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Abu Dhabi, UAEFriday 14 December 2018

Arrest of China executive rattles US trade truce

Justice officials seek extradition of Huawei's Meng Wanzhou to New York

Meng Wanzhou, Huawei Technologies Co Ltd's chief financial officer (CFO), is seen in this undated handout photo obtained by Reuters December 6, 2018. Huawei/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. NO RESALES. NO ARCHIVE.
Meng Wanzhou, Huawei Technologies Co Ltd's chief financial officer (CFO), is seen in this undated handout photo obtained by Reuters December 6, 2018. Huawei/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. NO RESALES. NO ARCHIVE.

The arrest in Canada of a top executive and daughter of the founder of Chinese tech giant Huawei at the request of the United States could escalate a trade war and trigger retaliatory action despite an apparent 90-day halt in hostilities that President Donald Trump hailed days ago as progress.

Meng Wanzhou, Huawei's chief financial officer, was changing planes in Vancouver when she was taken into custody on Saturday, the same day that Mr Trump and Chinese President Xi Jinping dined together in Buenos Aires at a G20 summit.

Mr Trump said afterwards in Argentina that the two countries would soon begin negotiations on lowering US tariffs and on China taking action to remove barriers to American businesses operating there.

But the arrest of Ms Meng, also known as Sabrina Meng and Cathy Meng, purportedly for violating US trade sanctions against Iran, complicates the vague truce that Mr Trump has in recent days been scrambling to defend. Global markets tumbled after an initial spike following an announcement later queried for its lack of detail. The arrest of Ms Meng exacerbated a global stocks sell-off on Thursday. Huawei's shares fell sharply in China.

The specifics of the charges against Ms Meng were not released as she sought and was granted a ban on publication of the alleged violations of sanctions. A bail hearing is to take place on Friday.

Ian McLeod, a spokesman for Canada's Justice Department, said the US has asked for Ms Weng's extradition to New York where the charges have been brought.

The US Justice Department refused to comment but its officials are understood to be investigating Huawei for possible violations of trade sanctions against Iran and North Korea.

The Chinese embassy in Canada condemned Ms Meng's arrest as a violation of her rights, demanded her release to "immediately correct the wrongdoing", and added that it was seeking clarification from US officials about what she is accused of.

Understood to be in her mid forties, Ms Meng has been touted as heir to the company, which recently leapfrogged Apple to become the world's second-largest maker of smartphones, behind Samsung.

The targeting of such a senior financial executive – Ms Meng's father Ren Zhengfei, a former Chinese People's Liberation Army engineer, founded the company in 1987 – symbolises US action at the highest level.

The Justice Department investigation of Huawei, which generated income of $90 billion last year, is said to be at the request of the US Commerce and Treasury officials who suspect sanctions violations.

Beyond its smartphone business, Huawei has become synonymous with China's effort to transform itself from a country that makes cheap but unreliable technology to a world player to rival the biggest companies based in Silicon Valley and long-established Asian rivals such as Samsung, Sony and Toshiba.

But Huawei has also attracted scrutiny for possible misuse of its technology. Its equipment is intricately connected to global mobile networks and the US suspects the company's close ties to the Chinese government may present a security threat.

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Although big in Europe and Asia, the company has struggled to penetrate the US market. More broadly, the arrest of Ms Meng is significant both for the business and Chinese-US relations.

“The timing and manner of this is shocking,” said Andrew Gilholm, director of North Asia analysis at Control Risks Group. “It’s not often the phrase OMG appears in our internal email discussions.”

It is unclear what role, if any, Mr Trump played in Ms Meng’s arrest. The US president said that China had agreed at the weekend to major concessions, including reducing or removing tariffs on American cars but he lacked specifics on how and when.

Analysts said it was likely the US case against Ms Meng had been conducted separately from the trade talks as part of Mr Trump's efforts to target Chinese companies involved in economic espionage, cyber activity, the skirting of sanctions and theft of intellectual property. In October, the US said Belgium extradited a Chinese intelligence official accused of stealing trade secrets from American companies, an unprecedented event.

Since the weekend meeting between presidents Trump and Xi, China has said it will stick to what was agreed. But markets remain unconvinced, with European and American indexes also falling.

"Traders are worried that US-China relations have deteriorated," said CMC Markets analyst David Madden of Thursday's sell-off, citing Ms Meng's detention.

"US-China relations were on the mend after the G20 summit ... and now the arrest might have thrown a spanner in the works."

Despite Mr Trump consistently lambasting US trade deficits with other nations as a justification for tariffs, the US Commerce Department said on Thursday that the country's total trade gap rose 1.7 per cent to $55.5 bn last month, driven by all-time high imports.

The gap in goods trade with China likewise continued to expand, rising 2 per cent to $38bn, adding to concern that US economic growth is weakening.

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