Moneybox

What We Know About the Arrest of Huawei’s CFO

The arrest is sure to complicate the U.S.’s trade war negotiations with China.
The arrest is sure to complicate the U.S.’s trade war negotiations with China.
SAUL LOEB/AFP/Getty Images

Meng Wanzhou, the chief financial officer of the Chinese tech giant Huawei, was arrested in Canada on Saturday at the request of the United States. This high-profile arrest, which became public on Wednesday, comes as the U.S. and China are set to conduct weighty negotiations about trade and tariffs over a 90-day period that began at the G20 summit in Buenos Aires. President Trump and President Xi Jinping had struck a 90-day truce on the war on the same night that Meng was arrested.

Here’s what we know about this international incident so far.

Who is Meng Wanzhou?

Meng is the 46-year-old CFO of Huawei and one of its most visible figures. She is also the daughter of the company’s founder, Ren Zhengfei.

Meng had a splashy introduction to the public eye in 2013 when she presented performance estimates at a press conference and then proceeded to discuss her professional relationship with her father. She rose quickly and was appointed as one of Huawei’s deputy chairpersons in 2018, which put her within striking distance of running the company. However, her father has previously stated that his successor will not come from his own family.

Why was Meng arrested?

The U.S. Justice Department has not disclosed its reasons for arresting Meng. “The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng,” Huawei said in a statement.

However, the Department of Justice has been investigating Huawei, the world’s third-largest cellphone manufacturer, since at least 2016 on the suspicion that it has been violating U.S. sanctions against Iran. The U.S. Commerce and Treasury departments prohibit technologies developed in the U.S. from being shipped to Iran.

Nebraska Sen. Ben Sasse also attributed the arrest to Huawei’s dealings in Iran, noting, “Americans are grateful that our Canadian partners have arrested the Chief Financial Officer of a giant Chinese telecom company for breaking U.S. sanctions against Iran.”

The Wall Street Journal reported Thursday that HSBC Holdings had flagged suspicious activity in Huawei accounts to prosecutors seeking to extradite Meng to the U.S. The information has been relayed to the Eastern District of New York, which is handling the case. Reuters later reported that the Meng was arrested as part of an investigation into a scheme to use global banking to evade sanctions against Iran.

Meng is set to appear in Canadian court on Friday.

How has China reacted to the arrest?

The Chinese embassy in Ottawa, Canada, alleged that the arrest “seriously harmed the human rights of the victim.” The Chinese government has also pressed for her immediate release.

Chinese state-run media has uniformly stood behind Huawei. China Daily, the government’s English-language newspaper, ran an editorial on Huawei arguing, “What propels Washington’s animosity against China is its pertinacious Cold War mentality, with which it continually distorts the reality of international relations.”

The Global Times, a nationalist tabloid, has been somewhat more bellicose. “The Chinese government should seriously mull over the US tendency to abuse legal procedures to suppress China’s high-tech enterprises,” an editorial read. “It should increase interaction with the US and exert pressure when necessary.”

The People’s Daily, the Chinese government’s official newspaper, has also gathered citizens’ reactions to the arrest on the social media giant Weibo. “Are you that afraid of China’s rise? Is this really how the world’s most powerful country should act?” one user wrote. Another lamented, “Even if America was once great, but has since gone rogue.”

How might this affect the trade negotiations?

Despite the contentious arrest, Chinese officials still appear to be optimistic about the outcome of the negotiations. China’s Commerce Ministry said Thursday that it is confident that Trump and Xi will be able to reach an agreement before the truce ends.

However, reports suggest that Chinese officials are likely to believe that Meng was taken as a hostage in the trade war and are questioning whether the U.S. is negotiating in good faith. CNN reports that the Trump administration is seeking extradition of Meng, and that some officials believe she could be used as leverage. The Economist notes that the U.S. will have to maintain the brittle truce while also assuaging the aggravated Chinese and extracting concessions.

The U.S. had been scheduled on January 1 to raise tariffs from 10 percent to 25 percent on $200 billion of goods imported from China, a plan that Xi averted by reaching the truce at G20 summit. Trump has previously stated that he is willing to impose a 10 or 25 percent tariff on the rest of the $267 billion of Chinese imports if the negotiations do no turn out favorably for the U.S.

What are the economic ramifications of the arrest?

The stock market slumped on Thursday, with the Dow down 785 points in the morning.

Major suppliers for Huawei have seen particularly sharp downturns, as investors worry that their revenues will dip and that they may have to cut ties entirely with the Chinese tech giant. The semiconductor manufacturer Broadcom fell more than 5 percent during early trading, while the networking module maker NeoPhotonics dropped more than 20 percent.

This mirrors the plunges seen earlier in 2018 when the U.S. Department of Commerce prohibited companies from doing business with the Chinese telecom giant ZTE.

Because not much is yet known about the circumstances of Meng’s arrest and the details of the bilateral negotiations, it is difficult to determine the long-term impact that this arrest will have on Sino-U.S. relations.