Huawei, the Chinese tech giant, is facing a lot of heat across the globe. Here’s a primer on the latest controversy
On December 1, law enforcement agencies in Canada arrested Meng Wanzhou, chief financial officer of the world’s second largest, and China’s biggest, smartphone maker Huawei. The arrest was on request of America’s Justice Department which had put out a warrant on Meng, alleging that she played a crucial role in helping Huawei do business with Iran, a country the US has imposed several sanctions on. The US never engages with entities that breach such sanctions.
The Iran link
Now the US officials allege that Huawei did do some business with Iran by selling it telecom equipment through a shell company called SkyCom, which was based in Hong Kong. SkyCom, according to Huawei’s own sources, was dissolved later. But US officials say the arrested CFO, Meng, was a director in the board of SkyCom and hence she should be tried for violating the US sanctions on Iran. The 46-year-old tech executive was about to catch a flight to Mexico in Canada’s Vancouver when she was arrested.
As expected, the arrest of Meng — who’s not your run-of-the-mill CFO but a high-profile and influential business person whose father Ren Zhengfei is the founder of Huawei Technologies, which keep close links with the Chinese government and its People’s Liberation Army — triggered a global debate. So naturally China intervened and expressed its displeasure at the arrest of Meng in strong terms, by summoning the US Ambassador to China Terry Branstad last Sunday. China said Meng was booked at the “unreasonable behest” of the US. Chinese officials reportedly warned Canada of dire consequences if it responds positively to the demands of the US Justice Department and extradite Meng to the country.
In fact, if China gets really angry over the issue, Canada runs the risk of losing its friendship and that would in turn impact the Chinese investment in the country. Canada sells around $20 billion worth of goods to China every year. China is Canada’s second-largest trading partner, after the US. But Ottawa hopes the Huawei episode won’t affect the trade between the two countries. Last Thursday, while addressing the Canada 2020 forum, Canada’s finance minister Bill Morneau said the Huawei issue would not affect Ottawa’s trade talks with Beijing.
But you never know. As things stand now, it is unlikely China nor Canada would go to that extend, but in the volatile geopolitical environment that exists today even a small issue can snowball into something bigger and perilous. And considering the way US President Donald Trump has been approaching the arrest of Meng — he tweeted he was willing to intervene in the Meng episode if it helped secure “the largest trade deal ever made”. Such boisterous statements could easily irk China with which the US has been waging a trade war of late. The world has already seen the “tariff” war between the world’s two largest economies, with Trump imposing tariffs on $250 billion worth of Chinese goods imported to the US. The administration has warned that tariffs of another $267 billion could be in the pipeline. China, in turn, slapped tariffs on $110 billion worth of US products.
A step ahead
In fact, Meng was held the day Trump was holding trade talks with Chinese President Xi Jinping in Buenos Aires. Expectedly, China went a step ahead. On December 11, it arrested a former Canadian diplomat, who now works with the non-profit the International Crisis Group, on what media termed flimsy charges. History shows such behaviour is not something new from China. In 2014, the Communist regime arrested Canadians in a similar circumstance. China arrested a Canadian couple who ran a cafe near its North Korea border when Canada booked a Chinese citizen charging him of stealing military secrets. So the message China is sending out is clear: Mess with Huawei at your own peril. Also, coming at a time when geopolitical experts think that the US-China trade war was ebbing out, the detention of Meng could escalate US-Chinese tensions beyond a point.Even though Meng finally received a bail from a Canadian court for a $7.5 million fee, she still faces the threat of extradition to the US.
That said, there is more pain in store for Huawei, with several countries imposing curbs on its products, much like the US did a while ago, alleging the equipment sold by the company have security vulnerabilities that could threaten their national security interests. Huawei is aggressively pushing its 5G technology and products. The company says it has signed some 22 commercial contracts for 5G, and has tied up with some 50 carriers on 5G trials. Even though countries such as Australia, New Zealand and Japan have rejected Huawei equipment citing security concerns, the Chinese giant merrily globe-trots supplying networking hardware to countries small and big. The Huawei juggernaut, it seems, cannot be stopped easily. Even without selling products in the US, which is one of the biggest market for the kind of products it makes, Huawei was able to clock in $92.5 billion in revenue in 2017. That shows it can easily strike deals in other markets and sustain its portfolio without much hassle.
So, if the US rattles the company’s clients and management by forcing the Canadians to send her to the country and tries her on such serious charges as breaching its sanctions on Iran, the US-China ties could face a different phase — and that won’t augur well for the US, China, Huawei and the countries that do business with China, starting with Canada.