The arrest of a top Chinese technology executive by Canadian authorities acting at the behest of the United States is threatening to upend the Trump administration’s efforts to sustain a trade truce with China.
The arrest of Sabrina Meng, the chief financial officer of China’s largest mobile phone marker, has been condemned by Chinese officials, who are calling for her immediate release. The U.S. has reportedly requested Meng be extradited to New York, where she would reportedly face federal charges of violating Iran sanctions.
Hu Xijin, the editor in chief of the Global Times, described the arrest as a “declaration of war” against China, according to the New York Times. The Global Times is a state-run newspaper whose views are thought to reflect the ruling communist party in China. Hu’s comments were made on Weibo, a Twitter-like service, the New York Times reported.
“Without any solid evidence, the Canadian and US governments trampled on international law by basically ‘kidnapping’ Chinese citizen Meng,” an official with the Chinese Ministry of Commerce said in a Global Times op-ed. “The China-US trade row could become a protracted war.”
The Global TImes also reported, in a news story, that Chinese experts view the arrest as an intentional effort to “heat up the ongoing trade war.”
Although Meng and Huawei are not well-known in the U.S., the executive and her company are extremely high profile in China. Precise analogies are hard to come by but U.S. observers are making comparisons to well-known American executives.
“This is like China arresting Steve Jobs’ son,” Art Cashin said on CNBC.
Others have compared it to China arresting Sheryl Sandberg, the chief operating officer of Facebook.
Meng is the daughter of the company’s founder, Ren Zhengfei, and has recently become his presumed successor. Ren is a former Chinese military official who founded the company more than 30 years ago. It has become China’s premier global brand and it central to its “Made in China 2025” plan to dominate high-tech manufacturing. The company has been making a push to become the world leader in 5G technology and met with strong resistance from U.S. officials.
Meng was arrested in Vancouver, Canada, on Sunday, and now faces extradition to the United States. The charges against Meng - the daughter of the telecoms company’s founder - remain unknown, but could relate to a possible violation of sanctions against Iran.
The Huawei executive’s arrest comes at a critical time for US-China relations. Both countries have been locked into a trade war for much of the year, and only agreed last weekend to restart discussions. President Trump has agreed to postpone planned tariff hikes on Chinese goods, while China has pledged to purchase a “very substantial” amount of American produce and curb the export of deadly opioid Fentanyl to the US in exchange.
Representatives from both countries now have just short of 90 days to negotiate, unless the timeframe is extended or a deal reached beforehand.
While stocks rallied on Monday, lingering uncertainty surrounding the precise details of the trade war truce have seen the Dow slump since.
Meng’s arrest could have a significant effect on markets and on US-China relations.
Huawei is one of the world’s largest telecoms companies, and is the world’s second-largest smartphone manufacturer behind Samsung. The company has been accused of using its devices to pass on information to the Chinese government, prompting the US Department of Defense to ban their sale on military bases.
Earlier this year, six top US intelligence chiefs voiced their concerns about Huawei phones to the Senate Intelligence Committee, with FBI Director Christopher Wray saying he was “deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.”
Top British and New Zealand telecom providers have banned Huawei from their 5G networks, as did the Australian government. All cited national security concerns in barring the Chinese firm from their next-generation networks.
Huawei, for its part, has consistently denied accusations of spying, and responded to the arrest of Meng by saying it complies with "all applicable laws and regulations” where it operates.
Beijing has called for Meng’s release, and the Chinese embassy in Canada said that her arrest “seriously harmed the human rights of the victim.” Meng, it said, was “not violating any American or Canadian law.”
Thursday’s stock drop also comes as fears of a global economic slowdown circulate. DoubleLine Capital CEO Jeffrey Gundlach told Reuters on Tuesday that the US economy is “poised to weaken.” Signals from the markets include the yield on three-year treasury bonds surpassing those on five-year bonds on Monday. This sign is usually interpreted by traders as an indicator of coming recession.
In Europe, Bloomberg reported Thursday that the European Central Bank is set to lower GDP forecasts, in light of arguments between Italy and Brussels and a slump in oil prices.
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