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Abu Dhabi, UAEFriday 14 December 2018

Huawei CFO arrest outrages China and rattles markets

Canada's arrest of executive and possible extradition to US risks scuttling temporary detente between Washington and Beijing

A profile of Huawei's chief financial officer Meng Wanzhou is displayed on a Huawei computer at a Huawei store in China. AP
A profile of Huawei's chief financial officer Meng Wanzhou is displayed on a Huawei computer at a Huawei store in China. AP

Canada’s arrest of the chief financial officer of Huawei, at the request of the US, has rattled Asian markets and enraged Beijing, which is in the midst of negotiations intended to deescalate a trade war with Washington.

Meng Wanzhouf, who is the daughter of the Chinese technology giant's founder Ren Zhengfei, was arrested on suspicion of violating US trade sanctions against Iran, Canada's The Globe and Mail newspaper reported.

“She is sought for extradition by the United States, and a bail hearing has been set for Friday,” Justice Department spokesman Ian McLeod said in a statement to the Canadian newspaper. “As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms Meng.”

Ms Meng's arrest rattled markets in Asia with Hong Kong-listed shares in ZTE falling 6.1 per cent while the company’s Shenzhen-listed stock dropped 5.2 per cent. AAC Technologies fell 6.4 per cent, Sunny Optical dropped 5.5 per cent as China’s CSI 300 index of major Shanghai and Shenzhen-listed companies fell 2.16 per cent. Japan's Topix index dropped 1.82 per cent, while Hong Kong's Hang Seng dropped 2.5 per cent and South Korea's KOSPI gauge fell 1.55 per cent.

The "message is clear - the US is closing the borders to many Chinese technology companies," said Neil Campling, co-head Global Thematic Group at Mirabaud Securities.

"If you look at various reports from the US government agencies, you can see that regulations have been tightened up significantly in past few months," added Mr Campling. "The US has identified that China has found a backdoor to enter the US market through venture capitalists and private investors but those are also now shutting down gradually."

The Chinese Embassy in Canada condemned the detention of Ms Meng denying she had violated Chinese or US laws.

"The Chinese side firmly opposes and strongly protests over such kind of actions which seriously harmed the human rights of the victim. The Chinese side has lodged stern representations with the US and Canadian side, and urged them to immediately correct the wrongdoing and restore the personal freedom of Ms Meng Wanzhou," a spokesperson for the Chinese Embassy said in a statement. "We will closely follow the development of the issue and take all measures to resolutely protect the legitimate rights and interests of Chinese citizens."

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In a statement, Huawei, the second largest smart-phone seller globally after Samsung, said Ms Meng's detention was prompted by unspecified charges in the Eastern District of New York when she was transferring flights in Canada.

"The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms Meng. The company believes the Canadian and US legal systems will ultimately reach a just conclusion," Huawei said. The Shenzhen-based company said it complies with all applicable laws and regulations where it operates "including applicable export control and sanction laws and regulations of the UN, US and EU."

A Chinese foreign ministry spokesman Geng Shuang reiterated Beijing wanted the US and Canada “to clarify the grounds for the detention, to release the detainee and earnestly safeguard the legitimate rights and interests of the person involved,” Bloomberg reported.

This is not the first time a Chinese technology company has found itself in hot water with the US. ZTE, China’s second-largest telecoms equipment maker, agreed to pay $1.4 billion in total fines to the US after Washington slapped a ban in April on purchases of essential American components for seven years to punish the company for Iran sanctions violations. ZTE, whose Hong Kong-listed shares were suspended in April because of the ban and only resumed trading in July, was also forced to replace its board.

There had already been concerns in the US over the security of Huawei’s technology amid worries that the Chinese government could use the tech company’s products to spy on Americans, an allegation the company has long denied. Huawei has also been taking heat in other markets. BT, Britain's largest mobile provider, said this week it was removing the equipment of Huawei from its 4G cellular network.

Lenovo has also come under attack in the US for allegedly selling compromised computers that expose users to spying.

The detention of Ms Meng threatens to scuttle the temporary detente reached by US President Donald Trump and his Chinese counterpart Xi Jinping at the G20 talks in Argentina to halt new trade tariffs for 90 days as the two countries negotiate. Mr Trump was slated to raise additional tariffs on $200bn of Chinese goods from 10 per cent to 25 per cent on 1 January.

"I do think..the timing has a bearing on those talks in particular because Huawei is perhaps the most successful global company in China," said Mr Campling. "It certainly raises concerns about the future of talks...this is certainly another step-back in the ongoing trade negotiations."