Huawei founder's daughter arrested on U.S. request, clouding China trade truce

Huawei founder's daughter arrested on U.S. request, clouding China trade truce

By Julie Gordon and Karen Freifeld

 

2018-12-06T024956Z_1_LYNXMPEEB506W_RTROPTP_4_BT-GROUP-HUAWEI-TECH.JPG

FILE PHOTO: People walk past a sign board of Huawei at CES (Consumer Electronics Show) Asia 2018 in Shanghai, China June 14, 2018. REUTERS/Aly Song/File Photo

 

VANCOUVER/WASHINGTON (Reuters) - The daughter of Chinese tech giant Huawei's founder has been arrested in Canada and is facing extradition to the United States, dealing a blow to hopes of an easing of Sino-U.S. trade tensions and rocking global stock markets.

 

The shock arrest of Meng Wanzhou, who is also Huawei Technologies Co Ltd's [HWT.UL] chief financial officer, raises fresh doubts over a 90-day truce on trade struck between Presidents Donald Trump and Xi Jinping on Saturday - the day she was detained.

 

The arrest is related to violations of U.S. sanctions, a person familiar with the matter said. Reuters was unable to determine the precise nature of the violations.

 

The arrest and any potential sanctions on the world's second biggest smartphone maker could have major repercussions on the global technology supply chain. Shares in Asian suppliers to Huawei, which also counts Qualcomm Inc and Intel among its major suppliers, tumbled on Thursday.

 

Meng, one of the vice chairs on the company's board and the daughter of company founder Ren Zhengfei, was arrested on Dec. 1 at the request of U.S. authorities and a court hearing has been set for Friday, a Canadian Justice Department spokesman said. Trump and Xi had dined in Argentina on Dec. 1 at the G20 summit.

 

Sources told Reuters in April that U.S. authorities have been probing Huawei, the world's largest telecoms equipment maker, since at least 2016 for allegedly shipping U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws.

 

Huawei confirmed the arrest in a statement and said that it has been provided little information of the charges, adding that it was "not aware of any wrongdoing by Ms. Meng".

 

She was detained when she was transferring flights in Canada, it added.

 

China's embassy in Canada said it resolutely opposed the arrest and called for Meng's immediate release.

 

In April, the sources told Reuters the U.S. Justice Department probe was being handled by the U.S. attorney's office in Brooklyn.

 

The U.S. Justice Department on Wednesday declined to comment. A spokesman for the U.S. attorney's office in Brooklyn also declined to comment.

 

CHINESE MEDIA BACKLASH

The arrest drew a sharp response on Chinese social media.

 

A user of China's Twitter-like Weibo platform said Chinese should boycott products made by U.S. tech giant Apple Inc and instead buy Huawei products to show support for one of China's national champions.

 

Jia Wenshan, a professor at Chapman University in California, said the arrest was part of a broader geo-political strategy from the Trump administration to counter China and it "runs a huge risk of derailing the U.S.-China trade talks".

 

Mei Xinyu, a researcher at a think tank run by the Ministry of Commerce, wrote in an article on the official People's Daily Overseas Edition's WeChat account that the arrest was a warning that the Trump administration might abandon its deal with China.

 

"We can be sure that in the near future a bumpy road of fights followed by talks will be the norm of China-U.S. relations," Mei wrote.

 

"China must become accustomed to this new environment of struggle and treat all of the U.S. government’s promises with caution."

 

While Meng's arrest comes at a delicate time in U.S.-China relations, it was not clear if the timing was coincidental.

 

Arthur Kroeber, founder of Gavekal Dragonomics, said it was unlikely that Beijing would retaliate in kind against the local U.S. business community, whose interests have partly overlapped with China’s in the trade war and been a source of leverage for Beijing.

 

"You can play hardball with a small country but you can't do it with the U.S.," he said. "Actually it hurts them to make life difficult" for U.S. companies.

 

The probe of Huawei is similar to one that threatened the survival of China's ZTE Corp <0763.HK> <000063.SZ>, which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran.

 

Earlier this year, the United States banned American firms from selling parts and software to ZTE, which then paid $1 billion this summer as part of a deal to get the ban lifted.

 

It was not immediately clear how Huawei's business operations might be affected by the arrest.

 

HONG KONG CONNECTION

In January 2013, Reuters reported that Hong Kong-based Skycom Tech Co Ltd, which attempted to sell embargoed Hewlett-Packard computer equipment to Iran's largest mobile-phone operator, had much closer ties to Huawei than previously known.

 

Meng, who also has gone by the English names Cathy and Sabrina, served on the board of Skycom between February 2008 and April 2009, according to Skycom records filed with Hong Kong's Companies Registry.

 

Several other past and present Skycom directors appear to have connections to Huawei.

 

The news about the arrest comes the same day Britain's BT Group said it was removing Huawei's equipment from the core of its existing 3G and 4G mobile operations and would not use the Chinese company in central parts of the next network.

 

Huawei has said it complies with all applicable export control and sanctions laws and U.S. and other regulations.

 

Meng's arrest drew a quick reaction in Washington.

 

U.S. Senator Ben Sasse praised the move and said that it was "for breaking U.S. sanctions against Iran." He added: "Sometimes Chinese aggression is explicitly state-sponsored and sometimes it's laundered through many of Beijing's so-called 'private' sector entities."

 

U.S. stock futures and Asian shares tumbled as news of the arrest heightened the sense a major collision was brewing between the world's two largest economic powers, not just over tariffs but also over technological hegemony.

 

Shares of Huawei suppliers slumped on Thursday as investors fretted over the arrest. Samsung Electronics <005930.KS> fell 2.3 percent, while Chinasoft International Ltd <0354.HK> sank as much as 13 percent.

 

(Reporting by Makini Brice; Additional reporting by Julie Gordon in Vancouver, David Ljunggren in Ottawa, Diane Bartz in Washington, Tony Munroe and Christian Shepherd in Beijing, Josh Horwitz and John Ruwitch in Shanghai and Jessie Pang in Hong Kong; Writing by Chris Sanders and Anne Marie Roantree; Editing by Sonya Hepinstall and Muralikumar Anantharaman)

 
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-- © Copyright Reuters 2018-12-06
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