threatens to upend a delicate detente between the U.S. and China in their months-long trade war.

Meng Wanzhou, deputy chairwoman and chief financial officer of telecommunications giant Huawei, was arrested Saturday during a transit stop at a Vancouver airport and could face possible extradition to the U.S. and an appearance in federal court in New York.

A U.S. law enforcement official, who was not authorized to discuss the case by name, said the action against Meng involves violations of U.S. sanctions against Iran. Another U.S. official described the violations as serious. Neither official provided specifics.

The arrest comes at a sensitive time as Washington and Beijing aim to strike a trade deal before March 1. White House officials told CNN that Meng could be used as leverage in trade talks. It’s unclear whether President Trump knew about the arrest in advance, though national security advisor John Bolton told National Public Radio that he did.

Now any trade agreement has to overcome what will probably be viewed as a provocation in the eyes of China’s leadership, given Huawei’s importance.

“Huawei embodies the existential angst of China hard-liners in the U.S. concerned about China’s ostensible grand plan for global domination of new high-tech industries,” said Eswar Prasad, a professor of trade policy at Cornell University. “Meanwhile, such actions by U.S. and other governments crystallize fears among Chinese leaders that the real intention is to hold back China’s economic progress and transformation.”

China demanded the immediate release of Meng, who is among the cream of China’s corporate elite. She is the daughter of tech billionaire Ren Zhengfei, Huawei’s founder and CEO and a former engineer in the People’s Liberation Army.

Chinese officials said she had not broken any laws, accused the United States and Canada of violating her rights and demanded an explanation as to why she was arrested.

Huawei said in a statement it was unaware of any wrongdoing by Meng.

Chinese state media accused the U.S. of harassing Huawei to gain advantage in the worldwide competition for control of next-generation 5G cellular networks.

U.S. officials have not officially confirmed the reasons for Meng’s arrest. The U.S. has long considered Huawei a front for the Chinese government and military.

The arrest “wasn’t a shot across the bow, but a shot into the heart of the ship” because Meng was basically considered an official of the Chinese government, a former U.S. official involved in national security matters said, speaking on condition of anonymity.

President Trump and Chinese President Xi Jinping agreed Saturday to suspend planned tariff hikes for 90 days to allow negotiations on a deal to end the trade conflict.

In a sign that China wanted to push for a deal despite anger over Meng’s arrest, officials said Thursday that trade talks would go ahead on agricultural products, automobiles and energy.

Meng’s arrest, significant because of her elite connections and prominent corporate position, triggered shock in China. The arrest is doubly sensitive because it threatens the rise of one of China’s top cutting-edge brands, now the world’s second-largest smartphone company, surpassing Apple in sales this year.

The state-owned Global Times reflected Chinese outrage over her arrest in an editorial accusing Washington of “resorting to a despicable rogue approach” in a bid to hurt the company. The paper also tweeted Thursday that China should be ready for an escalation of the trade war, warning that Meng’s arrest was vivid evidence that Washington would not soften its stance against Beijing.

“It is clear that Washington is maliciously finding fault with Huawei and trying to put the company in jeopardy with U.S. laws,” the editorial said.

Washington is demanding sweeping changes to China’s industrial policy, in particular its state support for key high-tech industrial firms, forced transfers of technology by American companies doing business in China, and tolerance or tacit encouragement of intellectual property theft.

The U.S. stock market was hit by sharp declines this week as uncertainties over a trade deal continued and news of the arrest surfaced. Apple, a company that relies heavily on China for sales, saw its shares nosedive in early trading Thursday.

At the heart of the trade conflict is global rivalry between the world’s largest and second-largest economies, with the United States alarmed by China’s plans to be a world leader in key high-tech industries by 2025.

Whereas the U.S. accuses China of getting hold of high-tech American intellectual property by bullying companies wanting to trade in China or by stealing trade secrets, China is convinced that Washington’s true objective is to contain its rise as a leading global power.

“The detention of Meng Wanzhou demonstrates to the world yet again America’s unabashedly authoritarian nature,” wrote Chinese economist Mei Xinyu in a blog post for the People’s Daily, a Communist Party mouthpiece.

“America is trying to use its powerful alliance system to turn domestic laws into ‘international laws,’ shamelessly imposing its own aims and standards onto other countries’ systems,” Mei continued. “This should remind all Chinese and other countries’ scientific or technological personnel and corporate figures to watch out for personal safety and freedom before going to the United States.”

Huawei faces mounting barriers globally as the U.S. and allies including Australia, New Zealand and Britain have blocked it from participating in 5G networks for reasons of national security. Britain has announced it is also removing Huawei equipment from 3G and 4G networks. The United States has banned government agencies from using Huawei products, citing national security concerns.

As the U.S. presses its allies to pick sides in a strategic fight for global dominance that could unfold over decades, Canada is also considering whether to bar Huawei from 5G networks.

Meng’s arrest could also complicate Huawei’s access to the U.S. components it relies on. The company sources smartphone chips and network equipment from American firms such as Qualcomm, Intel and Xilinx.

“American components permeate across their products,” said Mark Hung, an analyst for Gartner, a research firm.

Though Huawei generates little revenue in North America, it has found large markets in Europe, Africa and Southeast Asia. Global markets accounted for about half of its $92.5-billion revenue in 2017, the company said.

Though by no means a brand name like Apple, Huawei’s influence is on par with the iPhone maker, Hung said. Its high-end P series handsets boast many of the same features as the iPhone X or Samsung Galaxy Note 9.

Huawei is a more diversified company than Apple, earning half its revenue from running mobile networks, 40% from its phones and the remaining 10% from supplying corporate clients with services such as cloud computing. “Huawei doesn’t have the consumer reach Apple has,” Hung said, “but Apple doesn’t have the enterprise or telecom reach Huawei has.”

Another prominent Chinese company, ZTE Corp., faced peril after a punitive U.S. ban on its use of American components in its cellphones — parts on which it was heavily reliant — for violating U.S. sanctions against North Korea and Iran. The company’s collapse was narrowly averted when it paid a fine of about $1 billion after Trump intervened this year to save the firm at Xi’s request. White House advisor Peter Navarro said in June that Trump had given ZTE one last chance as a “personal favor” to Xi.

The ZTE case highlights the vulnerabilities Huawei could face if the company is hit with similar U.S. action. Some analysts say the American action against ZTE has only heightened China’s determination to develop its own high-tech components to free itself from any dependence on American inputs.

The Hong Kong-based South China Morning Post reported Thursday that Meng told employees during an internal talk in October that there were occasions when the company could weigh the costs of breaking the law and decide the risk was acceptable.

Times staff writers Alice Su in Los Angeles and Del Quentin Wilber and Don Lee in Washington contributed to this report.

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