Archives

Canada arrests Huawei official

On the 1st of December, Meng Wanzhou was arrested by Canadian authorities in Vancouver. The chief financial officer of Huawei is facing risks of extradition to the US, as a result of a US Justice Department probe into her company’s violations of Iran sanctions.

Details about the probe and the arrest are still vague. Huawei, a Chinese tech-company, is known to have increased its presence in Iran and is reported to account for 32% of Android phones sold in the country, thus being the second mobile seller after Samsung. Being involved in the telecommunication industry, it is highly likely that the company has sold to Iran appliances subject to US secondary sanctions. Another Chinese tech-company has already been fined by the American government. In 2017, ZTE had to pay $1.2 billion for selling US-made hardware and software for Iran’s telecommunications infrastructure.

Chinese tech-companies are increasingly put under the scrutiny of American and European courts, as their international expansion is often viewed with suspicion. Indeed, dealing with highly sensitive technologies pertaining to sectors crucial for security and intelligence, such as telecommunications, companies like Huawei and ZTE have seen their expansion blocked by several legal measures. A few months ago, Australia banned the two companies from developing the country’s mobile infrastructure with 5G technology. The Australian government justified this ban by arguing that the companies were likely to be subject to extrajudicial directions from a foreign government, and that this presented a serious security risk for the country, to be avoided at all costs.

Meng Wenzhou is herself the daughter of Run Zengfei, Huawei’s CEO and founder. Not only having created the world’s largest telecoms equipment producer and second smartphone seller, Mr Run is also known to have been an engineer working for the People Liberation Army. His ties to the Chinese Communist Party have therefore never been denied and this has accentuated several governments’ fear that they could end up with a telecommunication infrastructure controlled by a foreign country, if giving market access to Chinese companies. China’s foreign ministry spokesman, Geng Shuang, stated that the US and Canada were yet to explain the arrest and extradition charges placed against Mrs Meng.

This event raises the likelihood that the trade truce resulting from the G20 could be scrapped as a result of heightening tensions. Recently, the American Secretary of State Mike Pompeo, declared that President Donald Trump was seeking to reform the international order by advancing “an open, just, transparent and free world of sovereign states”. The US top diplomat concurred that this new liberal order would serve to block “bad actors” such as Russia, Iran and China. Such words were not welcomed by Beijing, with Geng Shuang stating his surprise at Pompeo’s words considering that they did not accord with the spirit of the Sino-American meeting in Buenos Aires.

After a 2.5 hours meeting during the G20, it is believed that Donald Trump and Xi Jinping agreed to put a truce on their trade dispute. The Chinese have accepted to increase imports from the US while America has agreed on not imposing 25% tariffs on more than $250 billion worth of Chinese goods. This news was positively welcomed by markets and Chinese oil traders such as Unipec. Indeed, Reuters has reported that Unipec was interested in resuming oil imports from the US until March 2019, on which date Sino-American negotiations should lead to a permanent resolution to the trade dispute, if successful. China had cut its imports of American oil in October as a result of the trade dispute.

The recent frictions between Washington and Beijing show that many things yet remain to be agreed upon between the two global powers. China’s official Xinhua Press Agency and the White House’s statements on the trade truce have been divergent as each side has stressed the engagements of the other side without bringing up their own. Iran sanctions also represent another point of contention as China is likely willing to continue expanding its access to the attractive Iranian market. Despite an early cautious approach from China, which floated the idea of not importing Iranian crude anymore and decided to close its banking conduit to Iran, the country seems to now be more open about continuing trade with Iran. In November, it was handed a US sanctions waiver on 360,000 bpd of Iranian oil and it is reported that Bank of Kunlun -China’s financial conduit to Iran- is soon to resume activities with Iran, in addition to a new financial entity, yet to be named.

Observers of Sino-American relations should therefore not take the trade truce for granted.

Sources:

BBC, 23 August 2018, “Huawei and ZTE handed 5G network ban in Australia”

Financial Tribune, 14 January 2018, “Samsung, Huawei dominate 83% of Iran Android Phone market”

Financial Tribune, 28 November 2018, “China resuming banking ties with Iran”

Reuters, 6 December 2018, “China says Canada, US have not explained Huawei executive’s arrest”

Reuters, Meng Meng and Florence Tan, 5 December 2018, “China’s Unipec to buy US oil after Xi-Trump tariff truce”

Reuters, Robin Emmott, 4 December 2018, “Trump shaping new ‘liberal’ order to block Russia, China, Iran, says Pompeo”

The Verge, Shannon Liao, 5 December 2018, “Canada arrests top Huawei executive on suspicion of violating Iran sanctions”

 

Order a bespoke report

I’d like to order a bespoke report. Please send me more information.