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Top Huawei executive arrested on U.S. request, clouding China trade truce

Stock MarketsDec 06, 2018 11:23AM ET
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© Reuters. Security officers guard the gate to the compound of the Huawei office in Beijing

By Julie Gordon and Christian Shepherd

VANCOUVER/BEIJING (Reuters) - The daughter of Huawei's founder, a top executive at the Chinese technology giant, was arrested in Canada and faces extradition to the United States, stirring up fears it could reignite a Sino-U.S. trade row and roiling global stock markets.

The arrest of Meng Wanzhou, 46, who is Huawei Technologies Co Ltd's chief financial officer, threatens to drive a wedge between the United States and China just days after they agreed a 90-day trade war truce in Argentina on Saturday - the day she was detained.

Meng's arrest, revealed late on Wednesday by Canadian authorities, is related to U.S. sanctions, a person familiar with the matter said. Reuters was unable to determine the precise nature of the possible violations.

People familiar with the matter told Reuters in April that U.S. authorities have been investigating 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.

The arrest and any potential sanctions on the world's no. 2 smartphone maker could have major repercussions on the global technology supply chain.

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

Huawei is not listed, but China's second-largest telecom equipment maker, ZTE Corp (HK:0763) (SZ:000063), sank nearly 6 percent in Hong Kong while most of the nearby national bourses lost at least 2 percent.

U.S. stocks also started lower, with the Dow Jones Industrial Average (DJI) down 1.16 percent, the S&P 500 (SPX) down 1.35 percent and the Nasdaq Composite (IXIC) down almost 2 percent at the opening bell.

Investors rushed to the safety of government debt, pushing the yield on the U.S. 10-year Treasury note (US10YT=RR) back below 2.9 percent to its lowest level in three months.

Huawei is already under intense scrutiny from Washington and other western governments over its ties to the Chinese government, driven by concerns it could be used by Beijing for spying. It has been locked out of the U.S. and some other markets for telecom gear. Huawei has repeatedly insisted Beijing has no influence over it.

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 Buenos Aires on Dec. 1 at the G20 summit.

Huawei, which generated $93 billion in revenue last year, confirmed the arrest. "The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng," it said in a statement.

She was detained while transferring flights in Canada, it added.

Chinese foreign ministry spokesman Geng Shuang told a daily briefing on Thursday that China had asked Canada and the United States for an explanation of Meng's arrest, but they have “not provided any clarification".

The Chinese consulate in Vancouver has been providing her assistance, he added, declining further comment. On Wednesday, China's embassy in Canada said it resolutely opposed the arrest and called for her 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.

'EXTREMELY SHOCKING'

Lu Xiang, an expert on China-U.S. relations at the state-backed Chinese Academy of Social Sciences, called Meng's arrest “extremely shocking.”

"If someone from the United States is hoping to use threats to an individual’s personal safety in order to add weight in the talks, then they have most certainly miscalculated," he said.

Arthur Kroeber, founder of Gavekal Dragonomics, said Beijing was unlikely to retaliate against the U.S. business community in China because its interests have partly overlapped with China’s in the trade war, giving Beijing some leverage.

Jia Wenshan, a professor at Chapman University in California, said the arrest "runs a huge risk of derailing the U.S.-China trade talks."

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

The probe of Huawei is similar to one that threatened the survival of China's ZTE Corp (HK:0763) (SZ:000063), which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran in efforts to curb Tehran's missile and nuclear programs.

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

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

News of the arrest came the same day Britain's BT Group (L:BT) 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.

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 used the English names Cathy and Sabrina, served on the board of Skycom between February 2008 and April 2009, according to Skycom records and several other past and present Skycom directors appear to have connections to Huawei.

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."

Top Huawei executive arrested on U.S. request, clouding China trade truce
 

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Anthony Anthony
Anthony Anthony Dec 06, 2018 12:07PM ET
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in return, China should arrest fruit phone's ceo
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Dustin Aaronson
Dustin Aaronson Dec 06, 2018 3:52AM ET
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Reuters - The most blatant shill in western media. According to them, the fact that she's the founder's daughter is the headline.. not that she's the CFO responsible for the tech transfer to Iran. Look at all Reuters articles, and admire how they frame their headlines and infuse their liberal bias into EVERY SINGLE ONE OF THEM.
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4 1
Carl Hunt
Carl Hunt Dec 06, 2018 2:29AM ET
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Tarrif man out smarted the smartest again..
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2 1
Jeff B
Jeff B Dec 06, 2018 2:18AM ET
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the trade talks we're never real,just part of Trump's games he plays
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2 1
Alvin Tostig
Alvin Tostig Dec 05, 2018 10:12PM ET
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Huawei phones are awesome for the price, hopefully I can pick one up cheaper tomorrow. Tariff Man strikes again!
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Jeff B
Jeff B Dec 05, 2018 10:12PM ET
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the us govt will probably seize all of their phones, they are a security Hazzard
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Sanjeev Kumar Boyana
Sanjeev Kumar Boyana Dec 05, 2018 9:02PM ET
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Huawei goes to any extent to win orders. Not a professional Organization. Having been in IT for more than 23 years, I can say their Products are not effective compared to other products like HP or Dell or IBM etc. Little known to us, Canada taking such a decision might have a major reason. Never undermine decision at Nation level. Since world watches such controversial news lines, Canada might have full proofs of wrong doing. Ask Huawei employees they will tell you that they offer bigger value gifts to corporate employees of their target clients. especially gain clients insights.It is not ethical or professional way to win orders or to gain understandings of internal requirements of clients. I wish Canada exposes fully, so that current Huawei clients understand their professional handling patterns and exit opting Huawei Services and Products in the future. Cheap product never come with Quality.
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8 12
Chris Sundo
Chris Sundo Dec 05, 2018 8:55PM ET
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"The handset and telecommunications equipment maker said it complies with all applicable export control and sanctions laws and U.S. and other regulations." ..The problem with ANY criminals and that includes terrorists and communists, is that they lie through their teeth with a straight face. Can you make a contract with a ******and communist? Therefore these people are not trustworthy in ANY way. And watch how they abuse the earth and the world's natural resources. We are all interconnected, but China is grossly negligent from a macro and micro perspective. ..So why is the West in China and doing business with terrorists?.Alternatives must be found.
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John Lenkiewicz
linkster Dec 05, 2018 6:17PM ET
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How can she be guilty of anything? Those sanctions were applied arbitrarily and without due process. It would be like the president accusing a private citizen of a crime for disagreeing with his opinion on something.
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Thomas Morrow III
HesAlive Dec 05, 2018 6:17PM ET
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She isn't guilty as of now. She's accused of violating "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."
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