What is Huawei, and why the arrest of its CFO matters

The arrest of a top Huawei executive has roiled the business world and ...

Posted: Dec 10, 2018 9:54 AM
Updated: Dec 10, 2018 9:54 AM

The arrest of a top Huawei executive has roiled the business world and threatens to derail the tenuous trade truce between the United States and China.

Meng Wanzhou, the Chinese tech company's chief financial officer, was detained in Vancouver on December 1 at the request of US authorities.

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She's accused by the United States of helping Huawei cover up violations of sanctions on Iran, according to Canadian prosecutors.

US lawmakers are condemning Huawei, which they say poses a national security threat to the United States. Chinese officials have called for Meng's release. An op-ed in the Chinese tabloid Global Times said the United States is just trying to stifle Huawei because it's a business competitor.

Experts are warning that what happens with Weng's case could have huge implications for the broader US-China relationship.

"This case is like a sharp tug on a loose thread that could be part of an unraveling of the relationship," said Scott Kennedy, an expert on the Chinese economy at the Center for Strategic & International Studies in Washington. "Both sides need to proceed with abundant caution and a clear sense of their long term interests."

Here's what you need to know.

What is Huawei?

Huawei is a Chinese tech company based in Shenzhen that sells smartphones and telecommunications equipment around the world. Earlier this year, it became the world's second-largest smartphone maker, behind Samsung, according to IDC. It sells more phones than Apple (AAPL).

As one of China's top champions in the tech sector, Huawei plays a key role in the country's ambitions to become a global tech superpower. The company has been racing to develop 5G technology and is central to China's plans to dominate the rollout of super-fast wireless networks.

But concerns that Huawei devices pose national security risks have seriously hurt its ability to grow abroad. Intelligence agencies in the United States have said American citizens shouldn't use Huawei phones, and US government agencies are banned from buying the company's equipment. Security concerns have caused problems in the United Kingdom. New Zealand and Australia have barred Huawei equipment from its 5G mobile networks.

The company says its equipment is trusted by customers in 170 countries. And it still performs well, reporting $47.4 billion in revenue for the first half of 2018. That's an increase of 15% compared to the same period last year.

Who is Meng Wanzhou?

Meng, who is also known as Sabrina Meng and Cathy Meng, is Huawei's chief financial officer and serves as the deputy chairwoman of Huawei's board. Notably, she's the daughter of Huawei's elusive founder, Ren Zhengfei.

Aside from a brief stint at China Construction Bank, the 46-year-old executive has spent her entire career at Huawei. Her brother, Meng Ping, also known as Ren Ping, works at a Huawei subsidiary, and there was speculation that they were being groomed for succession. The Huawei founder reportedly shot that down in a letter to employees in 2013, saying his children lacked the vision, character and ambition to lead the company.

What do we know about her arrest?

The United States claims that Meng covered up violations of sanctions on Iran, according to Canadian prosecutors.

Meng is believed to have helped Huawei circumvent US sanctions by telling financial institutions that a Huawei subsidiary was a separate company, prosecutors said at Meng's bail hearing on Friday.

The hearing provided the first detailed look into the reasons behind Meng's arrest. The judge, after listening to arguments from Meng's lawyer and prosecutors, did not rule on bail and said the hearing would resume Monday.

Previously, details on why Meng had been detained were limited due to a press ban. A judge had accepted Meng's request to bar both police and prosecutors from releasing information about the case prior to the hearing. The ban was lifted on Friday.

In a statement after Friday's hearing in Canada, Huawei said: "We will continue to follow the bail hearing on Monday. We have every confidence that the Canadian and US legal systems will reach the right conclusion."

The company has said it was "not aware of any wrongdoing by Ms. Meng" and that it "complies with all applicable laws and regulations where it operates."

Meng's attorney said she would not breach a court order because doing so would embarrass her personally, and would also humiliate her father, Huawei and China itself. He added that the case against Meng had not been fully laid out, even though the US signed off on her arrest warrant months ago.

"This isn't some last minute thing," he said.

Meng did everything she could to be transparent with Huawei's banking partners, and the company always worked to ensure its compliance with sanctions law, her lawyer continued.

How has China responded?

Meng's arrest has struck a nerve in China. The country's Ministry of Foreign Affairs on December 6 called for Meng to be released and for the United States and Canada to explain why she'd been detained. Two days later, China summoned the Canadian ambassador to address Meng's detention, calling her arrest "lawless, reasonless and ruthless."

State-owned newspaper the Global Times said in an editorial that the arrest shows Washington is "resorting to a despicable rogue's approach as it cannot stop Huawei's 5G advance in the market." It said the move "obviously goes against the consensus" reached by US President Donald Trump and Chinese President Xi Jinping on trade, who met over the weekend in Argentina.

What does this mean for the trade war?

The arrest could jeopardize an already precarious ceasefire in the conflict between the United States and China over trade and technology.

"This type of action will affect the atmosphere around the negotiations — making them less likely to bring a sustainable settlement," Eurasia Group political risk analysts said in a note to clients.

China's Commerce Ministry said Thursday it was confident a trade agreement with the United States could still be reached in time to hit a 90-day deadline set by Trump. But the Chinese government is clearly angry about Meng's arrest. A lot hinges on what Beijing and Washington do next.

A Trump administration official says there is a plan for the United States to seek Meng's extradition. The view among some officials is that she could be used as leverage with China in trade talks.

The White House says Trump and his close aides were not aware the US planned to place an extradition request for Meng ahead of his dinner with Xi on Saturday.

National security adviser John Bolton said in an interview with National Public Radio that he was aware before the dinner that an arrest was coming.

Bolton told NPR that Huawei has represented "enormous concerns for years" for the US over the theft of American intellectual property and forced technology transfers, two notable issues the administration is seeking to resolve as part of the trade negotiations.

White House trade adviser Peter Navarro told CNN's Jim Sciutto Friday that Huawei is a "bad actor." Although the timing of the arrest was unusual, the government's actions were "legitimate."

"Let's look at what the indictment says and let the DOJ do its thing," he said.

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