Arrest of Huawei CFO shows 'the gloves are now fully off,' says Eurasia Group

  • The arrest of Huawei's global chief financial officer in Canada, reportedly related to the violation of U.S. sanctions, will affect trade negotiations between Washington and Beijing, according to risk consultancy Eurasia Group.
  • Canada's Department of Justice said on Wednesday the country arrested Meng Wanzhou in Vancouver, where she is facing extradition to the U.S.
  • U.S. authorities have been probing Huawei, one of the world's largest makers of telecommunications network equipment, 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, sources told Reuters in April.
Meng Wanzhou, Executive Board Director of the Chinese technology giant Huawei, attends a session of the VTB Capital Investment Forum "Russia Calling!" in Moscow, Russia October 2, 2014.
Alexander Bibik | Reuters
Meng Wanzhou, Executive Board Director of the Chinese technology giant Huawei, attends a session of the VTB Capital Investment Forum "Russia Calling!" in Moscow, Russia October 2, 2014.

The arrest of Huawei's global chief financial officer in Canada, reportedly related to a violation of U.S. sanctions, will corrode trade negotiations between Washington and Beijing, risk consultancy Eurasia Group said Thursday.

"Beijing is likely to react angrily to this latest arrest of a Chinese citizen in a third country for violating U.S. law," Eurasia analysts wrote.

In fact, Global Times — a hyper-nationalistic tabloid tied to the Chinese Communist Party — responded to the arrest by posting on Twitter a statement about trade war escalation it attributed to an expert "close to the Chinese Ministry of Commerce."

"China should be fully prepared for an escalation in the #tradewar with the US, as the US will not ease its stance on China, and the recent arrest of the senior executive of #Huawei is a vivid example," said the statement, paired with a photo of opposing fists with Chinese and American flags superimposed upon them.

Canada's Department of Justice said on Wednesday the country arrested Meng Wanzhou in Vancouver, where she is facing extradition to the U.S. The arrest is related to violations of U.S. sanctions, a person familiar with the matter told Reuters.

U.S. authorities have been probing Huawei, one of the world's largest makers of telecommunications network equipment, 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, sources told Reuters in April.

The analysts said the Huawei executive's arrest will not derail the start of trade negotiations after U.S. President Donald Trump and Chinese President Xi Jinping's meeting last weekend in Argentina saw them agree to first steps to resolve their trade dispute. Still, they acknowledged, the incident involving Chinese telecommunications giant Huawei is likely to cloud talks.

Meng, one of the vice chairs on the Chinese technology company's board and the daughter of company founder Ren Zhengfei, was arrested on Dec. 1 and a court hearing has been set for Friday, Reuters reported a Canadian Justice Department spokesman said.

Her arrest came amid multiple accusations levied by Trump's administration against Chinese technology companies.

Trump, who made U.S. trade policy a central plank of his platform as a presidential candidate in 2016, wants to address specific gripes about China's trade practices, especially its theft of U.S. intellectual property.

"Coupled with other pending actions the administration is considering, such as announcing that China is in breach of the 2015 (Barack) Obama-Xi agreement on cyber theft of IP (intellectual property) and trade secrets — which will likely be accompanied by sanctions against Chinese companies that benefited from IP theft — this type of action will affect the atmosphere around the negotiations — making them less likely to bring a sustainable settlement," the Eurasia Group analysts said.

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."

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

Meng Wanzhou, Huawei CFO
Source: Huawei
Meng Wanzhou, Huawei CFO

The latest development involving Huawei also came just a week before the U.S. and China meet to negotiation trade related issues focused on the U.S. Trade Representative's 301 investigation.

"The arrest and extradition request by the US government represents a new and major escalation in what has been a series of U.S. efforts to hold Chinese companies accountable for violations of U.S. law, some dating back years," the Eurasia Group note said.

"The arrest of the senior Huawei officials suggests that the gloves are now fully off in this arena, and U.S. law enforcement officials have a green light from senior administration officials to pursue ... individuals the U.S. may not have gone after in a more benign bilateral political climate," the consultancy added.

The probe of privately held Huawei is similar to one that threatened the survival of China's ZTE, 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.

—Reuters contributed to this report.

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