How Huawei CFO's Arrest has Widened the U.S.-China Tech Divide

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Ren Zhengfei (right) gives Chinese President Xi Jinping a tour of Huawei’s London offices during a visit in 2015.

Photo: Press Association/Sipa USA

 

It has been a week since Canadian authorities arrested Huawei CFO Meng Wanzhou in Vancouver on fraud charges. Shockwaves from the case continue to reverberate through Washington, Beijing, and global financial markets. There has been a cacophony of commentary in the press and social media on both sides of the Pacific. If anything, it’s getting harder to separate signal from the noise.

 

We know only a little about the charges that have been brought against Meng. Much of the press coverage to date has focused on the political symbolism. Did Trump know about the arrest going into his dinner meeting in Argentina with Xi Jinping? Will Meng’s arrest derail the 90 day U.S.-China trade truce? Will Xi Jinping retaliate by detaining U.S. tech executives in China?

 

There’s been an inordinate amount of hand-wringing about how the case has, as the New York Times put it, “unleashed a combustible torrent of outrage and alarm among affluent and influential Chinese.” Huawei is one of China’s most highly valued companies. Numerous analyses in the Western press have reminded readers that its technological achievements are a source of tremendous pride among China’s leaders and people, and that Meng, who is the daughter of Huawei founder Ren Zhengfei, is Chinese “corporate royalty.” The Times frets that arresting Meng was the equivalent of China arresting Sheryl Sandberg—”if Ms. Sandberg were also the daughter of…Steve Jobs.” (Notably, though, Ren has explicitly stated that his children don’t have what it takes to become Huawei CEO.)

 

Much of this is speculative blather. What we do know about the Meng case is that she has been charged with being part of a conspiracy “perpetuated at Huawei’s highest levels” to defraud banks—and if convicted faces up to 30 years in prison. We also know Meng’s arrest is part of a long-running Justice Department investigation, not something that was cooked up overnight for extra bargaining leverage in Buenos Aires.

 

At an extradition hearing in Vancouver Friday, Crown attorney John Gibb-Carsley laid out the case against Meng on behalf of the U.S. government. He alleged Huawei used a Hong Kong-based company called Skycom Tech to do business in Iran for Iranian telecom companies, breaching U.S. and European sanctions, and that Meng led U.S. financial institutions to believe it had no ties to Skycom when, in fact, the company was a thinly disguised subsidiary. Skycom employees, he alleged, were controlled by Huawei and some even used Huawei e-mail addresses.

 

Meng served on Skycom’s board from February 2008 to April 2009. David Martin, the attorney representing Meng at the hearing, acknowledged Skycom had been a Huawei subsidiary but said it was sold in 2009. Martin said that, while Huawei had remained a shareholder of the company, there is “no evidence” it was a Huawei subsidiary in 2013 and 2014, the period under investigation. In a statement Saturday morning China time, Huawei said it has “every confidence that the Canadian and U.S. legal systems will reach the right conclusion” in Meng’s case. But the extradition process could drag on for months.

 

The furor over Meng’s detention has obscured the larger push by the U.S. to bar Huawei from 5G networks outside of China, especially in countries that are members of the “Five Eyes” alliance (the U.S., Canada, United Kingdom, Australia, and New Zealand). Over the last few weeks, the other four have joined the U.S. in excluding Huawei from their telecommunications networks, eliciting expressions of “grave concern” from Beijing.

Economy and Trade

Tariff Man Trump. President Trump returned from the G20 summit meeting last weekend and announced that he and President Xi had negotiated a 90-day ceasefire to the Trade War, which has been raging since July. The two sides will attempt to negotiate a lasting peace during the respite but Trump’s commitment to the truce seems weak. On Twitter, the President declared himself ‘a Tariff Man’ and claimed his levies on Chinese imports have added billions to U.S. coffers. Bloomberg

 

China journeys west. Portuguese President Marcelo Rebelo de Sousa pledged to “promote” China’s Belt and Road Initiative (BRI), signing a memorandum of understanding with President Xi Jinping, who visited Portugal this week. The promise to “promote” the BRI is weaker than the pledge that other nations have made to “jointly construct” China’s flagship initiative on infrastructure. Caixin Global

Innovation and Tech

Huawei coverage. Japan may ban government purchases of Huawei and ZTE equipment in a bid to prevent intelligence leaks and cyber-attacks. The U.S. imposed a similar ban earlier this year and has pressured its allies to follow suit, alleging that the Chinese telco equipment manufacturer could leak sensitive data to Beijing. Australia and New Zealand have since blocked bids by Huawei to provide 5G network equipment. In the U.K. also, security agencies have raised concerns about Huawei. Reuters

 

Didi buckles up. Didi Chuxing, China’s largest ride-hailing firm, announced a major restructuring on Wednesday to improve passenger safety, following two rape-murder cases involving Didi drivers earlier this year. Three of Didi’s car-hailing services will be brought under the newly minted Ride-hailing Business Group (RBG), which will take “safety as its top priority.” The company will also appoint a new chief safety executive. TechCrunch

 

See you…there. China wants to become the first nation to land a lunar probe on the dark side of the moon. It’s a complicated feat. Radio signals from Earth aren’t able to reach the moon’s far side directly, so China launched a satellite in May to bounce signals to the moon’s remote surface. China launched the lunar lander, Chang’e-4, this morning but it will not land until early January. BBC

 

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